A Ponzi Scheme that is Bigger than Bernard Madoff’s

Bernard L. Madoff’s fraud is “stunning,” says the SEC. It is a crime of “epic proportions.” But, says the SEC, we have nothing to worry about. The SEC caught the bad guy. It “moved swiftly” to protect the integrity of the financial markets.


The only thing “stunning” is that the SEC continues to condone and even fraternize with the organized mob of hedge fund miscreants who have destroyed hundreds of companies, wiped out the jobs of countless ordinary folks, and brought our financial system to the brink of ruin.

The Madoff case may one day prove to be “epic,” but right now it can best be described as “pathetic” – or just plain “weird.”

Apparently, the SEC began receiving tips from Madoff’s enemies (rival brokerages, private investigators working for rival hedge funds, etc.) several years ago. The commission made inquiries, but took no action.

Then, earlier this week, Madoff purportedly had some kind of nervous breakdown, announcing to his sons that he was a criminal.

If we can believe the news reports, the sons then called the FBI, which dispatched an agent to Madoff’s apartment.

Madoff, dressed in a baby blue bathrobe and slippers, opened the door, and said, “I know why you are here.”

With that, the agent arrested Madoff, and within a few hours the FBI and the SEC had whipped out cases accusing Madoff of wrong-doing, but providing few details.

Indeed, it is clear from reading these cases that the FBI and the SEC know nothing about Madoff’s market making and hedge fund firm except that two employees (Madoff’s two sons) have made the vague claim that Madoff told them, vaguely, that his hedge fund was “a giant Ponzi scheme.”

Madoff’s lawyer says his client has admitted to no such crime.

Children do not usually turn in their fathers to the FBI unless they bear other grudges. And it is standard operating procedure for shady high-finance predators to sniff out and prey on feuding relatives who are in business together.

This in no way suggests that Madoff is clean, but it raises the possibility that even dirtier people orchestrated the demise of Madoff and his hedge fund in order to absorb his more lucrative (and crooked?) market making operation.

An alternative explanation comes from Bill Cara, one of the nation’s more perceptive business writers. He concludes that Madoff “is just the beginning. I don’t know, of course, more than you, but…I think he has in fact indicted himself to cause prosecutors to investigate the entire corrupt system.”

Whatever the real story, it is clear that market makers are accessories to a scheme that is much, much bigger than Madoff.

The key players in this scheme are 20 or so mega-billionaire hedge fund managers, who operate with a supporting cast that includes not just market makers, but also smaller hedge funds, rogue prime brokerages, corrupt lawyers, dishonest journalists, bogus one-man credit rating agencies, dubious index trackers, bribed “experts,” skalawag statisticians, compromised professors, private investigators, crooked financial researchers, captured government regulators, hustlers, felons, thugs and mafiosi.

The mega-billionaires masterminded their scheme in the 1980s, and ever since, they and their progeny have been working together – raiding and destroying public companies for profit. In the rubble of these attacks (there are hundreds of examples) one can almost always find evidence of unrestrained naked short selling (people selling things that they do not possess – phantom stock, phantom bonds, phantom mortgage backed securities, phantom CDOs, all manner of phantom derivatives).

This is the organized exploitation of our national clearing and settlement system – a system that fails utterly to ensure that traders actually deliver that which they have sold. If the SEC and FBI are looking for a “Ponzi scheme” of “epic proportions” – this is it.

Mr. Madoff surely knows something about this scheme. Market makers (Madoff’s operation was among the better known) are exempt from rules prohibiting naked short selling. They can sell stock that they have not yet borrowed or purchased, so long as they are legitimately “making a market” (i.e. maintaining liquidity) — and only if they intend to settle the trade soon after. In practice, however, billionaire hedge fund managers have rented market makers’ exemptions to manipulate markets with phantom securities – a blatant crime that is rarely prosecuted.

While Mr. Madoff is talking to the SEC and the FBI, I am going to begin telling you more about the scheme that is bigger than Bernie. Soon, I will name those 20 mega-billionaires, their supporting cast — and the man who is their guru. The evidence is pouring in – there is much to reveal.

But for now, let me leave you with a quotation from the Financial Industry Regulatory Authority’s “Notice 93-77.” Published in 1993, it reads:

Shortly after the market crash of 1987, “then Treasury Secretary Nicholas F. Brady referred to the clearance and settlement system as the weakest link in the nation’s financial system…Gerald Corrigan, President of the Federal Reserve Bank of New York noted: ‘The greatest threat to the stability of the financial system as a whole was the danger of a major default in one of these clearing and settlement systems…”

“The connection between a crisis in the clearance and settlement system and the financial industry was highlighted by the bankruptcy in 1990 of Drexel Burnham Lambert Group…As described in the [SEC’s] testimony before the Senate Banking Committee, near gridlock developed in the mortgage-backed securities market and in the corporate debt and equity markets where Drexel was an active participant.”

Now that our financial system has come to a screeching halt, read those words for clues as to how much worse things can get – and whom we need to stop to prevent that from happening.

* * * * * * * *

Mark Mitchell is a reporter for DeepCapture.com. He previously worked at the Wall Street Journal editorial page in Europe, Time magazine Asia, the Far Eastern Economic Review, and the Columbia Journalism Review. Email: [email protected]

If this article concerns you, and you wish to help, then:

1) email it to a dozen friends;

2) go here for additional suggestions: “So You Say You Want a Revolution?

  1. Is it possible that reduced naked shorting coupled with increased redemption lately meant end of the ponzi scheme? Another ‘victim’ of reduced naked shorting like David Rocker’s hedge fund?

    If true, ex-chairman of NASDAQ, highly ‘respected’, was engaged in massive naked shorting. Intersting.

    In 1930s, it was NYSE chairman who went to jain, now …

  2. Shouldn’t we bombard companies thinking of going IPO of what might happen if they do Who would they believe us or them? I bet the exchanges would attempt to get a restraining order if we began talking to their next financial molestation victems. What do you think?

  3. The mega-billionaires and hedge fund managers have already rushed out their talking points on Madoff. He is a “sociopath,” an “inveterate liar,” and a “jerk.” No less an expert on such matters as CNBC’s Kudlow repeated those descriptions Thursday and Friday. If that were so and Kudlow knew it, why didn’t he report it before Madoff turned himself in? Seems to me if Madoff were likely to provide evidence about the activities of others, they might wish to destroy his credibility by telling everyone he is a sociopath and a liar.

  4. Please stop repeating false statements such as——————–

    legitimately “making a market” (i.e. maintaining liquidity)——————

    “market making” provides liquidity ONLY when buying. The act of selling sops up liquidity. Liquidity is the existance of money for buying.

  5. N-Tres-ted:

    I concur re how the media quickly put out the gang to do the deflection from themselves to the focus on Madoff. The question begs is how do we overcome the Baghdad Bobs and find real investigative journalists such as Mark is demonstrating so we can get to solutions versus the same ol same ol. It was appalling to watch the line up stating they knew nothing and all we caught by surprise. Reminded me of J Cramers shock to hear of Spitzers shenanigans. Keep up the great work Mark.

  6. Dear Mr. Mark Mitchell:

    I can hardly wait for you to REVEAL & EXPOSE the names of those 20 mega-billionaires, their supporting cast — and the man who is their guru. PLEASE — give us their names, addresses, phone numbers, fax numbers and email addresses.

    I am positive that the entire world of legitimate investors wants to make contact with the Naked Short Selling Criminals — to voice their opposition to the financial destruction brought to so many companies and individuals.

    Thank you again for your excellent investigative journalism to EXPOSE & REVEAL the cast of characters doing the Naked Short Selling — and the underlying foundation of a flawed, corrupt settlement and delivery system.

    I believe in “justice” for all. Sometimes it takes a while to take-hold, sometimes it passes-by a person in their lifetime, but – NOW – with the internet age upon us, ALL of us can play a role. We can link your articles ALL OVER THE INTERNET. For all those that know what Mr. Mitchell, Mr. Bagley & Dr. Byrne are doing, let’s also do our part. Together, we cannot be stopped. To bring “justice” to the threshold of reality quicker, let us all post links to this article — and other Deep Capture articles ALL OVER THE INTERNET.

    Very soon — the forces of good will overcome the forces of evil — and “justice” will be realized!


    P.S. – Mr. Mitchell, I am pleased to hear that the “…evidence is pouring in…”. As “justice” moves closer & closer to our grasp, more & more people like Madoff will come forward to reveal the criminal-players in the Naked Short Selling World. I imagine you are a very busy man indeed.

  7. When you finally identify the guru, will he have already covered his tracks, by “George”, or will he be “Sore” about being prosecuted by “us”?

  8. Sam, I would have to disagree a tad and go drink some “Milk again”with good friend Mike and cook some food. Hopefully he won’t “Burn them” again!!! ( Not as good as you t this) LOL!!!

  9. What’s ironic in the Madoff case is that many of Madoff’s investors assumed that his earnings numbers were accurate but that they were associated with his crimes as a major market maker i.e. abusive naked short selling and “front running” crimes. After all he was a board member of the DTCC and he developed a lot of the automated trading systems. Whodathunk that betting on criminal activity on Wall Street might not pay off.

  10. From IHUB:
    Posted by: lottoplayerslair Date: Saturday, December 13, 2008 4:25:32 PM
    In reply to: jimmym4 who wrote msg# 264167 Post # of 264204

    a lot of naked shorting went through there too, you all have to remember is that bernie has hid the money and now calling it all a ponzi scheme is just more smoke to hopefully get his kids and cohorts off the hook. bernie’s best friends are the regulators, he says so in the you tube conference 10/2007 ,he was the chairman of the nasdaq ,otc and pinks for years, he helped create the order flow to computers ,he knows the only real way to make money is naked shorting stocks on the otc and pinks as soon as they come out of the box,thus his big clients knew this too, they are not stupid. he has been in the business since 1960.he knows where all the skeletons are buried and this knowledge will limit his punishment. god forbid this guy spills all the beans because major peeps in all categories will go down. bernie contributed many dollars to clinton campaign and sec cox i am positive has big freindship with bernie. nssing is like shooting pigs in a barrel.bernie madoff and bernie ebbers don’t have the same connections. the problem here is that the jig is up, over, kaput, and the naked shorting has to be covered starting next monday 12/15/2008. bernie confesses and turns himself in on 12/11/2008. bernie doesn’t want to use his own money to buy back all the years of naked shorting, he can’t, there is not enough money with doing that and at the same time a lot of his investors want their money back.
    the fbi has been working with madoff a long time on this prepackaged deal. look he is out on bail for $10 million only. he is eating his cream cheese and lox on a multi grain bagel as we speak from his new york apartment.
    the deal has already been predetermined how many years ot months he gets and the fed will step in and buy back these short positions.
    bernie was number 23 or the top 30 market makers, prime brokers but more importantly he was the main king pin of pink and otc nssing.
    One Trillion Dollars of trading a year went through madoffs firm!!
    and he talks about pinksheets and OTCBB Stocks!!>>>>
    It gets interesting at the 30 minute mark!

    Notice how Josh looks at the ground when he explains KEY points of Market Making!
    This IS the Smoking Gun!! IMO

    there will be many more coming stay tuned and ride your cellar boxed wonders. imho do some dd

  11. There’s one VERY important aspect of Bernie Madoff’s operation that Sparky thinks warrants a little more attention; and that is the ongoing industry-wide spike in redemption requests.

    Specifically, if Madoff had not been inundated with withdrawal requests, his giant Ponzi scheme could have literally gone on for ever, and all the dirty secrets now being unearthed would have remained safely buried.

    And that connection – the one between sudden withdrawals and pyramid collapses – brings Sparky to his final point; which is this: Structurally there is very little difference between how Madoff ran his operation and how John J Mack, Pandit the Bandit, and Jamie Dimon (to name a few) run their slippery, over-leveraged, greed-driven operations!

    And if Sparky isn’t right on target regarding this striking similarity, then why have thoroughly-confused Fed Chief Ben Bernanke and always-a-greedy-banker but now Treasury Secretary Hank Paulson used so much airtime recently assuring depositors of just how safe their deposits are, how the FDIC has always honored every claim, and how the insured limits have now been raised?

    Think about that!

    Why did the FDIC raise the limit on deposits insured? Isn’t that just public relations fluff? Couldn’t that tiny sliver of Americans who have over $ 100k in any one bank and would thus benefit from thsi widely-publicized limit hike, simply have opened additional smaller accounts and accomplished the very same end?

    It’s all a complete scam folks!

    The three Bozos, Professor Ben Bernanke, Hank “Securitization” Paulson, and always-grinning and obviously-conflicted SEC Chair Christopher Cox know exactly what would happen to Bank of America, Citigroup, Goldman Sacks, JP Morgan Chase, Morgan Stanley, and Wells Fargo Bank if they ever experienced a run on deposits that was even half the level that sunk Madoff.

    Presently these US-based and now-nationalized-by-Hank financials are somewhat sheltered from runs in that depositors who withdraw funds from one Pig most often simply deposit it with another Pig.

    But that too will soon end as more and more depositors use their cash to sensibly hoard precious metals and commodoties – Just Watch!


  12. I see we are nearly there then.

    Do you think “Big Fish” is reading along yet?

    I do


  13. Paulson, Soros, Griffin, Cohen, Chanosthos are my first five, anyone elso care to speculate on the next five? Until we reach 20 that is..

  14. Sean, in answer to the speculation, I say the majority will be terrorist orgaanizations and the russian mob.

  15. As an earlier post correctly recognized, it was the redemptions which ended this fraud. One must wonder how many more redmptions will be requested as a result of this story and how those redemptions will affect other funds.

    The potential ripple effect of this story is almost unimaginable.

  16. And still nowhere to be heard or seen are our main street media gurus going after the real criminals!!! Thanks again Mark et al for all of your most worthy efforts!!! This this is about to explode and there is nothing that they can do to stop it!!

  17. I hope the evidence is as damning as you imply. Think it might involve Obaha’s internet guru, Soros? Raising $875 mil for the campaign would have been pretty small potatoes.

  18. “Liquidity is the existance of money for buying.”


    Liquidity is the availability of counterparties for whatever transaction you’re trying to effect. This confusion of liquidity with cash is a big part of why the Fed is making things worse as we speak.


  19. As for naked shorting, that’s something that an exchange should decide whether to allow, not the government. Any sale, whether it’s covered or short, is made immediately and closed on the settlement date (in three days, usually) and the seller has to deliver the shares.

    The exchange has an incentive to ensure that the trader can deliver, because if he renegs, it’s ultimately the exchange that has to make good on the trades. This is a matter for brokers and exchanges to regulate just as they regulate margin requirements.


  20. Reason that the two sons ratted on the father is very easy to understand.The two sons were envolved in the affair for over twenty years. Simply put–daady asked them to do it.This way only old daddy goes to jail. Once sentenced–Daddy-o gets his doctor to say he has a heart problem and jail will be harsh on his health. Any bets–won’t serve a day in jail?
    By the way,the author never mentioned the interest–10-30%. The investers deserve jail time to :^(

  21. Do you remember Malaysia’s Dr. Mahatir criticising Soros for having more power than any country or elected representatives because he controlled so much money through hedge funds? We all thought, he was on the wrong side of ideology – but boy is he vindicated!
    I once read a book called ‘The Laundrymen’ which stated that if all illegal activities were taken out of the finance system, it would collapse. What if all the controls put in place through the threat of terrorism wiped out financiers of multi-million Dollar shipments? Is that part of the avalanche?

  22. from: http://calltoaccount.wordpress.com/2008/12/14/28/

    Congress, SEC and Financial Media Enabled Economic Meltdown

    I usually harken to George Friedman’s latest Stratfor Geopolitical Intelligence report because the analysis is typically well thought out, clearly articulated and often insightful. But when he recently wrote: “Recessions occur when, as is inevitable, inefficiencies and irrationalities build up in the financial and economic system,” he sounded like just another Wall Street apologist aping the mainstream financial media penchant for using weasel words like inefficiencies and irrationalities to characterize the deeds of wrongdoing that have finally brought the world’s finances it its knees.

    In eschewing its once noble calling to speak truth to power as the Fourth Estate, today’s captured corporate media has become our 21st century fifth column, abusing the public trust from within by either failing to investigate and accurately report evidence of massive unlawful conduct, or on the rare occasions it does, by sugarcoating criminal deeds with words more aptly suited to boyish pranks– shenanigans, hijinx, mischief, monkeyshines and foolishess– rather than call a spade a spade and honestly label them the acts of consummate lying, cheating and stealing they are. Irrational exuberance and moral risk, indeed.

    Friedman also doesn’t seem to realize that the crisis now decapitating the world’s economies didn’t have to happen– would not in fact have happened if those charged with protecting the financial system and the investing public— namely Congress in general and the Securities and Exchange Commission in particular— had simply done their jobs, upheld their oaths, and seen to the enforcement of laws already on the books, instead of consistently looking the other way; or worse still, directly aiding their campaign contributors, benefactors, patrons, employers and future employers by contemptible acts of public disdain such as repealing Glass Steagel, allowing Reg Sho’s grandfathering of billions in counterfeit shares, scuttling the systemic market protections provided by the uptick rule, and encouraging $62 Trillion in credit default swaps, insurance contracts in all but name, that would be void as against public policy for lack of “insurable interests” if called by their rightful name, as the courts should some day do.

    While today’s crisis had lots of chefs, the cake could never have been baked if certain of those in government had not unflinchingly aided the finance and banking industries in zero-sum gaming the system. Cloaked in the Gekkoesque doublespeak of deregulation, innovation, self governance and market efficiency, they fostered a free market system in which the only thing free about it was that insider participants (read banks, hedge funds, broker dealers and their minions) felt free to pillage and plunder at will; a system steeped in secrecy, cooked books, phony opinions, reckless ratings, ludicrous leverage, off balance sheet conduits, and zero accountability; a greedy, arrogant, amoral, some say sociopath culture of corruption, unfettered by the fear of ever being caught, having to admit wrongdoing, or suffer any meaningful punishment.

    And why not, knowing their misdeeds would also be zealously overlooked or glossed over by a feckless financial media that dutifully ignored or proclaimed wrongs like naked shorting, stock counterfeiting, failure to deliver and options market maker fraud, mere mirages, while sucking up to billionaire short-seller hedge fund finaglers and ridiculing people like Overstock CEO Patrick Byrne, who valiantly tried to sound the warning.

    This collective dereliction of duty (some might say treason, given the harm that has– and is yet to befall us) further emboldened the wheeler dealers in an already historically suspect system to make market manipulation and fraud not just the occasional aberration, but the very modus operandi and profit leitmotif. Of late, they’ve even gone so far as to naked short the gold and silver markets along with $2 trillion in US Treasuries!

    Over the past ten years, increasing numbers of financial experts, economists, academics and market reform advocates like Byrne, Bob O’Brien, Dave Patch, Robert Shapiro and Susan Trimbath, along with tens of thousands of individual investors who’ve seen their retirement savings swiped in broad daylight, have repeatedly complained, cajoled and pleaded with Congress, the SEC and their industry owned and controlled accomplices at the ironically named Depository Trust Clearing Corporation to stop the carnage— but to no avail. (The DTCC’s latest attack on investors which they call dematerialization, seeks to do away with all paper stock certificates, the only true evidence of share ownership, to be replaced by a “trust us” electronic record, known only to the DTCC).

    While a rare few in Congress— notably Senators Grassley (IA), Specter (PA), and Sanders (VT)— seem to comprehend just how crooked, unfair and untrustworthy our markets and their regulators have become, one wonders how those who’ve charted the SEC’s course over the past 8 years could have any doubts about it! As the agency explicitly created to first and foremost, uphold and protect the integrity of the markets and the best interests of the investing public, they have, with unceasing devotion, in the eyes of most informed observers, done the exact opposite– enabling wrongdoers to operate with almost total impunity. A bold faced license to steal.

    As with the O.J. murder trial years back, there is a mountain of evidence of wrongdoing, but the jury in this case, Congress, the SEC, and the financial media have remained steadfastly deaf, dumb and blind to it.

    The NY Times just reported that both the SEC and FBI seemed “taken by surprise” by former Nasdaq lead market maker and Chairman Bernard L. Madoff’s alleged $50 billion fraud, while harmed investors are incredulous that the premier regulatory body and protector of the investing public could have missed such a towering Ponzi scheme. Authors of the NY Times “Your Money” column added their tin dime claiming “Thankfully, outright fraud is pretty rare,” evidencing once again that at the paper of record, journalism itself is in a state of permanent recession.

  23. NPR News reported in “All Things Considered” on December 12, 2008:

    “Last year he [Madoff ] spoke in a panel discussion in New York about the future of Wall Street. He told the audience that firms like his are very well-regulated by the federal government.

    “In today’s regulatory environment, it’s virtually impossible to violate rules,” he noted. “This is something the public really doesn’t understand. If you read something in the newspaper and you see somebody violated a rule, you think, ‘Well, they’re always doing this,’ but it’s impossible for a violation to go undetected.””

    ( http://www.npr.org/templates/story/story.php?storyId=98204357 )
    (audio recording of this statement supplied here.)

    Here Madoff states the same lie we here over an over from the captured press: “In today’s regulatory environment, it’s virtually impossible to violate rules,”

    NPR concluded that he was right, since he was caught.

    We are still waiting for RULES that concretely forbid Counterfeiting of publicly traded stocks.

    Last night as I began to watch a DVD movie, I was struck with the irony of seeing an FBI Anti-Piracy statement at the beginning of the movie while knowing that our SEC refuses to put in place concrete Anti- Counterfeiting Laws to criminalize naked-shorting.

  24. From the WSJ:

    An enforcement case 16 years ago gave the Securities and Exchange Commission its first shot at figuring out how Bernard Madoff could rack up favorable returns with such uncanny consistency. After that, it received repeated warnings from outside whistle-blowers and at least twice looked into Mr. Madoff’s brokerage itself.

    Each time, it blew its chance. It was only last week, when Mr. Madoff allegedly confessed to his sons that he was running what amounted to a “giant Ponzi scheme,” that the apparent $50 billion fraud came to light.

    “This is a debacle for the SEC,” said Joel Seligman, an SEC historian and president of the University of Rochester in New York. “The commission has a lot to answer for.”

    The revelations are the latest blow to the reputation of an agency that has been criticized for insufficient enforcement and the failure to better monitor the dangerous risk-taking on Wall Street that triggered this year’s financial crisis. Congress and the incoming Obama administration already were planning a regulatory revamp, and the Madoff case may make the SEC’s chances of survival shakier.

    The case also will likely fuel calls for more regulation of areas that have fallen outside the scope of oversight, including certain types of investment advisers who can ply their trade without ever having to tell a federal regulator what they are up to. The SEC declined to comment about its record.

    Mr. Madoff’s money-management business appears to have fallen into a regulatory gray zone for years, and the ambiguity may have helped him evade oversight. Though he was gathering investors’ money and choosing how it was invested, he wasn’t a registered investment adviser until 2006. Some people described his business as a hedge fund, but he didn’t create a formal fund into which investors could put their money.

    In a 2001 interview with a trade publication, Mr. Madoff compared himself to a broker who handles investors’ accounts and gives them tips on where to put their money. He was in fact a broker-dealer and regulated as such by the SEC. Several former SEC regulators said they thought Mr. Madoff’s broker-dealer business dealt entirely with trading by Wall Street firms, not by individual investors.

    Mr. Madoff enjoyed a good reputation on Wall Street that may have helped him evade suspicion. His market-making business serving institutional investors went back to 1960, and he was a former chairman of the Nasdaq Stock Market. The SEC itself tapped his expertise, naming him to a 25-member advisory committee on market structure in 2000 and frequently calling on him to be a commentator at agency round-table discussions.

    He even got his name informally applied an SEC rule. The “Madoff exception” allowed market makers such as Mr. Madoff to sell stock short to facilitate a customer buy order, even if the stock in question was ticking downward. Under a rule that was in place until last year, short sales on a downward-ticking stock were normally prohibited. In a short sale, investors borrow stock and sell it, hoping to repay with shares bought at a lower price.

    In a statement late Friday, the SEC said its inspections unit reviewed Mr. Madoff’s market-making business in 2005 and found that he violated technical rules about executing trades. The agency’s enforcement division in 2007 investigated a part of a whistle-blower’s concerns, but closed the probe without bringing a case.

    Mr. Madoff registered his firm as an investment adviser in September 2006, and newly registered advisers are supposed to be examined within the first year. There is no indication the SEC ever conducted that examination.His registration form said he was paid through trading commissions, rather than the usual method of taking a percentage of his clients’ assets and investment profits. That apparently failed to raise red flags.

  25. Did you ever notice they never explain the mechanics of his fraud? For example, what was the $10 billion Refco sold, but hadn’t yet purchased (a repo or way to avoid rules on lending shares)?

    Instead, the old boys network absorbs the problem in an acquisition of assets and some new player holds the IOU’s. Nothing ever seems to force the IOU’s to be honored.

    For those that haven’t read it, this link from Patchie is illuminating:


    “Bawag’s hidden dealings also included an investment company founded by the late Palestinian leader Yasser Arafat, more than $1.3 billion in secret hedge fund losses and a tangle of Caribbean holdings, including phantom bonds Bawag used to disguise bad loans as an investment the bank valued at 350 million euros ($443 million).”

  26. Private Madoff conference call on SHO with SEC.


    Once considered a radical practice but only a minor source of inefficiency, payments for
    order flow – agreements by which dealers offer monetary rewards or other non-pecuniary
    services to brokers in exchange for the routing of retail market bid or ask offers116 — have
    become a core regulatory concern. The controversy became prominent in 1993, when Madoff
    Investments mysteriously garnered 10% of NYSE-listed volume through a legal “kickback”
    scheme that permitted brokers to increase personal revenues without obtaining the consent of
    their clients.117


  27. The same brokerages that are all going under:


    As what has become a pattern of the SEC, the investing public is not given equal face time to openly discuss matters/analysis with the Commission as is frequently being afforded to the institutions the Commission is responsible for regulating; a double standard that puts in question the Commissions true motives. [Ref: The SEC’s Documented Memorandums to meetings held during the inception of Regulation SHO with the Securities Industry Association, National Service Clearing Corporation, Bear Stearns, Madoff Investment Securities, Hill Thompson, Citigroup Global Markets, and LEK Securities Corp http://www.sec.gov/rules/proposed/s72303.shtml ]

  28. “The Madoff Exception”


    Regulation SHO, Rule 200 – Order Marking and Ownership

    SEC Rule 200(g) defines the ownership of securities with regard to short sale transactions previously enumerated under SEC Rules 3b-3 and 10a-1(d). Pursuant to the provisions of SEC Rule 200, all sales of equity securities must be marked “long”, “short”, or “short exempt”.

    Orders can be marked “long” only when the seller owns the security being sold, and such security is in the physical possession or control of the broker-dealer, or it is reasonably expected that the security will be in the physical possession or control of the broker-dealer prior to settlement.

    Orders must be marked “short exempt” if the seller is entitled to rely upon any exception to the tick test under SEC Rule 10a-1 and Exchange Article IX, Rule 17. Short sale transactions involving a specialist pursuant to the so-called “Madoff” exception or the equalizing exemption under SEC Rule 10a-1(e)(5) (sales by specialist or market maker on a zero-minus tick), however, need not be marked as “short exempt.” Orders marked “short exempt” must also comply with the stock locate requirements detailed in SEC Rule 203 below, unless some exception applies…

  29. Something smells. Ponzi is so low class, but easily understood and doesn’t raise the ire that money laundering implies. Better to lump it altogether and claim that the money he took in had been paid out to old investors. Madoff had 10% of the trading business. If there is money laundering on Wall Street, he did 10% of it.. pure stats. Every trade is now open to discovery. He was paying for order flow, yet was trading himself on other venues? He has an office full of traders, and doesn’t have a Chinese Wall if he is doing trades himself.

    The whole point of having Madoff hold the assets and manage it for the big funds was that they could collect fees for them doing nothing. How much was he charging and how much were they charging their investors? The money would be used up rapidly if he were charging large fees and paying out gains so that the funds’ managers could get their cut.

    It would be interesting to see how much the funds were running through the broker in trades besides what was in the funds. How much money was actually transferred in and taken back out? Was there money actually transferred in or were these trades just bogus to cover up dirty money? As a market maker, he could book trades by naked shorting and do the reverse at a lower price, pocket the difference and no money ever trade, just giving the client a trade to explain the appearance of a loss and an explanation of the money having come from a brokerage account that was established. Chasing down where the money came from would be obliterated by the presence of a fund and stock trades.

    He traded a trillion dollars a year.. so these bogus money laundering things possibly in the millions wouldn’t hit the radar, particularly if they didn’t trade on the US exchanges or were only ledger entries with an accompanying account statement in paper. All of his foreign counterparty trades need scrutiny. The fact that he was instrumental in computerizing the market and didn’t allow his clients computer access to the accounts is suspicious. His going to cash every quarter so that he didn’t have to report positions is also ripe for fraud. He couldn’t do all of this alone. By not allowing people access to their accounts, he had plenty of time to figure out post market what trades to record. If people had online access to their accounts, he would have real time scrutiny.

    He could even show a profit for these guy’s trades if they paid him more than the amount of the transaction. They want to launder 2 million sending him 100K through a backdoor, he does a trade that shows they bought at 1.85 and sold at 1.9. On another set of books, he does his own trade at 1.9 and sells for 2 booking 100K for the firm. The entire amount has been laundered, The fund pays taxes on 50K and he pays taxes on 100K. They only pay taxes on 7.5% of the total.. and everyone is happy. The taxman gets his.. Broker actually makes about 65K after taxes for fabricating two transactions. The cost of laundering is 100K plus taxes or 6%. Neither gain is so great as to raise suspicion and can be done after the fact finding the right stock that would meet the appropriate price fluctuations.

    Fact: We have a self-confessed crook.

    Fact: Crook trades 10% of the volume..

    Fact: Securities market is used for money laundering.

    Rational Assumption? Madoff was responsible for at least 10% of the money laundering.

    This becomes even more questionable with all the lies about integrity and success that this was included in Madoff’s home page.


    To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.

    What this means for you: When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.”

    By taking in funds of funds, this can be avoided. Just the manager of the fund is recorded… hmmmm…. interesting.

  30. I’ll supply the rope, the oak tree, and chair. These naked shorting fraudsters don’t deserve any better.

    You wonder why so many start up companies never had a chance at success.


  31. Madoff is only the tip of the iceberg. I lost big money if two companies that went bankrupt due to naked short selling. Naked short selling is a license to steal. No one can withstand the continued use of borrowed funds to naked short a relatively small company. Take any company that pays a substantial dividend. Who buys dividends? Small investors, retired investors, little people. These dividend payers do not have large investors so they are the best companies to drive out of business with the naked short technique. Just keep selling. At first the little guys buy more stock because they think it has become a bargain. Just keep naked short selling. Soon the little guys have spent all their money buying the bargain stock. Now, the stock starts to drop based upon the naked shorts. Soon all the charts look very negative. Eventually the little guys get scared and start the snow-ball effectd of real selling. The stock is ‘helped’ down whenever it tries to rally by additional naked short selling. Soon the price per share is so low that the Company cannot use its own stock to raise money. Now comes the loss of profits, lack of financing, and soon the insolvency. All this was pre-ordained by the rich naked short sellers who knew in advance the pattern that would make them rich. The naked shorts do not have to declare their profits on the stock to the IRS because they do not consider their positions ‘Closed’ until they settle-up their short position. If the company gets insolvent and closes its doors, no formal bankruptcy, then the naked shorts probably never declare the position closed and never pay any income tax. Probably all legal with the crooked IRS. The IRS is also too busy auditing the records of the moms and pops who lost all their retirement savings in the naked short scam.

  32. Could someone explain to me how money is made selling a naked short position?

    So I assume a stock is going to go down in value…so I sell a naked short? Then what?

  33. Although I am a 71-year-old noninvestor who knows relatively little about the financial markets, I have for years been wondering how certain far-out activities reported by the media could be allowed in our country, where there are laws against fraud and many agencies exist that are charged with checking up on matters involving money. Now, sadly, I know, and I know I was right to be amazed at what I heard.

  34. I thought, if a company is publicly listed in the NYSE, it could not be running or can not run a PYRAMID SCHEME? Madoff Investment Securities, a publicly listed NYSE company, was able to run a pyramid scheme ? How did that happen? What is the purpose of being listed in NYSE?

    I am asking this question, because for us non-millionaires, living in Asia, being recruited by NU SKIN , for what looks like a pyramid scheme, NU SKIN people are saying that any company publicly listed in NYSE can not be running a pyramid scheme.

    Please investigate NU SKIN, and their deceptive marketing strategies.

  35. (1.)7 Star – Graphics Service Team
    L.A. Lewis Enterprize Ltd is the #1 designing company in the Caribbean. We design graphics for your business and campaigns starting from business cards, flyers, posters, billboards up to complete solutions to cover bus, cars and bikes.
    (2.)7 Star – Promotional Service Team
    L.A. Lewis Enterprize Ltd is #1 one promotional company in the Caribbean. We use guerilla style marketing to get your artiste or your product promoted in the streets.
    As you know the streets is the people and the people is the streets. We have successfully promoted dancehall events, concerts and festivals as

    Sting – the greatest one night Reggae show in the world / Portmore, Firelink- Hot Monday and Weddy Weddy / Kingston
    (3.)7 Star – Supplies & Rentals and Services Team
    At L.A. Lewis Enterprize Ltd. we offer the full range of equipment for your successful event or incentive.
    Ask us for:
    1. Lighting & Stages , 2. Sound systems 3. P.A. systems
    (4.)7 Star – Legal Service Team
    At L.A. Lewis Enterprize we network with the finest lawyers to suit your needs. Our lawyers work 24/7 to see that your case is well represented and victorious. We represent DJ´s, singers, musicians, sports personalities. whether it is to assist in copyright, publishing, lawsuit and case claims on any area that the law is required, under music and entertainment.

    (5.)7 Star – Tracking Service Team L.A. Lewis Enterprize Ltd. provides the #1 tracking services in the Caribbean for Jamaican Musician, sound systems, sport personalities, venues, entertainers. Over a short period, our team has tracked down 576 artists and found them with their excellent connections to police and cooperators. If we cannot find them – no one else can! We help you to find out – call now.

    (6.)7 Star – V.I.P. Service Team
    L.A. Lewis Enterprize Ltd. is specialized in extreme demand for high-class guests and VIP´s.
    – Limousine service, top car and luxury car rentals, male and female escorts. We make you feel comfortable! Highly confidential.
    (7.)7 Star – Fashion Service Team

    We recruit and supply the finest male and female models in different sizes for all your fashion shows and party needs. We also provide videographers and photographers to cover all your fashion events. .
    Please feel free to call us now.

Comments are closed.

Previous Article

Naked short selling hedge funds: is it ESP or just FTD?

Next Article

Carol Remond Tells a Joke She Doesn't Get (DowJones)

Related Posts