The Absurdity of the Madoff Conspiracy & the Dangers of the Slippery Slope
Madoff’s lawyers submitted a 6-page story in which he admitted to running a Ponzi scheme all by himself with no one else’s involvement. The gall of this guy is amazing, but my favorite bit is where he writes in one place that:
I want to emphasize…that while my investment advisory business – the vehicle of my wrongdoing – was part of my firm Bernard L. Madoff Securities, the other businesses my firm engaged in, proprietary trading and market making, were legitimate, profitable and successful in all respects.”
Okay… But then else where he says that,
…I never invested [money from investors] in…securities…”
He relates in further detail how he never bought shares he just moved cash around between various accounts. He then writes that,
In connection with the purported trades [that he was telling his clients he was making], I…charge[d]…clients $0.04 per share as a commission.”
At times…these commissions were transferred…to the account for the legitimate side of Bernard L. Madoff Investment Securities – the proprietary trading and market making side of my firm.”
This is so amazing to me. He’s basically saying that there was a “good” part of his company and a “bad” part, and, oh ya, please ignore those money transfers between the two sides. LOL. Are we to believe there is a “good” part of Bernie Madoff and a “bad” part too? Maybe we should only put the “bad” part of him in jail?
The other part of the story that is interesting is how the whole thing started. While he doesn’t give much detail, it sounds like it started small in the early 90’s. Then when the market moved against him he plugged the gap with investor money and one by one he must have dug himself into a hole. At some point it must have gotten too big for him to stop so he just kept feeding the beast until it blew up. It’s the same story all over again. It’s how Nick Leeson brought down Barings.
I wrote about business ethics last year (incidentally before the Madoff thing became known) and how raising money always presents a slippery slope trap for entrepreneurs. There is a lesson here for all of us.