Skip to comments.Wall Street ‘red light’ on Madoff (but didn't rat him out)
Posted on 01/04/2009 7:09:56 PM PST by TigerLikesRooster
Wall Street red light on Madoff
By Henny Sender in New York
Published: January 4 2009 23:31 | Last updated: January 4 2009 23:31
Large Wall Street firms privately harboured suspicions about Bernard Madoffs investment business, in some cases steering clients away from dealing with him, but were reluctant to share their concerns with regulators, according to US bankers.
Banks were sceptical that Mr Madoff could deliver the consistently high returns that he reported, and they were also put off by a lack of transparency at his investment firm. For these reasons, big Wall Street firms are notably absent from the long list of victims of Mr Madoffs alleged Ponzi scheme.
Fabio Savoldelli, chief investment officer of Merrill Lynch Investment Management prior to its 2006 merger with BlackRock, sounded the warning internally years ago. One of Merrills financial advisers, who deals with clients worth tens of millions of dollars, recalled Mr Savoldellis suspicions of Mr Madoffs returns eight years ago.
Two years ago, an internal Merrill report drawn up in connection with Merrills European fund of funds group, concluded the group should not deal with Mr Madoff, the financial adviser said. We had a red light on doing business with him. There was no transparency.
However, a fear of alienating clients who had invested with Mr Madoff prevented many Merrill executives from voicing their concerns too loudly. You sell your product but you dont bad-mouth others. You dont say bad things about Bernie Madoff. That is where you cross the line, one former Merrill staffer recalled being told by a senior executive.
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It is a matter of public record that the SEC was sent a detailed study on the likelihood that Madoff was running a "Ponzi scheme," yet they chose to do nothing.
As for the first point, it is totally up to them to keep quiet about Madoff's problem. However, this opens the possibility that there are whole lot of crooks they knew but kept quiet about.
We already know that these institutions are not good apples. There are other bad apples not outted yet but whom they know about. The whole place was pretty sinister, Byzantine web of deception and fraud. Nothing was what it is supposed to be. Transparency was and is far from their concern.
They were free to make their decision, but their decision are now poisoning the credibility of the whole industry.
The sipc insurance absolutely does NOT cover this type of loss. That insurance has narrow applicability pertaining to in house securities that were stolen. His scam was not security based and the taxpayers are NOT going to make up a dime for these greedy people that should have known better than this PONZI. Any due diligence saw fraud all over the horizon. NO BAIL OUT!!!!!
What, Wall Street? I disagree. There are certainly elements of that -- as there are in any business, but it's innaccurate to make the assertion all inclusive.
Agreed, what is really going on is that in order for the pool of investors to be as large as possible, everyone in the Wall Street game understands that tearing each other down just results in every looking bad, reducing reputation.
Then they are as responsible as he is.
In my small end of the economy, knowing where the land mines and bad actors are located is my competitive edge. That is the foundation of trust and repeat business.
“Knowing” something may not necessarily rise to the level of documentation needed to send someone to jail for fraud.
Red-lining a neighborhood used to be a common practice among lenders. Then, red-lining was declared illegal. The neighborhood did not get any better and major losses were incurred.
Bottom-line know your territory and know your customer.
Yes but if the started bad mouthing him they'd be taking on aggravation for which they weren't equipped. These Wall Street firms aren't investigators and they aren't indemnified for defamation.
And as far as going to the authorities, that would be like trusting Elliot Spitzer (or Bernie's son-in-law with the SEC.)
If I were a bank, I think I'd just keep my nose out of it.
Then again every con is built on the same suppositions: too good to be true and something for nothing. Madoff offered both. If we start bailing out the gullible and weak, there will be no end.