Madoff’s Ponzi Scheme

Apparently, there were those who raised concerns or were otherwise avoided the lure of easy money presented by Madoff’s Hedge Fund Ponzi scheme:

“Jake Walthour, a principal at the hedge fund consulting firm Aksia LLC, said his firm was hired to investigate Madoff’s business dealings by a potential investor several years ago.The probe raised several red flags, he said. Madoff’s returns were “abnormally smooth” from month to month and had none of the volatility usually associated with stock investments. It seemed impossible to replicate his investment strategy or verify his track record.  Madoff claimed to be moving as much as $13 billion in and out of the market every month but “no one on the street could verify it or even see his footprints,” Walthour said. “That organization was incredibly secretive.” 

He only issued simple paper reports to investors, not detailed electronic data streams that indicate how those investments are doing. There were few if any outsiders involved in his business. His auditor was a tiny accounting firm in Rockland County that no one had ever heard of before. “We decided there are several scenarios here, one of which is, this could be a Ponzi scheme,” Walthour said. “None of our clients invested.”

One of the oldest rules involving money: If it sounds too good to be true, it probably is.

Posted in

Dave in EH


  1. Dimsdale on December 16, 2008 at 6:55 am

    I think it is the second law of thermodynamics which essentially states that "there is no free lunch."

    And a old Russian proverb (well, I heard it from a Russian, anyway…): "trust but verify."

  2. Wayne SW on December 16, 2008 at 11:17 am

    Madoff was merely emulating the existing Social Security System……using money donated today to give to those who donated yesterday.

    He is only guilty of "raiding" the assets and not having a qualified "Lock Box."

    Most certainly, the U.S. Treasury will make whole the most qualified victims; i.e., pension funds, retirement accounts, political donors, charitable trusts, city, town and state governments, George Soros, Michael Bloomberg, Warren Buffet, the Kennedys, Vanderbilts, etc, etc, etc.

  3. Wyndeward on December 16, 2008 at 12:39 pm

    The part that bothers me the most is that the red flags were flying high and bright — a weak audit function, family in all the positions of power, an unnaturally smooth performance curve… this *should* have fallen apart a long time ago.

  4. russ on December 17, 2008 at 5:59 am

    should have put the money in gold ect
    that way if and when things get bad
    you have no food to eat but you!ll
    have something shiny

  5. Wyndeward on December 17, 2008 at 11:10 am

    Troubled times are a time to invest in depressed blue chip stocks, guns, gold and a few other things.

    Oddly enough, this crook made most of his political donations to Democrats.

The website's content and articles were migrated to a new framework in October 2023. You may see [shortcodes in brackets] that do not make any sense. Please ignore that stuff. We may fix it at some point, but we do not have the time now.

You'll also note comments migrated over may have misplaced question marks and missing spaces. All comments were migrated, but trackbacks may not show.

The site is not broken.