Tuesday, December 16, 2008

A Question about the Madoff Scandal

Why confess now? If you're running a Ponzi scheme, and investors are starting to ask for their money back, why not do what other, putatively legitimate, hedge fund firms have done and announce that you are restricting withdrawals for a few months while you sort out illiquid positions? You'd still have the problem that your actual assets are significantly less than what you have claimed, but, again, why the need to confess the scheme? Let's say that the returns you've claimed imply that you have $50 billion in assets under management, but you only have $15 billion. Wouldn't 2008 be a convenient year to blame the difference on suffering catastrophic investment losses?

I guess Madoff's sense of guilt caught up with him, but it seems like an awful year such as this one would be one in which it might be possible to unwind a Ponzi scheme without getting caught.

6 comments:

Elliot Spitzer said...

It has been reported that he had only $200 - 300 MM in cash left.

He'd made all the distributions he could with nothing much left to send out.

Time to stock up on Vasoline.

DaveinHackensack said...

Perhaps that explains it: he waited too long. Had he taken the tack I mentioned in the post, say, six months ago, maybe it would have worked.

Ken Lay said...

Maybe he's planning on faking his death and fleeing to the Bahamas like me. You can't retire when you're running a Ponzi scheme you know.

Bill Clinton said...

Ken, No wonder you're well known as a "good Lay"

Ken Lay said...

Well, I don't have any issues that force me to use cigars, I'll tell you that.

DaveinHackensack said...

Speaking of Elliot Spitzer,

John Gapper had a somewhat humorous blog entry about him in Wednesday's FT. I'll post it separately.