My colleague, Jim Stergios, mused a few weeks ago about Bernie Madoff and the lack of trust out there right now. And Jim is exactly right.
In a previous life, I was part of group that attempted to raise an investment fund (obviously it didn’t work out, did it?). My colleagues were forever pitching the idea to a variety of placement agents, fund-of-fund operators, and miscellaneous middlemen. These gentlemen were always impeccably dressed, impossibly self-assured, and gave off a well-monied whiff that, by virtue of pedigree, education and/or previous employer, each had some link to sources of capital.
That fund never got raised (obviously) but I was reminded of those particular types as I read Harry Markopolos’ devastating critique of Madoff’s operations. Markopolos was an investment analyst of some renown in Boston and he called Madoff’s bluff back in May of 1999. But no one was listening.
I urge you to read the whole document. In summary, he proves that Madoff could not have earned the returns he claimed with the lack of volatility he claimed using his professed strategy. Markopolos also demonstrates that the structure of Madoff’s operation was preposterous on its face — Madoff left absurd amounts of money on the table for his intermediaries.
And here’s where the trust issue comes up. All these intermediaries advised/convinced clients to place money with Madoff and they made good money on the transactions. None of them performed the due diligence that they should have. From reading Markopolos’ takedown of Madoff, its clear that they should have known something was amiss. Instead, they went along with the charade.