Breaking Down Bernie Madoff P2 & 3
Update: Sorry about the mis-postings here. Had an update malfunction. So some posts were updated out of order. To make it easier, Im just combining the 2 posts. Long, but less confusing.
There was a report in the WSJ today regarding possible Madoff accomplices. In it was a line, which if true, could make things interesting for investigators.
- “ Across the hall was another room, where an old International Business Machines computer generated client statements, former employees say. Nearby was a small cluster of employees responsible for “stuffing envelopes” with client statements, according to a former employee. The IBM server operated independently from Madoff’s other computer systems but was supported by tech staffers who also did work for the stock-trading group, according to former employees.”
- If this server was operated seperately from the other Madoff corporate networks, I can tell you from years in IT the following are true:
- 1. There are untold IT techs who worked for the Madoff companies, or were outside contractors, who bitched every day about having to backup and service this computer seperately from all the others. They wouldnt be able to do remote backup or software installs and version control. They would have to physically go to the computer every day or support an admin who did. That would piss them off.
- 2. Just how old that IBM computer is will tell us volumes. If its more than a couple years old, those same techs are complaining about why its still around. If its more than a few years old, it also means they probably cant update any software running to the latest versions. Again, a red flag to the techs because it makes their job more difficult, particularly since Madoff cant plead poverty as an excuse for not upgrading
- If its a PC (the article references a computer and a server, which dont necessarily have to be PCs), is more than 5 years old and acting as a server, its running an old operating system. NT or who knows what. Heck if its more than 10 years old, it could be running OS/2 ! Regardless, those techs are not only mad for having to deal with all this ancient stuff, you know they are telling jokes about the entire situation
- 3. The age of the hardware will also tell you volumes about the origins of the software. Custom software running on an old computer means that it either can’t be upgraded because its tailored to the system, or more likely, he no longer uses that same employees , contractors or vendors to maintain it, so he has to run what he already has. There is a chance there is a programmer out there who quit because they recognized something was wrong.
- 4. Madoff is a lot more technically astute than people seem to be giving him credit for. This is from a 1999 Marketwatch interview “”We are in the process of building a new trading platform, but it’s not a ECN,” Madoff told CBS.MarketWatch.com.” Whatever software they developed to run that trading platform, he understood it and probably knew how to use it. Would it be a shock if the 1999 version of the software could run on that old IBM computer allowing him to create his own virtual market and spit out statements ? A self contained trading platform could probably handle this from A to Z ?
Maybe. Curiousity got the best of me. So I started doing some searching on the electronic trading platform Bernie built. They called it Primex. Its an electronic auction system for securities. According to media reports, it was the “brainchild of Bernie and Peter Madoff”
So I searched some more and saw this Feb 16th , 2000 press release: The basics of which are “SST’s B4B FIX combines robust object-oriented architecture with push-based TCP/IP messaging to provide an extremely fast and stable platform for both FIX connectivity and message processing. B4B FIX can be combined with SST’s B4B OMS(TM) in a seamlessly integrated order management system that generically integrates with B4B FIX to facilitate the straight through electronic trading process and improve the operational and connectivity efficiencies of its users.
“We are excited about satisfying Primex Trading’s strict requirements for high performance and reliability,” said Larry Gusto, President and CEO of Silicon Summit Technologies, Inc. “B4B FIX’s reputation for best performance and high-quality electronic securities trading software is the key value proposition that we offer. With B4B FIX pre-installed on the server located at broker/dealers’ premises, broker/dealers can take full advantage of the B4B FIX functionality for accessing the PRIMEX AUCTION SYSTEM.”
Some I’m thinking I may have found the company that wrote the software Madoff used on his lonely IBM Computer. The obvious next step is to find out more about Silicon Summit. So I did a search. It’s website is gone, but there are remnants of an old site with a company history that ends a week after the Primex deal. Maybe they got acquired, but I didnt find it. Of course in these situations, you use what limited information you have to fit the last hypothesis you made, which in my last post was that it was possible that the software company that wrote the software Madoff used for his fraud was no longer working on the code. Which would explain why he continued to use an old computer.
But wait, there’s more. So I did a search on the address of the company and boom, up comes this nugget:
STATE OF CALIFORNIA
DESIST AND REFRAIN ORDER
The California Corporations Commissioner is of the opinion that Silicon Summit
Let me clear. This could all be a BIG BAG OF NOTHING and probably is. But you have to admit, its sometimes a long strange search trip we undertake when we are curious and have a search engine handy.
Update: dec 2009. As far as I know, this is a big bag of nothing and Larry Gusto is not involved at all in any of this madoff mess. Just an unfortunate random link
I don’t know anything about trading, just software. I actually think you are 100pct correct, but to play devils advocate here.
What if he got a hold of some software that allowed certain things at the time that were considered correct business practices? As the times changed, it because obvious that the “feature” allowed improper trading. When the new version came out, he didn’t upgrade, but kept the old version.
Or maybe he had a test version that had a huge bug in it…a 50 billion dollar bug
. That is my favorite explanation so far.
Comment by cyrus — January 30, 2009 @ 11:00 am
If you are correct on this that would be absolutely amazing.
The only thing that I am wondering is if they can actual track down the
programmer of whatever software he actually did use as you mentioned
in one of your previous posts. Once that is found out the house of cards
will tumble further.
Comment by Josh — January 30, 2009 @ 11:03 am
I work for a software vendor that makes portfolio mgmt software. Madoff could have used any off the shelf portfolio mgmt software. There are a number of vendors in the space. The question I have is how did he fake that much data? I would love to look at 5 client statements side by side over a one years time span to see what they received. We write data simulators to fake data for testing purposes. It always looks made up with too much repetition compared to real world data. I assume Madoff would have been sending out a position type report with unrealized gain loss, a transaction report for each month and hopefully some type of relative to the market investment performance report with time weighted returns.
Faking those statements for 50 Billion dollars in assets for hundreds if not thousands of accounts took some effort. Maybe he had a developer write a great data simulator that faked trades and generated the steady returns? If he had that, he could pump the data into a standard software package.
From MC> Remember, he has been doing this for years. It didnt just start. If we guess that he goes back at least 10 years with this, it was when he started Primex, the trading platform. I bet some modification of the account mgmt software connected to it is what he uses. Remember, in his “investing system”, he clears out most trades after some period of time and goes to Treasuries. So he probably inputs the results he wants, historical tick or daily close data , client balances, then takes the S&P 500 stocks and simulates trades that then are applied to the statements. He doesnt have to worry about historical performance of any given trade or stock because of the clear outs. Just guessing, but its an interesting puzzle
Comment by Dave — January 30, 2009 @ 11:52 am
Hey Mark what do you think about this bad bank idea…what do you thinkthe Fed and Treasury should do with all these crazy assets?
Comment by Andrew — January 30, 2009 @ 12:56 pm
Wow, my firs thought when I heard about the computer was maybe he was
afraid to upgrade technology. But you brought it all into perspective
when you wrote about how he knew about the new platforms they were
launching. I am pretty sure the computer was up to no good. But until
details are leaked or brought out to the public all we can do is
speculate. Regardless he wasn’t that smart, he did get caught.
Comment by JAZD Tech — January 30, 2009 @ 1:12 pm
i have an entire slide show presentation on Madoffs fund- if you’re interested you can put it on your blog.
Comment by joeblow — January 30, 2009 @ 2:37 pm
And here’s . . . . Larry!
http://www.linkedin.com/pub/3/669/a99
Comment by SJ — January 30, 2009 @ 3:22 pm
Have we seen any statements yet? I’m not sure that they had to be all that detailed, he never had to cover his ass, he never bounced a check. Did any of his clients ever question anything, probably not, they always thought they were making money and whenever they wanted cash it was available… till the end anyway. Hell, he might have sent the same statement to all his clients changing only the starting and ending balance (a bit oversimplified, but who knows).
Comment by Shawn Shepherd — January 30, 2009 @ 5:43 pm
Good and credible detective work.
I think your theory must somewhere close to the truth.
Its kinda weird that no one else has been arrested.
He must have had an technical accomplice or accomplices, even if he
was just doing a mail merge to fake the statements.
Comment by 8020 Financial — January 30, 2009 @ 9:11 pm
OS/2 Baby! Yea!
Comment by john schlichting — January 30, 2009 @ 11:02 pm
I am an investor myself so I a have a couple questions about
this ponzi scheme.
Mr.Madoff was the head of the Nasdaq, is this why the SEC
gave him more of a free pass than the individual investor?
It was stated the SEC had suspicions about Madoff but never looked
into them.
Why didn’t the auditors find suspicion in the numbers, since most fund
managers were not getting the % gains he was getting. Why didn’t they
check the books for inconsistency’s?
Wouldn’t Primex Auctions be able to see this fraud occuring with the
technology they have?
This is a quote from Primex site
“Nasdaq and Primex Trading are proud to have been part of the successful development, implementation and operation of the Primex system, the first electronic hybrid auction system for trading securities approved for operation by the Securities and Exchange Commission.”
I won’t even bring up Larry Gusto.
I think there’s more to this then just Bernie Madoff. There could of
been a lot more people that new about this activity going
on. The real question is how many people will be brought down
in the biggest fraud of all time?
Even bigger then Enron.
Trip aces
ting the websites
Comment by Triple Aces — January 30, 2009 @ 11:47 pm
Someone commented earlier about how easy it is to mess with SQL in a lot of programs. I do accounting for a company and realized just how easy this is just recently. If Madoff didn’tkonw how to do this, which he certainly could have. Maybe this Gusto guy had the password to the software’s database. He could have done something like recategorizing customer investments as revenue. Of course something like that would be probably be pretty obvious to employees.
Comment by Quotes — January 31, 2009 @ 12:41 am
[...] Cuban reminds us that he’s a tech geek at heart by exploring the Bernie Madoff case from the angle of the computer system Madoff used to generate his fraudulent transactions. It’s a fun post, and hey, his thesis is more [...]
Pingback by Virtual Memories » Follow the code — January 31, 2009 @ 5:01 am
I live down the street from Larry’s old house on Orange in San Carlos. Small town, strange to think there might be a connection to Madoff.
From propertyshark, it looks like Larry and wife Deborah (who is a doula) sold the house in 2003. They sold it for much less than it was worth (and much less than they had paid), and this area was booming then. Maybe it was foreclosed, because the bank sold it to the current owner a few months later for $500K more than Larry sold for. Could also be a big bag of nothing, but the transaction history seems odd.
He’s now in Portland, ME, buying boats. http://www.greatgrady.com/forum/viewtopic.php?p=52287&sid=ff822a28c006ce8bfcef216b1b1596e6 He has a few companies: http://phrhub.com/ and http://mainemso.com/ . He even started a blog: http://larrygusto.blogspot.com/
Comment by JJR — January 31, 2009 @ 10:14 am
[...] the way to uncover how Madoff operated was to find his software developers. Then, being Mark Cuban, he decided to do it himself. His findings are very interesting: Madoff’s market-making platform was created by a company [...]
Pingback by FrontBurner » Blog Archive » Mark Cuban: Investigative Reporter — January 31, 2009 @ 10:26 am
Most of these statements were not going to individuals, right? Weren’t they going to Funds and other financial institutions?
These are the guys who should have caught the impropriety. I mean, they’re not stupid. Or were they just too busy to check the data and calculate theior own gain/loss.
I’m still a little confused about the historical daily close data. Why wouldn’t those numbers be auditable? Is there no “beginning” balance?
Comment by Nhopkins — January 31, 2009 @ 11:46 am
Mark,
Check out http://www.archive.org. You can see what old website looked like. It’s the anti-Google, in that you often get false negatives on results. See
http://web.archive.org/web/*/http://www.siliconsummit.com
and click “February 8, 1999″ and this old website of Silicon Summit comes up:
http://web.archive.org/web/19990208020324/http://www.siliconsummit.com/
The page appears blank except for some text at the bottom of the page. But the blank left box has hyperlinks you can’t see, but your cursor changes. Click it and you can dig around the old site like you’re going ancient ruins of Information Age. Also check out:
http://web.archive.org/web/*hh_/www.fixconnect.com/
Click on May 15, 2001 and this page downloads images of an old website of Silicon Summit very slowly:
http://web.archive.org/web/20010515202414/http://www.fixconnect.com/
That IBM you referred to might be an old AS/400.
Gary
Comment by Gary — January 31, 2009 @ 2:42 pm
“Madoff’s fraud was so immense and obvious, and took place over such a long period of time, it is simply inexplicable how the SEC missed it,” Schumer said in a statement he read. And by the way, he and Sen. Richard Shelby, R-Ala., are introducing a bill to hire 100 new SEC enforcement personnel and staff. ”
Soo…
Not only should Madoff be put behind bars TODAY he should be hung at noon on Wallstreet. Next the Employees at the SEC who should have investigated him long ago should be fired and then barred from holding any government position except as a private in the military.
J.R EWING
Comment by The Cowboy — February 1, 2009 @ 1:50 am
Nice work. If being a billionaire investor doesn’t work out I think you’ve got a bright future as a detective.
Here’s a Madoff statement from November, 2008, just before the blow-up:
http://www.scribd.com/doc/8976754/Madoff-Trading-Statement-November-2008
As someone who writes accounting software, I think it could have been quite possible the software people supporting his system, particularly if they were not the original authors, would have been clueless about what Madoff’s company was doing with it. I used to support a lot of custom accounting software (working for EDS) and I certainly never spent much time wondering about how the customer was using the software, just whether or not it was working properly.
By the way, someone else mentioned it, but the comment entry control for your blog isn’t wrapping text properly, at least not with the latest Firefox. You can’t see what you’re typing once it hits the right hand margin.
Comment by l.a.guy — February 1, 2009 @ 6:16 am
I am a Madoff victim and would like to invite other former Madoff
investors to join a group who have come together to share information
and support as we move forward toward restitution and recovery.
We are a proactive group and feel that as our members grow, our
voices grow louder.
We are working toward keeping this story alive in the media and
congress in an effort to get some answers and information.
If you are a defrauded Madoff investor, please contact me at
madoffvictim@usa.com.
Comment by madoffvictim — February 1, 2009 @ 11:45 am
I still can’t believe that he maintained this facade for so long with those dollar figures “under management. I think that more and more pressure will cause a major restructuring of the “Wild West” Hedge Fund industry as a result.
Comment by Mike Rowan — February 1, 2009 @ 1:13 pm
Hi Mark, it’s good to see some technical insight into this.
I expect the IBM computer to be either a small IBM mainframe or an
AS/400 midrange. I’m a longtime developer on the AS/400, iSeries, etc.
I expect this would be a follow-on from the development Madoff and
his brother Peter, who headed up investment technology development,
did from the ’70’s and ’80’s on.
I was hoping someone was going to pipe in on a board somewhere enough
of what they had seen about the computer to figure out what the model
is. Of course that’s just a start as to what the software was, but
undoubtedly custom COBOL or RPG in my opinion for that particular
computer and operation. Not applicable to the brokerage software
operation, I’ll have a followup post on that.
While the IBM midranges are now often on the internet, I have one at
home on the internet, before that IBM computers had dialup to IBM
for emergency service. Software and patches were usually installed
from tape or other media. In general wasn’t a hassle, and unless went
through OS upgrades basically unneeded.
I am reasonably confident that none of the software developers
throughout the years were tasked with writing software that
deliberately created fraudulent transactions. For that matter we
still don’t know the client statement transactions were fraudulent.
The investigators just haven’t been able to find yet that the trades
took place, so certainly seems to be, and I expect they are.
As I’ve posted on this on my site, I certainly do not expect Madoff
was a day trader with billions of dollars. There’s just way more
exotic stuff to do that he could take advantage of with his unique
exemptions as a one stop shop grandfathered as a founding father. Of
course now that he’s done for won’t see anything like that again.
I would expect the statement software just prints from database
records, and those records could be populated anyway you want, even
uploaded from a spreadsheet. However, from the WSJ description, it
appears the IBM server supported a very small trading floor next to
it on the 17th floor. And obviously there are people there who think
they were trading, so there you have trades, and hence trades for
statements. That the possibility they were doing that and the trades
never took place but just got back bogus transaction numbers is hard
to believe, but apparently what the investigators are implying.
One complicating factor is that it is reported everyone understood
the trades to be taking place in Europe, and not in his own London
Mayfair operation based on the smallish $300 million volume there, so
in a way I find it believable that he wasn’t literally trying to make
money timing ups and downs of stock versus much more exotic trading,
but unbelievable he had such a show of people who thought they were
doing just that.
An amazing technical story as well as financial mystery. Looking
forward to more of your posts on it.
rd
Comment by ralphdaugherty — February 1, 2009 @ 9:15 pm
The B4B FIX software is probably C++ language running under SUN Solaris or some other Unix system. SUN has been a mainstay in the financial world.
Madoff spoke at a roundtable a little over a year ago on the Future of the Stcock Market. He brought with him Josh Stampfli, head of his automated market making group on the 19th floor.
Around the time of this B4B FIX announcement, Josh was putting together The Liquidity Engine which they claimed utilized Artificial Intelligence for near instantaneous execution of trades. (major league hype, but par for the course.) Stampfli was CEO of the startup GALE Technologies. (see http://findarticles.com/p/articles/mi_m0EIN/is_2000_April_25/ai_61638465 ) They announced in April 2000.
But the startup parent, A. B. Watley Group, stated in their 2002 SEC filing that they wrote off the investments in GALE Technologies to the tune of about $30 million. (see http://www.getfilings.com/o0001144204-03-001820.html )
Stampfli went to work for Madoff in September, 2001. No mention is made of GALE or Watley. Linkedin says he was with Litchfield Capital Management in 1999, and there’s a gap till September 2001. That gap is CEO of GALE Technologies. (see http://www.linkedin.com/pub/4/a04/3b1 )
My guess is he tried to license Liquidity Engine to Madoff Securities as he would with any other brokerage and something happened to make Stampfli available for Madoff to hire. That is awfully quick for a software startup to fold, especially one funded with a partnership of deep pockets and a startup incubator.
In any event, I would expect the brokerage software Stampfli was CEO of and also what he is running at Madoff to be similar, most likely C++ running under Unix such as SUN Solaris. I would not expect anything related to the IBM box for Madoff’s investment advisory operation from that, and instead would expect that IBM box and software to be a carryover from what Madoff and Peter developed from the ’80’s and into the ’90’s.
It would be very interesting to see what software staff or contractors they were using.
rd
Comment by ralphdaugherty — February 2, 2009 @ 12:58 am
Anyone familiar with the DMN football blogs will recognize the name Larry Gusto. He posts there farily often, or he used to anyway. I wonder if it is the same guy?
This is interesting sluething Mark, but I think it is no stretch to conclude that this guy had to have some computer that was spitting out information that formed the basis for his statements. I assume he had a CFO and/or controller and he had to pass some auditing.
The big mysteries to me are:
- who else knew?
- what did he invest in and how could those investments pass the test of employees? A simple comparison of his stated returns on some public stock would have to match the stock prices for a security. Say he bought IBM stock (ironically) and he said they were producing a return of 7%, well that could easily be checked. Someone else is going down on this one. Bernie isn’t going to be alone in that cell.
Comment by Buck Naked — February 2, 2009 @ 2:43 pm
I think that you have to have an overall theory about a) what Madoff was doing, b) when those trades failed, and c) how he started cover up. I don’t believe that there could have been nothing but fake trades from the beginning. My guess is that sometime around the change from 1/8 to decimals, Madoff ’s particular front running scheme broke down. After that he increasingly manufactured returns. But it is still not clear how he engaged in front running, if my guess is right however, it should sehed some light on how the fake trading statements were possible.
Comment by michael webster — February 2, 2009 @ 4:45 pm
My guess is that Madoff used Primex Trading strictly as PR to raise more money. I doubt that he ran any trades through the system. From an investor’s standpoint, if Madoff Securities “invented” the trading platform then they must be damn good at trading or at least have a lock on how not to lose money. Combine this with Madoff’s extensive list of satisfied clientele (with their guaranteed returns) and you have a perfect recipe for a $50 billion ponzi.
Comment by econ365 — February 3, 2009 @ 8:36 am
There are a lot of bright people creating a lot of intellectual capital these days and that capital can be misapplied to misdeeds without much effort.
I have met with some really, really smart folks from Georgia Tech and Pacific Northwest National Labs (PNL) regarding the use of petascale analysis and visual analytics to characterize complex networks. And it doesn’t take too much imagination to see how those apps could be used to extract personal information and data mine on an incredible scale. But, it all about intent.
Mr. Madoff had the intent to defraud and he did so. Had he not had the software to hide his efforts his offenses would be less serious.
To paraphrase my gun-toting friends: Computers don’t defraud people. People defraud people.
TJ
Comment by Terry Johnson — February 3, 2009 @ 12:16 pm
Mark: Bernie used the same software that is used by our Government for Social Security!
Comment by Mary — February 3, 2009 @ 2:12 pm
michael webster has some good insight.
Terry Johnson, it’s extremely doubtful the “old IBM computer” was on the internet.
Buck Naked, no, and no. (and I’m assuming you’re a male, so I’ll throw in a third no on the name.
rd
Comment by ralphdaugherty — February 3, 2009 @ 10:22 pm
All, it’s fascinating to read these conspiracy theories. While it does seem likely that some IT folks were in on the scheme it certainly wasn’t me. I was busy trying to save my company that tanked after 9/11. Mark, if you really think there’s something worth looking into here please give me a call. You guys have all found my website and blog and, jeez, even my little fishing boat. I’m sure you can find my phone number.
Comment by Larry Gusto — February 7, 2009 @ 9:15 pm
Mark
According to Fox Business, the old IBM computer was an AS/400, also known as iSeries, System i, and now Power Systems.
AW
Comment by Alex Woodie — February 11, 2009 @ 3:31 pm
Thinking completely off the wall,what if the software as far as it was concerned was still in a test or parallel enviroment? Wouldn’t that permit him to enter what ever he wanted and generate statements and add participants until forever as long as he kept it in the test region. Just a thought.
Comment by Allen — February 13, 2009 @ 9:50 am
Bernie Madoff is impressive.
He made off with 50 billion dollars. HE is THE KING of WALL STREET he beats out THE WOLF of WALLSTREET. He won’t be going to jail.
I would do anything to be a Wall Street guy. Anything.
The thing I really respect about Madoff is he never took down anyone else.
Trip Aces
Comment by Triple Aces — February 13, 2009 @ 3:58 pm
It is very hard to find out about the program that was used.
In a seminar Madoff basically states he used alogarithms and that he rather use computers than the human element.
That’s the problem. Computers can’t predict markets, algorithms are made by the humans that design them. They have flaws.
I have to say, as an individual investor this thing scares the hell out of me. The SEC brings a false sense of security. This 50 billion scam has been goin on for a decade, how can the SEC miss this with a guy like Markopolis beating on the SEC door regularly.
I will never give my money to a fund manager after this.
I rather Bury gold. Although gold will be going down in the near future.
He has destroyed many lives, Important charities and retirement savings. I feel for these victim’s
This will be a learning lesson to me. If it is to good to be true, It probably is.
Mark
Comment by Mark — February 14, 2009 @ 1:28 am
Your statement about Madoff and rather use computers is only partially right and gives a false impression. In fact Madoff says much of what you say in that seminar.
Please see my thread on it (click on my name) where I discuss it. I highlight some remarks concerning that. He went into great depth on it in the seminar, The Future of the Stock Market, just a little more than a year ago. There is no way he was running a Ponzi scheme even a year ago.
rd
Comment by ralphdaugherty — February 14, 2009 @ 10:05 pm
Allen, I don’t think very many people understand the magnitude of data we’re talking about here. On the brokerage side of the business on the 19th floor that his sons ran, they did 300,000 transactions a day trading over a trillion dollars a year.
The investor advisory side of the business that Madoff ran on the 17th floor, which ran on an IBM computer, had thousands of clients who reported 30 plus billion dollars missing. Madoff reported to the SEC 17 billion at the start of 2008.
Some middlemen reported getting daily trade activity reports from Madoff. Clients got monthly or quarterly detailed trading activity reports. Some clients were savvy former stockbrokers who examined monthly trade reports for years and never one thing amiss.
Twenty plus people were monitoring trade activity constantly and reporting on results. It’s possible none of the trades took place, I don’t believe that, but the trades were understood to be executed in Europe and haven’t been reported as found how it was done yet, so obviously a possibility, but it’s in that context of real trade activity that was reported even if it never got executed as the employees thought they were observing and the computer was reporting in statements.
I personally think the money was lost in securities related trading in November or December, but definitely some illegal aspects to it for Madoff to claim he was singlehandedly running a Ponzi scheme. Which would amount to trade messages being sent to a dummy trading account in Europe and Madoff supplying his bank accounts with new investor money for the “profits” that the computer had calculated to pay out of.
Easy enough to do, because basically you’re not doing anything and everyone else thinks they are, but difficult for me to believe that no problem ever ocurred where anyone would realize that billions of dollars of trade never actually took place.
And harder to believe why Madoff would do that instead of trading. He’s the ultimate trader. It’s preposterous that he wasn’t. And he was only paying 10% to 12%. It’s not like it was that impossible to achieve, most of the time. It was just the consistency that was impossible.
I assume smoothing out of returns, others assumed he was front running, still others believed in his I can make money whether it’s going up or going down, as long as it’s moving, but I think the stuff about too good to be true is 20/20 hindsight talking.
rd
Comment by ralphdaugherty — February 14, 2009 @ 10:54 pm
I WISH MARK CUBAN WOULD DO A MADOFF PART 4 . I miss his wisdom. Ever since this stimulus package, which was a good idea. I miss hearing Cuban’s ideas. He is a real mentor for me.
Bring up the SEC responsibility and you will have some traffic on here. But with controversy come’s adversary’s so maybe not.
I Do not agree Ralph, you don’t lose 50 billion in 1 yr. I believe it was a steady progression of losses. Madoff just suspected to outlive the time when people would ask to collect.
At his age over 70 he thought he could keep this ponzi scheme going until his demise.
Madoff had clients asking for 7 billion at once. He was in trouble. The recession Made clients want and need their money. But with the markets collapsing by 30% in the span of a few months he was screwed.
Even Madoff could not lose 45 billion in 1 yr it was 8 yrs longer.
Madoff even foreshadowed it in the interview.
We are not sure of all the details. We do know he printed off fake statements afterward for his clients. After he knew the outcome of each stock.
But Ralph you believe that he never cheated before that seminar. I THINK HE DID. I watched the seminar. He would never discuss the investments or the algorithms and tried to make them seem to boring to discuss. A tactical smart move on his part.
Mark
Comment by MARK FARELL — February 15, 2009 @ 12:49 am
Mark, I hope to learn something from you on this. If the seminar was not The Future of the Stock Market, please let me know and I’ll try to find a transcript.
I make a longer argument against losing the money over time. I can’t summarize it here succinctly enough. But readers can click on my name for the thread.
I do not believe the 7 billion redemption request figure Madoff cited. I have seen no supporting evidence of it. Many former direct clients of Madoff who lost all their money have been interviewed, and not one said they had requested their money returned prior to hearing of their loss.
7 billion is a huge percentage of the Madoff investments, whether it be 17 billion he reported to SEC at beginning of 2008, the 30 plus billion reported by clients as lost, or the 50 billion Madoff cited. Please come up with something other than Madoff’s statement to give even a glimmer of a basis for 7 billion redemption requests, as no one is accepting anything else Madoff says.
I have my reasons for that, of course. I believe the 7 billion redemption he couldn’t make that exposed his singlehanded Ponzi scheme is a giant whopper of a lie. To everyone else that’s the only thing they believe, and everything else he has ever said is a lie. To me, it is the opposite.
Concerning losing the money, every indication is that Madoff had is money in Treasury related endeavors. I talk about that in the thread. Two or three direct clients said that they received info their money was in Treasuries, and a new cleint on December 10 said he recieved a notice that his 10 million had been invested in shorting Treasuries.
The transaction number was bogus, and he didn’t authorize it, but nevertheless where there’s smoke there’s fire. Quite frankly, you’d have to be an idiot to have it in stocks that were tanking 40%. And in fact, Madoff was reporting a 5% return for 2008 consistent with staying out of stocks and in Treasuries.
Now, I’ll be the first to admit that Madoff was undoubtedly using all the tools that he had as a market maker with exemptions from many regulations and an ability to work both sides with no public scrutiny.
I would further contend that whatever he was doing, it was with all his money. And there were huge amounts of money lost in securities trading in late 2008. I think he lost it all then.
I also don’t have any confirmation yet that the trades didn’t take place. On the other hand, I believe it. Who would be stupid enough to sit and buy stocks hoping to time them going up and down through 2008? You’d have to be a moron.
So maybe he knew that and said let the automatic trading take place, but the account in Europe receiving the messages is inactive, and nothing actually happens.
He might just have had the whole shebang in Treasuries options, naked short selling, repo market, etc. I try to lay out some possibilities in the thread. Maybe it’s not possible to do that with no one knowing about it yet, I don’t know, but I sure as hell don’t believe Madoff the ultimate trader was sitting on the 17th floor counting his sister’s money and all the billions invested with him and going, hmmm, invest this, nahhhh, too much like work. That’s just crazy that everyone believes him.
So there’s this constant harping about false statements, but they are statements of buying and selling stocks like day traders and there are 20 plus real people that were monitoring those trades and thinking they had results to report. So I think the statements are true of activities that may not have been executed in Europe, or may have, I haven’t seen anything yet definitive on it.
Lsstly, I analyze his statements in The Future of the Stock Market carefully in my thread, and he does not discuss or avoid discussion of his particular trading algorithms as you say he does. The particulars of his strategy are never raised.
Your statement is true as to his responses in general in the past, as he would not go into details on his strategy, but a careful reading of his talk in the roundtable would show a very normal man who was not one redemption request too many from being exposed as a monster Ponzi schemer who had lost the money of everyone on the world he cared about.
In fact, I contend he is saying this to take all the blame himself and shield those he loves from probable prosecution.
I believe I’ll be proved correct in the end. I know a bs story when I hear one, and his Ponzi story is pure bs.
rd
Comment by ralphdaugherty — February 15, 2009 @ 11:01 pm
Ok, I saw Gary’s post on the link to SST’s old site, and the reference to might be an old AS/400, and tried to figure out the connection, but there wasn’t any. Apparently just two obervations.
And true, as I posted above that I expected as well. In searching today I see that Fox Business News determined from Ibrahim, an ex IT employee, that the IBM computer was an AS/400.
But while searching for the SST connection, I saw the Cease and Desist order that Mark posted. It actually was a securities fraud because they didn’t have any software, or were misrepresenting it. Certainly wasn’t anything anyone was running because the Cease and Desist order is based on a false claim that they have a product for which they were soliciting investments, etc. under false pretenses.
The software was alleged by them to be developed in Java. While the AS/400 executes Java superior to other machines for technical reasons (at the time IBM had their own version of Java garbage collection on the AS/400 that was superior to Sun’s, I think Sun has adopted it now, also AS/400 iseries has both 32 bit and 64 bit JVM’s), it would be unusual to say the least to run an intense production environment in Java at the time. Given that their product didn’t work, enough said on that.
There was a reference on Fox Business News on Friday to the AS/400 software referred to by Ibrahim as (transcript spelling) house 5 and house 7. I have no idea what that is, haven’t heard anything referred to like it in 20 years on the AS/400, but am guessing refers to inhouse developed software. I am looking for further clarification and details, as everyone else is here.
rd
Comment by ralphdaugherty — February 15, 2009 @ 11:30 pm
This feels like an old X Files episode.
Ralph, keep digging on the SST connection. You’ll find that the company had many satisfied customers running excellent high volume software. Dig far enough and you’ll find industry analyses by Waters and Tower Group that say SST was one of the top three companies in the world producing this software before 9/11.
Also go back and re-read the Cease and Desist because you’ve badly misunderstood it. This was filed by one disgruntled investor, out of dozens of happy ones, who bet his whole life savings on small dot coms and lost his shirt. Efforts by me and my lawyers to get California to pull this load of crap off their website have been met with bureaucratic “it’s too old” responses.
I’m truly sorry for all the people that have been hurt by Madoff. But you’re barking up the wrong tree with SST.
Comment by Larry Gusto — February 16, 2009 @ 6:20 am
Hi Larry, first of all all I care about is what was running on the AS/400. The only reason I searched on SST is because Gary above mentioned both SST and AS/400 in the same post. As I posted, I was trying to find the connection and there isn’t any.
On the other hand, the Cease and Desist order I read is not nearly as benign as you describe. The state of California doesn’t basically shut down corporations because of one disgruntled person. And in fact SST did cease to exist that year, 2003, from what I could tell in other search results.
If Madoff was a customer of yours I’m interested in light you can shed, if he wasn’t your business is no concern of mine.
thanks for the response.
rd
Comment by ralphdaugherty — February 16, 2009 @ 11:51 pm
Thanks for the post Larry,
You have been taken off the Maine General web site.
Larry was your software used on the AS/400? or was it used in
Madoff’s electronic trading network?
In addition to the Ponzi, Madoff had a black pool, an electronic network trading server. In a “black pool” the counterparty is not known prior to the trade. These alternatives to exchange trading and broker to customer trading are alleged to be involved in naked short selling and other manipulations.
Comment by Matt — February 17, 2009 @ 3:27 am
Richard daughtery. Your analysis is pretty good. Your right it could be all lies. I watched a lot of clips on youtube. Stating basically that the investors were getting statements of stock trades. With gains and losses. LIke GOOG DELL etc. BUt who the hell knows. It was like a 4 part special on Madoff.
I also listened to Harry Markopolis the Whistleblower. He has other beliefs from your treasury ideas.
I have read some of your other postson alternative site and I agree with some of your thoughts, it has been thought provoking. Keep it up.
Now We got a new “Ponzi Schemer” this time caught by the SEC.
What is your thoughts on this guy was it any similar to Madoff.
The web gets bigger.
Mark
Comment by Mark Far — February 18, 2009 @ 3:44 am
Hi Mark, it’s Ralph, but I’ll take the compliment anyway.
thanks.
Stanford clearly was “juicing” his returns Ponzi style. The number of rich investors who have lost everything in investment funds due to fraud in the last couple of months is just staggering.
Both Madoff and Stanford had inconsequential or non-existant auditing. In a way this is America, you should be able to do what you want with your money, but there should be no implicit stamp of approval if there’s no oversight.
And I think it’s fair to say the tens of thousands of investors who lost everything thought there was a stamp of approval based on oversight.
They can make all sorts of noises about bolstering regulations but after the dot com crash and now this, not to mention the S&L fraud earlier, I can’t imagine that people will believe that even good auditing is worth trusting their money with anymore.
rd
Comment by ralphdaugherty — February 18, 2009 @ 1:33 pm
Read this which dates back to 2001. Even back then there were skeptics:
http://www.nakedshorts.typepad.com/files/madoff.pdf
Once they start digging deeper into the feeder funds, they will find their answers.
Comment by Kamal — February 19, 2009 @ 7:21 pm
As a IT professional who has worked on the AS400-iSeries-Power i platform since 1987. IBM changed the name numerous times for marketing purposes. For over twenty years, it has continually maintained a reputation as the most technically advanced and reliable business computing platform. My career has focused on the platform and I have seen it operational in many industries including bowling alleys, casinos, manufacturing, wholesale distribution, health care, pharmaceutical, transportation, retail, education, government and the full range of banking operations of retail, mortgage and investment. It can be sized to support a small ‘mom and pop’ store to an international multi-site corporation. In investment banking, it is technically capable to handle tasks belonging to front and back office trading processes depending on the software since it supports either Unix, Linux, Lotus Domino or its proprietary iOS simultaneously on the same footprint. However, like all machines, the computer is just a tool and subject to human whims and desires. Whether the Madoff Corp. or SETI Institute, the AS/400-iSeries-Power i is simply the tool of choice with the owners determining the data and how is used.
Comment by iSeries bigot — February 20, 2009 @ 8:44 pm
well said. I have a relatively small (but much more powerful than a PC) AS/400 iseries in my apartment on a business class internet connection. The iseries where I work handles a multi-billion dollar corporation.
It is supermodern but also runs anything developed for it or its predecessors since the IBM midrange line was invented forty years ago. It is not an oddity that we find that was what Madoff was running his business on. It’s what I would expect, as I posted earlier in this thread when word first came out that Madoff was running on an “old IBM computer”.
The company I work for, and several multi-billion dollar companies I have worked for, are upgrading to the newest release of that “old” IBM computer even as we speak, with the i 6.1 operating system, which includes AIX Unix built in and Linux running concurrently with it. Lots of new development for the Power i operating system is done with Java and PHP, as well as the RPG, COBOL, and C++.
So nothing old about it at all except it’s been successfully running businesses of all sizes in every sector for a long, long time.
rd
Comment by ralphdaugherty — February 21, 2009 @ 6:51 pm
Mark,
I am trying to send a business plan to your open funding forum. Is this the right place.
Thanks, SD
Comment by SD — February 24, 2009 @ 12:46 pm
Mark-
You’re a smart guy, for sure. If you’re really perplexed on how the Madoff enteprise worked–visit bernard-madoff-scam.blogspot. and read in-between the lines..
Comment by Reb Famod — March 1, 2009 @ 1:48 pm
I think government should put him/his wife /and children in jai and don’t let him pull a fast one with his property.l
Comment by m jordan — March 2, 2009 @ 8:43 pm
It makes total sense that it was an AS/400, they have the easiest user interface compared to other mainframes. A non-programmer could easily update a Prices table using its built-in Data File Utility (ie no software required for that).
A custom program written years ago by a contract programmer could create fake trade transactions and positions, and create and print thousands of client statements each month. Because the fake equity and options positions were always sold by monthend, the next statement was like a new tale retold.
As long as one of the admin staff had security officer password for the machine, they could easily navigate around the AS/400 and run backups, load the printer with paper, whatever. As a consultant, I used to visit many AS/400 shops that had no programmers or IT staff employed full time.
Comment by g sherman — March 7, 2009 @ 8:26 pm
If you watch this (at 3:00) http://www.youtube.com/watch?v=ab1NTIlO-FM
you will see the person called Josh & his team of 7 doing the algorithms. I’d love to know what algorithm that is !
Comment by mike — March 15, 2009 @ 4:57 am
We’ve been issuing NYSE & NASDAQ long/short trading signals, non-leveraged, min. $5.00 @ shr., since 4/10/2006. Cumulative gross profit is 108% through 3/20/2009, worst drawdown 10% of equity. Now, if one disbelieves ability to get executed as reported, so let’s cut the return 50%, so say it was 54% over the last approx. 3 yrs. Not a barn burner, but far better than even what Madoff reported.
Saying that, the moron investors gave Madoff $billions, wherein we are mere egg heads with our own software, workstations, working outta a loft apt. vs. paying Lipstick Bldg. rent with stolen client funds. But we are relatively new, not old school like Madoff, so have no legacy reputation — nor trappings of BS — to garner the client investments for our legit operation.
Comment by S.Jacobs — March 23, 2009 @ 6:37 am