If you cheat, you can make obscene profits.
If everything goes to smash, the feds bail you out, and you still get the million dollar bonus.
Responsible, honest investing? Paying attention to fiduciary responsibility?? Man, that game is strictly for suckahs!
According to one report "Madoff claimed to be moving as much as $13 billion in and out of the market every month"
That's not exactly peanuts, but IWM is an ETIF (Exchange Traded Index Fund) so nobody is watching its internal workings like they would a regular, for real, company. Moving $39 billion in one day would certainly give a wheeler dealer like Madoff cover for whatever he wanted.
I think Madoff took advantage of a half dozen ETIFs to simply swap stuff back and forth on a fairly regular basis to "trick" potential investors into thinking he was constantly buying low and selling high.
Parrondo's paradox may have played a part in this since he'd need to win something in order to pay brokerage and exchange fees. If so, it wasn't winning him enough to make the profits he'd anticipated.
It won't surprise me a bit to see IWM and NY listed in his preferred stocks list.