Monday, May 18, 2009

Madoff Victims Complicit in Fraud?

What's better than a ponzi scheme? How about an interactive ponzi scheme? According to the Wall Street Journal, some of Madoff's investors are under investigation for being complicit in the monumental fraud. Jeffrey Picower, Stanley Chais, and Carl Shapiro are three of the eight investors that are being accused, among other things, of instructing Mr. Madoff of the returns they wished to achieve for their investments. If only you could've called your broker last year and told him that you wanted a positive 14% return instead of the 40% loss, your financial situation would be so much better right now. Curiously, the accused Madoff investors weren't even happy with the boring low double digit returns that Mr. Madoff was fabricating for his other investors. No, they had far more ambitious financial goals, with some asking and receiving returns of 300% to 950% in a single year. Particularly vexing for Mr. Madoff's other victims may be the fact that Mr. Picower and Mr. Chais, who claim to be among Mr. Madoff's hardest hit investors, withdrew "profits" of $6 billion above and beyond the principal they deposited for themselves, their families and their foundations.

Naturally, the accused are denying the allegations, through their various legal representatives. But one has to wonder why Mr. Chais's accounts had average annual returns of 40% when Mr. Madoff's other investors were receiving more boring returns of 12% or so per annum. Furthermore, Mr. Chais allegedly requested fictitious losses to offset the fictitous gains for tax purposes. If you're going to participate in a ponzi scheme, at least have the decency to pay your damn taxes. Mr. Picower had several accounts with returns of 100% in 14 instances and some that reached 950%. Nothing fishy here.

At least Mr. Madoff was a meticulous crook, having kept records of much of his correspondence with his loyal ponzi investors. Evidence exists that these clients were requesting specific returns that Mr. Madoff was granting. The ponzi plot thickens.

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