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"Behind every great fortune lies a great crime." - Balzac

31.12.08

Suicide is an Exit Strategy for Investing

CATEGORY: Madoff Ponzi, Investments, Suicide

DIVISION: Modern Evil Investments

COMMENT: Just a reminder to all white-collar criminals that its OK to snuff it when you're about to get busted. French franc filcher René-Thierry Magon de la Villehuchet and late funder of the Madoff Ponzi scheme did just that a week ago when his pyramid-built investments vanished. But please, do it with some style - on a yacht in the Mediterranean or in a mansion library with a candlestick.


















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The Economist

A WEEK after Bernard Madoff’s vast alleged Ponzi scheme came to light in mid-December, a thief made off with a $10,000 copper statue from his Florida estate. Since then, dozens of Madoff-related items have appeared for sale on eBay, a website, including a disaster-recovery kit for employees of his securities firm and opera glasses emblazoned with its logo.

That a few plucky souls are profiting from Wall Street’s biggest fraud will be scant consolation to the hapless hordes of charities, foundations, banks and rich individuals who fell for Mr. Madoff’s charms, and whose declared losses now top $30 billion. An embarrassingly large number of the victims were supposed to have been highly sophisticated. Fresh reports put losses for customers of Credit Suisse, for instance, at up to SFr1 billion ($956m). For some of those who led clients to the slaughter, the pain has proven too much. RenĂ©-Thierry Magon de la Villehuchet, an aristocratic Frenchman who had parked $1.5 billion with Mr Madoff, most of it from wealthy Europeans, was found dead in his office on December 23rd in an apparent suicide, his wrists slit using a boxcutter.

Mr Villehuchet’s firm, Access International, was part of a motley network of “feeder funds” that funnelled many or all of their assets to Mr Madoff. The biggest had no problem attracting clients, who were comforted by the gold-plated names behind them. Banco Santander, for instance, helped to suck in billions from wealthy Spaniards and Latin Americans.

Investigators are looking into what, if anything, these middlemen knew about the deception, and what they told clients about their links to Mr Madoff. Fairfield Greenwich, an investment firm that sent more than $7 billion his way, had disclosed that it considered his services “essential”. Others were coyer. In a lawsuit, New York Law School contends that it would never have invested $3m with Ascot Partners had it known that the fund was charging hefty fees merely to stick all its eggs in one basket. Some were clearly duped along with their clients: Mr Villehuchet lost a good chunk of his personal wealth. The funds’ auditors are also under fire. KPMG has been named as a defendant in a suit against Tremont, another manager.

Regulators, too, face awkward questions. The Securities and Exchange Commission (SEC) gave short shrift to those who suspected him of wrongdoing—including Harry Markopolos, an erstwhile rival who in 2005 sent the commission a 19-page analysis entitled “The world’s largest hedge fund is a fraud”. The report listed 29 “red flags” that, taken together, strongly suggested the Madoff operation’s returns were either fictitious or down to front-running (trading for one’s own account ahead of filling client orders).

Explaining its failures is a task that will fall to the SEC’s incoming chairwoman, Mary Schapiro. But the commission can partially redeem itself by quickly getting to the bottom of some unanswered questions. Who, apart from Mr Madoff, was party to the scam? When did it start? And how much money is left? Much of the $50 billion that he has confessed to losing was phantom profit that only existed on customers’ account statements. But that fact, like the art theft and the eBay sales, provides little comfort. Real or not, it was money they thought was theirs.