Breaking Down Bernie Madoff

Im taking a flyer here, but if they were to put me on the case, the first people I would talk to are the software developers.  Somewhere along the line there was a software program written or modified that allowed Madoff to enter the numbers he made up, who they were paying out cash to and would print the checks and  statements.  Its very unlikely that it was off the shelf software because it would be impossible for all the numbers to balance, or he would need to use suspense type of accounts that would raise red flags for even the smallest of accounting firms.

Maybe I have missed it, but I have yet to see an article written or any commentary about the software Madoff Investments used or read about any programmers that have come forward that worked for him. Someone had to outline the details of what they wanted the software to do, and in a scam of this size, could it be anyone but Madoff himself ? Someone had to take that information and either create or modify software to keep the whole mess running smoothly for him.

Find the programmers who wrote the software and you will find out how the whole thing worked.

77 thoughts on “Breaking Down Bernie Madoff

  1. Pingback: Madoff Money « DanPhelan’s Risky Blogness

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    Comment by Beverly Dowdy -

  3. http://www.2uaj.com

    Comment by chenmeiying -

  4. sj, sorry about seeing this late if you hapepn to come back and check this occasionally.

    The list was interesting. Some I didn’t see any details on because not
    a member of linkedin but those I saw were all networking except for one
    programmer. He’s a former consulatnt at GALE where the head of trading
    technology at Madoff was CEO in 2001. So basically everything was 19th
    floor as far as I can tell.

    One guy there was in networking there since 1993 though. That would be
    before the 17th floor was turned into Madoff’s advisory operation. Before
    that it was called the Cage and archived records.

    He would know a lot. He’s been gone since 2005. I think it said he is
    an HP network specialist now.

    Thanks for the list.

    rd

    Comment by ralphdaugherty -

  5. It doesnt matter what platform or software he used to deceive his
    unsuspecting clients. He still did it, he is guilty and apparently
    not as smart as many say he is.

    Comment by JAZD Tech -

  6. Most hedge funds use an “Allocation” system to produce statements
    for investors. They just take in some profit and loss from an
    “accounting” system and allocate them to the Limited Partners. There
    is no need for there to be faulty software, you just feed bad data
    into the allocation system and you get bad statements. GIGO.

    Comment by Chilipepr -

  7. There is just no way he did this by himself

    Comment by Anonymous -

  8. How come they have not used the ricco statutes this is realy organised crime

    Comment by Justdriving -

  9. Dear Mr.Cuban,I know you are a very busy man,but if i could pick your brain for 2 minutes or even a quick email,i would greatly appriciate it.
    Thank You,
    Dave
    P.S.Please dont hold it against me that i am a Knicks fan,its hard enough.

    Comment by David -

  10. He didn’t need any fancy software because he didn’t have to break down the returns for people. It isn’t like a 401k or an IRA, as Madoff had no obligation to disclose any particulars to investors. I suspect there was no software. He wrote the stuff by hand and had someone fill in the blanks. This is why hedge funds as currently operated are going the way of dinosaurs.

    Comment by robato kun -

  11. Mark-

    Funny commercial btw.

    Excellent thought about the software developer.
    Even if madoff didn’t have developers… couldn’t he just
    morph the graphs? maybe his sons helped with that??? How hard would it be for him to just
    fudge charts?

    We actually had a similar thing happen like that in my neck of the
    woods.

    $50 Million Ponzai Scheme in small-town Idaho Falls, ID.

    http://www.foxnews.com/story/0,2933,480750,00.html

    Comment by Hyrum -

  12. Here are the identities of some of those with software experienced who either worked or consulted for Madoff over these many years in some instances.

    http://www.linkedin.com/pub/0/562/55a

    http://www.linkedin.com/in/merlinmm

    http://www.linkedin.com/pub/3/3b4/641

    http://www.linkedin.com/in/adamlanier

    http://www.linkedin.com/pub/b/b97/4a4

    http://www.linkedin.com/pub/0/836/883

    Comment by SJ -

  13. I think he is just the tip of the ice berg when it comes to hedge fund managers out there. This scheme is no doubt being done by many others!

    Comment by Me -

  14. Ultimately, I can’t help but wonder… Was Madoff and whatever system
    he used actually so “good” to keep getting away with it for so many
    years, or does luck play a big role in there somewhere?

    Every now and then, someone does actually keep rolling the dice just
    the right way time after time after time. No skill; just rolls that
    beat all the odds. And sometimes we hear about kids who were abused
    for years, even though social workers visited their homes regularly,
    and teachers or relatives phoned authorities to express concerns.
    Somehow, the parents would just keep getting away with it, even though
    they weren’t sophisticated or “good at it.” They were just outliers
    who beat the odds.

    While Madoff clearly had built a system that worked for him and hurt
    so many others, time may show that he was at least as lucky as he was
    brilliant at what he did.

    Comment by lornepike -

  15. Mr. Cuban,

    Glad I found your blogs and have enjoyed your insightful views on
    many different issues. I have been around the block a few times
    myself and voiced my opinion a time or two. I prefer to be blunt
    and to the point so that is why I have contacted you. I would like to
    submit a script or two to you and see if there might be interest in
    investing in them on your part. Like I said I’m blunt and to the
    point. After all I live in America and I don’t care how bad it gets
    we will always find opportunity in the greatest nation on the planet.
    Besides in good times or bad we all need to be entertained. That is
    when real investments are made in real projects.

    Joe

    Comment by Joe -

  16. Bernie Madoff was engaged in a ponzi scheme but not larger than the ponzi scheme perpetrated by the leaders of the largest wall street firms. The leaders of Lehman, Merrill Lynch etc.. basically took peoples money and made believe that these mortgage positions were profitable and paid themselves large bonuses and got out of dodge while we hold the bag.

    Comment by College Textbooks -

  17. Madoff probably hired the developers directly so that (A) They would not talk and (B) They would not sell the software to someone else to make them rich. Madoff is no developer so yes those on his payroll who helped him should be fined/jailed because you cannot design software out of the blue. Someone must specifically tell you what it has to do or what the output should be. QuickBooks and TurboTax cannot be molded to fit these parameters.

    The FBI is using the “Big Fish” strategy and that is why Madoff is free. They don’t waste time going after the “guppies” because they know once the Big Fish gets caught, the guppies will be caught in the same net. Once Madoff makes his plea deal, then you will see the arrests for co-conspirators.

    Comment by econ365 -

  18. I would like to know where does the actual money go, when these guys rip us off. Is there some kind of money trail, do people exchange money or is it just electronic, is it the same as stock it just devalue, even so for instance if you bought 10,000.00 worth of stock say six months ago and now its worth 4000.00, where is the remaining 6000.00, did it change hands, did it go into someones pocket, you may not be the person to ask, if so I apolize for that, however if you do please let me know. If we could get the answer to that maybe we could solve alot in the investigations. One more thing, how can these people be so greedy, they can’t take it with them, they already own anything material that they can ever want, you are fine and respected citizen, and maybe slay a lot of babes. So what is the motivation for even more greed, very confusing. Thank You.

    Comment by Carlos Mosley -

  19. Speaking as a programmer I may be biased, but don’t blame the software!
    The oldest rule in computing is Garbage In, Garbage Out! A perfectly
    well-written system can accurately report tremendous gains as long
    as someone’s entering ficticious data. I’d be more interested in
    who was supposedly auditing all this activity? (We programmers have
    an innate dislike of auditors!) Who signed off on the accuracy of
    this reporting – that’s the co-conspirator that should be being
    interrogated, not some innocent code jockey or the authors of
    Quickbooks!

    Comment by Eastern D -

  20. This is a very scary precedent.

    I am starting to believe that investing with some firms is like
    playing a Casino where the cards are marked. This is just another
    example of not being able to trust anyone from the top down. The fact
    the “Securities and Exchange Commission gave Madoff multiple free
    passes to sidestep closer inspection is even more troubling
    for any investor looking to put a hard-earned buck into this system.”

    This has ruined lives of the people who trusted the SEC and the firm.
    This is a massacre of 50 billion. My lord people’s savings have been
    devastated. The rich and the individual investor he spared knowone.

    I feel there pain and can’t believe this can happen. To have people
    working for him, “generals—many close friends who were unlicensed to
    trade securities—down the line must have been given strict commands
    to avoid using the Madoff name.” How Can This Happen? Where is the
    justice!

    Thanks for bringing this article to my attention,

    I will have to do some soul searching now and pray that the
    people that lost all there lifesavings to this fraud don’t
    jump out of a building.

    -Mark Farwell

    Comment by M Farwell -

  21. This is a very scary precedent.

    I am starting to believe that investing with some firms is like
    playing a Casino where the cards are marked. This is just another
    example of not being able to trust anyone from the top down. The fact
    the “Securities and Exchange Commission gave Madoff multiple free
    passes to sidestep closer inspection is even more troubling
    for any investor looking to put a hard-earned buck into this system.”

    This has ruined lives of the people who trusted the SEC and the firm.
    This is a massacre of 50 billion. My lord people’s savings have been
    devastated. The rich and the individual investor he spared knowone.

    I feel there pain and can’t believe this can happen. To have people
    working for him, “generals—many close friends who were unlicensed to
    trade securities—down the line must have been given strict commands
    to avoid using the Madoff name.” How Can This Happen? Where is the
    justice!

    Thanks for bringing this article to my attention,

    I will have to do some soul searching now and pray that the
    people that lost all there lifesavings to this fraud don’t
    jump out of a building.

    -Mark Farwell

    Comment by Mark Farwel -

  22. A foremost red flag was that Madoff apparently was not even making the trades of securities shown on the monthly statements.
    When already suspicious financial experts checked trades shown on Madoff’s statements against actual trades all over the country on the given day(s) — which experts knew could be done and knew how to do — they could find no record of Madoff’s supposed trades. The trades shown on the monthly statements were fictitious, a fact which still seems unbelievable a month after the scandal broke. Experts who checked this got out of Madoff. Wouldn’t you get out if you learned that trades shown on your monthly statement were (amazingly enough) fictitious, had not been made, were purely inventions? The expert SEC apparently checked out none of this, however, so the average investor was again left completely in the dark.

    http://www.counterpunch.org/velvel01212009.html

    Comment by Kevin McCarthy -

  23. I don’t think Bernie used exotic software. He probably just used MS Word to tell his clients how they were doing.

    Comment by Kevin McCarthy -

  24. Pingback: Top Posts « WordPress.com

  25. Same has to be true for these mortgage-backed securities at the heart of the banking meltdown. I keep hearing that these things are supposedly “too complex” for anyone to deconstruct them in order to unwind these supposedly “toxic” investments. Really? All these super-geniuses on Wall Street, and no one’s smart enough to look at these financial models and figure out who bought what part of what MBS? Seems to me, using Mark’s point, the software ought to be able to track who ended up holding the toxic part of some Las Vegas or Southern California homeowner’s subprime mortgage. It’s called forensic accounting, isn’t it?

    Comment by GH -

  26. Pingback: SLAM ONLINE | » Links: The Dirty 30

  27. The more appropriate investigation would be the individuals under BM’s supervision that were running the back office. I’ve run/managed a few back-offices… you’d be surprised how unsophisticated the software is.

    Comment by Sam -

  28. Accounting software is a commodity. The guys who wrote whatever off-the-shelf accounting package are not responsible for the management of the scheme. Going down this route would be a red herring.

    Comment by Sam -

  29. WOW – What I have found, Madoff used 10 year old software to print his monthly and annual reports (I am still working on the name), which he sent to customers. It is now thought to be highly likely that he NEVER implemented a single real transaction, which is probably how he avoiding review. No trades to review.

    With 10 year old software I find it highly unlikely that anything automated was setup. Someone had to sit down every month, enter data, and make sure the reports lied as best as possible (the reports were often blatantly wrong). Only time and investigation will determine if he did it on his own or with help.

    Mark, be sure to send a nice thank you letter to the accounting firms that you do business with.

    Comment by Adam -

  30. I’ll do some research and see if I can get real answers,
    My hypothsis:
    Madoff did not make too complicated a system and instead relied on social networking to corrupt the checks and balances built into the system. Also, he carefully never took too much advantage at one time to avoid raising too many flags.

    Comment by Adam -

  31. Foolish – Software still requires correct and Ethical entry of data.

    Also, Madoff scammed people for YEARS-> From the NY Times op-ed by MICHAEL LEWIS and DAVID EINHORN;

    ‘Harry Markopolos. Mr. Markopolos is the former investment officer with Rampart Investment Management in Boston who, for nine years, tried to explain to the Securities and Exchange Commission that Bernard L. Madoff couldn’t be anything other than a fraud. ‘…
    Harry wrote to the SEC wrote in 2005 -‘In the “Highly Likely” scenario, wrote Mr. Markopolos, “Madoff Securities is the world’s largest Ponzi Scheme.” Which, as we now know, it was.’

    Comment by Adam -

  32. Begs the question of is it against the law to knowingly build something that will be used for illegal purposes, when there is no other legal reason for it.

    Bongs come to mind, but I guess they are “water pipes”.

    Comment by PSC -

  33. Pingback: Links for 20_Jan_09 « The Centre for Investigative Journalism Blog

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  35. It had to be a team of programmers. Seriously skilled programmers too.
    There were phony statements, financial statements and much more.
    This is not rivial programming, and I am a database programmer.

    A former fraud examiner left a long comment on my blog that I
    turned into a post. He discusses in detail what you’re saying here.

    http://polizeros.com/2009/01/16/madoff-money-laundering-and-cooked-books/

    Comment by Bob Morris -

  36. You have zeroed in on a crucial person in the affair. Just the physical act of sending out so many statements, along with checks, is not something one can imagine Mr. M. doing alone each month. Much more to be disclosed.

    Comment by Easan -

  37. Pingback: Tycoons of the Day : ***-o-Meter Reading: 409 SPs

  38. One of the things you have to remember is this was taking place as long as 10
    years ago. I’m sure he was using something like excel or a similar spreadsheet
    and exporting the results to PowerPoint for graphical representation. The math
    on this one wasn’t all that exotic, just large. I’m positive he could have kept
    track of it using an apple II and the spreadsheet that was available back in the
    1980s.

    Comment by opusthepoet -

  39. Considering the multiple, similar hedge fund cases that have taken place
    over the last several years, but on a smaller scale than Madoff,
    the accounting and spreadsheet software is obviously not difficult to come up with.
    This is what happens when funds are unregulated and operate without investor
    protections or oversight. There are more that will be exposed, and more
    investors will wake up one morning and realize that they are indigent.

    Comment by Anonymous -

  40. If it’s true and Mr. Madoff developed his own accounting software, couldn’t the US Government simply reverse engineer the code? Or wouldn’t it be possible that the programming code exists on one of Mr. Madoff’s servers? They would have had to build the code somehow, right? Again, you don’t need to finger the programmer here to understand how the software operated, assuming you have a copy of the program Mr. Madoff was using. I think you’re (Mr. Cuban) complicating the issue by trying to find the actual developer, though I’d assume that person would be one of interest for the government.

    Cheers.

    Comment by Maggie -

  41. Mark, you are on to something: same thing I noticed two days ago.

    What is a trading system but a huge game program? Run it in simulation mode, and voila, you’ve got Madoff. You don’t need separate software, you just run a normal trading program in emjlation mode.

    The proof? He apparently NEVER DID A REAL TRANSACTION.

    Check out my posts of two days ago:

    Charles H. Green at

    http://trustedadvisor.com/trustmatters/483/Madoff–Investment-Fund–or-Virtual-Reality-Game

    Or on the Huffington Post version at

    http://www.huffingtonpost.com/charles-h-green/madoff-investment-fund-or_b_158788.html

    Both posts dated January 17.

    Comment by Charles H. Green -

  42. Very interesting perspective here. If the software developers are involved as well should they go to jail too? On the otherhand software may leave too much of a paper trail and this guy was doing it the old fashioned way.

    Here is another post I think is really interesting on Bernie… http://therealwolfofwallstreet.com/the-abnormal-psychology-of-the-bernie-madoff-scandal/

    Go IU!!!

    Comment by Stephanie -

  43. Very interesting point but I think this is assuming programmers understand business. In my experience a programmer that truly understands business is a RARE gem.

    Comment by Mark Myers -

  44. Hi Mark,

    Before I get to the point of your posting, Dalembert’s block on Nowitzki at the end of the game absolutely was a goal tend, and I’m from Philadelphia. Nice money shot by Dirk to get the “W”.

    Back to Madoff. As someone who has worked in IT for over 25 years, including software design and manual writing, I very strongly suspect that a lot of his entries were pre-calculated and pre-fudged in Excel so you can’t assume that the backoffice software the investigators will break down will show much. Also, he was probably using a vertical market package which would not allow him to do anything off the wall.

    Think about it. No matter how less than brilliant his auditors were, if something really screwy was going on it would have been discovered. By pre-calculating everything it all appeared to be in perfect order. Now the real question is, which computer(s) were his pre-calculations on and do those hard drives still exist. We both know if the machines are still intact the investigators will have the software to fish out the sheets wehere the real dirty work was done.

    Comment by Robb Auspitz -

  45. I had heard that Peter Madoff had designed the software program for the
    trading floor.

    Comment by Sherry -

  46. Mark,
    As a developer, I couldn’t agree more. Process is enforced by software,
    and with numbers this large, there had to be some complex software
    to keep it all running. Good call!

    Comment by JB -

  47. Mark hit the nail on the head and it’s precisely what I have said from day 1. If you were to see the complexity and depth of monthy paperwork from Madoff, you would understand that he used a very complex program that automatically found the appropriate price for THAT DAY for THAT STOCK and then credited your account for the number of days (in dividends) that it was supposed to be in your account. Then, the dividend and profit numbers were submitted to the IRS by Madoff. This is a VERY ssophisticated piece of software and someone worked a long time to make all the numbers jive with each other.

    Comment by Radiohead -

  48. None of the above. He wasn’t using modern software at all:

    “Madoff’s accounts were only perfunctorily audited, and his statements were printed with a dot-matrix printer on lightweight copier paper.”

    Source: http://www.washingtonpost.com/wp-dyn/content/story/2008/12/19/ST2008121903128.html

    Comment by Zach Fuchs -

  49. They looked like they were produced from a high tech back office in 1975!!!

    Comment by steve -

  50. sounds logical but have you seen the statements he was providing to clients?

    Comment by steve -

  51. Everyone keeps saying they can’t believe a 70yr old man could do this. Remember he started this probably when he was 30, so could a 30-40yr old guy do this – that’s the question. Also, if it’s automated then yes, they could. Also, wasn’t his brother Peter the computer whiz?

    Comment by Renny -

  52. Mark,

    I agree that this involved more than just Bernie Madoff. Not only developers, but also accountants that understood the entire process, because this had to get by the external auditors the firm was using as well. With the size of fund, non-senior management within that firm would not manage this, so the person/people dealing with the auditors would have to understand their approach and know how to redirect them when necessary. Thanks for the input.

    Comment by Dan -

  53. Very true Mark, great observation. I’m a software dev and have worked for several organizations. Software devs are always in the middle of everything and wind up knowing the majority of what goes on with the companies they work – by default. We have to understand the company’s business rules in order to write the software correctly. I’ve learned so much about business, marketing, etc just by being in the middle of it all as a software dev.

    Comment by Brent -

  54. Financial analysts have warned for a decade that something wasn’t
    right with Madoff’s figures yet the SEC didn’t look into it. Clearly
    these analysts were using software that exposed the problem. Software can’t help see aproblem you refuse to see!

    Comment by deb -

  55. Auditors need to see backup for all of the company’s assets. He must have been faking reports up the supply chain. Who is up the supply chain for a big broker like him? The Nasdaq or NYSE? Wouldn’t the auditor call them to confirm the reports?

    Comment by Reviews -

  56. From experience search through directories and past emails. It is very
    time consuming and very expensive when you take into account the man
    power time needed.

    Comment by JAZD technology -

  57. I don’t think he used any, he just had an excel sheet calculate compounded interest and printed, then sent them photocopies to multiple clients. A lot of the money invested was very round numbers and this is why when I write big checks I don’t write them, I write odd amounts..

    Comment by Alec -

  58. Interesting angle, though I tend to think he just used spreadsheets
    and databases. It doesn’t take a lot of special software to run a
    ponzi scheme; just pay out returns periodically, or when people
    withdraw their funds. The rest of your time is spent madly trying to
    bring in new investors, which apparently wasn’t that difficult with
    the rate of return he was paying. In the same way that he didn’t even
    trade, I doubt he even legitimately kept any records that would
    require special software to be written. That would be too big of a
    risk, and for what purpose? It could all be done with MS Office…

    Comment by Kelly -

  59. Oddly enough, I thought the same thing the first time I heard of this. I’d never heard of a ponzi scheme before and when I saw this I thought, “Man this is a flawless plan. Get some money, create some kind of online account handling software that creates a bunch of fake numbers, and profit.” Now with what you said in mind, it could be possible he contracted some people out to build what he might call a “Test program” that would create false numbers all in the name of teaching people to invest. He would have to word it oddly but I could see this happen with out the out sourced company having any idea what the hell they were building. I mean the way things are today, there a dime a dozen out sourcing companies that would gladly build something with no need for it’s use. If that’s the case, they may have been complete unaware (ignorance is bliss) of what was going on. Hell, that group could be watching CNN right now and have no idea what they built was the center of all of this. Of course this is all assuming that they haven’t figured out who built it yet.

    Comment by Sean -

  60. I don t think you need developers for back office software. What you need is to be a crook, greedy and have lots of connections that you bribe and get things camouflaged.
    Was his accounts not audited by one oif the biggest accountancy firms ? were the Regulators so stupid as to not see this ? were the investors so dumm as to not to ask how somebody with very few employees can keep giving them back returns every single year with no exception ?
    People are blinded by greed and they get what they deserve. The fact that he is set free doesn t make sense either. He could kill himself anytime and no one would ever know what and how he did.
    Whatever the case, this is not the job of 1 person, there must have been a team of crooks working together to be able to pull this off regardless of the greed or stupidity or both of the institutional investors. Single individual investors have simply been defrauded and it is not their fault. Would you not trust a “company” if the accounts have been audited and cleared by regulators ?
    I also expect there must be lots more madeoffs out there. Now the the money dried up, ponsi and pyramid schemes are due for a collapse.

    Comment by kamal -

  61. It is very unfortunate that a securities scandal of the magnitude of $50 billion should unfold especially during the current troubled times. It is surprising as to how this escaped the regulatory authorities all these years. We are learning with every incident and let us learn how to ensure that this type of scam does not recur in future.It is just the beginning of the cascading effect of the Madoff scandal.Insurance claims and lawsuits are just the beginning.This calls in for a tougher regulations by the authorities if we need to avoid another “Madoff”.

    Comment by Senthil -

  62. I think james has the right idea. Since Madoff was supposedly running this scam since the 1970’s, I suspect he may have cobbled something together from off-the-shelf tools.

    He would just need to store the current amount for each user in a spreadsheet, and generate a new column each month by multiplying the old column by a constant (10^(log(1.1)/12), which is just under 1.008 and adds 10% annually). Then he’d need to merge the values into a word processor document template. He probably didn’t need any software to track the real ins and outs – he could just rely on bank statements for that.

    I’m curious as to whether the SEC even asked to see his software.

    Comment by 123fun -

  63. Being a software developer, I can say that it would be possible to pull
    off a scheme like this with existing software solutions, so I don’t
    think there’s a trail of custom software to be found here. It’s an
    interesting idea, but leaving a trail of custom software for a Ponzi
    scheme is almost as stupid as trying to pull of a Ponzi scheme in the
    first place! LOL!

    More plausible is that there were accomplices that were aware of the
    “special procedures” that were going on in the accounting systems,
    using existing software.

    Comment by Joel Korpi -

  64. I know nothing about software, but if Madoff and company were just
    screwing with made up numbers from the freakin air, it should be easy
    the SEC to figure it out.

    If the SEC cant then they’re either too stupid, or just dont care.

    Isn’t Madoff on house arrest? Basically, he gets a pass and will when
    and if this goes to trial.

    White collar criminality is the place to be.

    Mark

    Comment by mark -

  65. Believe it or not, many people trust and assume their “millionaire
    money manager” knows his stuff and never requests statements or proof
    of any actual trades made. There very well have not been any type of
    reporting system in place.

    Comment by Forecasting FOREX -

  66. Even if you find out how he did it most of the money will be long gone.
    At this point the best hope is that the SEC and other regulators and can learn how to prevent this from occurring again in the future.

    Comment by Josh -

  67. I can picture the bid request on RAC, and I can certainly see some of the Pakistani coders I’ve used chomping at the bit to write it for him. tracking that down however could be a nightmare. set up a bogus account, pay for it with a bogus PayPal account that was funded with a bogus prepaid visa.

    Comment by Shawn Shepherd -

  68. Someone told me that it appeared that at least some of the individual
    account statements were done in Excel (red flag, if there ever was one).
    Since it appears that there was no trading and no auditing whatsoever,
    this is not hard to run: simply increase the invested money by ~1% a month
    in the individual account tab, print and mail.

    Have 1 account for the money, deposit new cash coming in, keep some for
    redemptions, and skim the rest. Works like a charm until you have no
    cash coming in and you get a spike in the redemption requests.

    If a scam is to run for a long time, it must be simple: reliance on
    complex systems (incl. other people’s services) simply increases
    the failure rates: look at the longevity of bicycles, ak-47s, light bulbs,
    diesel engines, straight razors, etc.

    Comment by ExcelFan -

  69. Yes, I agree that the web of wrongdoing, either knowingly or unknowingly has to be quite wide. After doing the research for my blog post about Madoff, I blame two…Madoff himself and the SEC. Also, to be honest, I blame some of the people who ignored the rules of diversification. You also have to believe that Madoff scammed the scammers. A promise of a quick under the table buck.

    Comment by elementaryfinance -

  70. You’re right, Mark. It’s a search problem: Given a percentage return (1%/month), what trades could I make to generate that return? All the data is there since we can look backwards to answer the question, but it’s not an easy problem for a person to solve. Given historical prices, trading parameters (market cap, frequency of trades, etc.), software could generate a series of trades that would generate the kind of returns Madoff needed to keep his clients from pulling out their funds. If only there were a program that could predict future prices. :)

    Comment by Nate -

  71. You have something there. Organizations are defined and supported by the software that they use. I suggest that SAP is the bureaucracy. The larger issue is the way that organizations and society are constrained by the software we use today.

    Comment by Paul Cox -

  72. Mark: I have been a fan of your ventures long before the home runs. And in fact, we know many of the same “old” friends you know from all of our early days as Dallas transplants (me from Iowa) fresh out of college with nothing but opportunity in front of us. All of this goes back to the early days of BB @ the Premier Club and fast forwards to similar people we have engaged along the way. We share some parallel tracks and approach to business and life however. (You have a few more zeroes in front of your general ledger, Hah). I too recently had a total hip replacement and did some of my research through our similar circles. Active lifestyles can catch up with us early boomers. But I wouldn’t trade a thing. Thank God for technology.

    Enough of the ramble.

    I just want to reach out and say thanks for the breath of fresh air for all of the meaningful things you do (disruptive to charitable). They all work in my playbook. This was my first time to read your blog, and I was expecting BB stuff (promo and venting). The issues and insights you touch upon about the Fed, Tarp, Wall Street bull crap and general business methodologies have resonated with my similar questions, disgust and complete bewilderment on how most (if not all) of our supposedly “smart” business leaders at the top of the food chain are clueless. As a successful small business owner who is passionate about what I do and how we run things, I am confident myself or the entrepreneur at the corner donut shop could make better decisions and craft better visions on what businesses could become and how to get there than the fat cats who have stumbled their way to the top by specializing in ass kissing and CYA methods. And I couldn’t of been more pleased when I saw the inflated talent base, egos and vapor creators at Wall Street investment banks get the air let out of their balloons. I could never do the math. Now I know, they couldn’t either. It will be painful and some good people will get hurt, but removing the “unnecessary margin”
    of many Wall Street institutions that added zero value to the economy or a balance sheet should eventually be a good thing. Unless the government really fucks things up. And we both know, that is a real possibility too. The next few years should be a real donnybrook.

    Keep up the charge! All of us mavericks need to stick together. Just know I am doing my part to deviate from the norm and stirring things up. Rock on!

    JS

    Comment by John Swieter -

  73. I am sure there will be plenty of people in the forensics community that will make a pretty penny from this case. Examining the “Databases” and “Email” will take months without a doubt. It will be a cashcow for Attorneys and experts…the new Enron.

    Comment by beachpig -

  74. This would be a major part of the SEC investigation. My guess as to why we haven’t read any article on the developers is occum’s razor simple – they didn’t only write software for Madoff. It would be very unusual for inexperienced or outsider software developers to put together a program with the complex formulas involved in hedge funds, so it stands to reason that whatever company created the Madoff program has also done business with other hedge funds and investment banks on Wall Street. I am sure that, in this age of scapegoating (wait, when hasn’t that been the case?) that focussing on Madoff will protect both “stable” firms from the taint of connection through these unknown developers. Certainly, in schemes of this magnitude, to believe that one 70 year old man is the sole person responsible is both naive and ridiculous.

    Comment by IronRoots -

    • From MC>
      I wasnt referring to his trading, but rather to the backoffice operations. From some reports, he didnt trade at all.
      For his backoffice, Im guessing he used a small software shop or even outsourced it overseas. Could you imagine if it put it out to bid on one of the software bid sites !
      Whatever the outcome, reviewing his backoffice software and talking to whoever wrote it or managed the developers will shed a bright light

      Comment by markcuban -

  75. how do you know he didn’t just use excel to get his numbers then
    just have some graphic designer make all his media/publications
    with fudged data?

    Comment by james -

  76. My guess is MySQL, or another type of software that allows him to modify data lists without any type of checks and balances.

    On a completely separate note: Thanks again Mark for speaking to the IUAA – Boston Chapter a couple years back at the TD Banknorth Garden before the Celtics-Mavs game. I learned some great points from that speech, and the way you conducted yourself was golden.

    Thanks again.

    -Sam

    Comment by Sam -

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