<p>All investments carry risk, but one of the risks that I don’t consider is the risk of outright fraud. Maybe we all should…</p>
<p>I think the main mistake people made, like this gentleman and the author-lady, was in putting <em>all</em> their eggs in Madoff’s basket. They didn’t spread it out to several different brokerages or put it in diversified funds. They handed it all to Bernie. True, they were apparently getting great returns (on paper) but even honest firms go belly-up from time to time.</p>
<p>I believe that investments up to $500k at normal brokerages are insured against fraud, ellemenope.</p>
<p>How many of you own money market mutual funds? How many have looked to see what those funds are invested in? Do you think your mmf is as safe as “cash”, whatever cash is? Of course now many of the mmf’s are guaranteed by the Fed. I looked at my Schwab money market fund and I saw a lot of commercial paper issued by conduits. These are nonbank entities created by banks that issue commercial paper and use the proceeds to buy asset backed securities. Does that sound familiar? For all you know your money market fund invests in commercial paper backed by those infamous subprime mortgages. So do you read your money market fund prospectus? These conduits also have funny names so it requires a bit of research to find out what/who they actually are. Oh, but the commercial paper is all AAA rated by S&P… Does that sound familiar? I moved most of my money out of the regular mmf and into a US Treasury money market fund… currently yielding pretty close to zero after fees. And don’t confuse a US Treasury money market fund with a “US Government” fund. The US Government fund is mostly invested in securities issued by govt agencies, you know… like FNMA and FHLMC. Yes, the govt stepped in and bailed them out too, but otherwise how safe are they? Do you remember that several corporations had to write down cash positions because their cash was invested in auction rate preferred instruments? Corporate treasurers… financial professionals mistakenly believed that these were safe investments, same as cash in the bank.</p>
<p>I think it is very disingenuous to lay any of the blame on a 90 year old retiree who thought he was having his money managed safely by a professional. Yes, clearly he made a “bad decision,” by definition, but if you think that somehow through your own due diligence you have immunized yourself against any similar losses I think you are fooling yourself. Maybe you have been lucky so far.</p>
<p>But the real irony (will somebody please shut this guy up? 
) is that some of the Madoff victims, with SIPC coverage, will come out much better than some professionally managed portfolios that could easily be down 90%, if you held… LEH, BAC, C, GE… GM… F</p>
<p>I see nothing wrong with what madoff did. The old guy and everybody else deserves it. Maybe people will wake up and take RESPONSIBILITY.</p>
<p>^^^ Wha . . . . ?</p>
<p>VH, don’t feed the equine. 
He/she says deliberately and unnecessarily provocative things on many threads. Send him/her out to pasture.</p>
<p>I thought the victims would be entitled to restitution of up to 500K from the SPIC, assuming they can show they put that much in (net of anything they took out) – not lost phony profits. Hopefully that will be settled soon. I realize that 500K is not a staggering amount, but hopefully it will keep people out of the poor house. </p>
<p>I doubt the SPIC (similar to FDIC, but for brokerage accounts) is adequately funded, so some of this will come out the taxpayers pocket. </p>
<p>Hopefully the SEC, with a new “tone at the top” will do a better job of enforcement, and shut these things down earlier.</p>
<p>SIPC will cover victims of Madoff when he was a broker dealer, but it looks like the SIPC is really strict about what it does cover.</p>
<p>From a Wall Street Journal article: "Losses from theft and proven unauthorized trading are generally covered. Losses from fraud, churning or manipulation of stock prices are usually not. SIPC also doesn’t cover investment losses or some holdings, such as currencies, hedge funds and limited partnerships not registered with the SEC.</p>
<p>“Our job is really elegantly simple: It’s to return the contents of your account,” says Mr. Harbeck."</p>
<p>“Based on a conversations with the SIPC general counsel Josephine Wang, if clients were presented statements and had reason to believe that the securities were in fact owned, the SIPC will be required to buy these securities in the open market to make the customer whole up to $500K each.”</p>
<p>This will be a mess for years to come.</p>
<p>I heard or read that SIPC may cover someone who invested directly with Madoff, but if your professional money manager (to whom you were also paying a fee) placed your money with Madoff the SIPC will not cover you.</p>
<p>Many of these people should also be able to amend their previous 3 years tax returns to get back refunds for those years – and/or claim theft loss this year. I know it isnt much, but it should help.</p>
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<p>Thank goodness my father directly invests in low risk treasuries. It cuts out the fees of Madoff and his ilk.</p>
<p>I also think it’s a good idea to spread money around and not just located in one area.</p>
<p>Well Im not trying to create some war or anything and I dont mean to cause problems. </p>
<p>But can somebody please tell me what is wrong with what Madoff did and how the people who invested didn’t deserve what they got. It was an investment, and as with all investments they took a gamble. They could have won big, but they lost instead.</p>
<p>Huh - you do know what “fraud” means? If you think Ponzi schemes are a legitimate investment vehicle, what about falsifying records? He never made a single stock trade, as it turns out, although the investors got detailed statements showing they owned stocks.</p>
<p>As someone on another thread said–Don’t feed the Horse.</p>
<p>
I’ll take your question as legit - What he did was wrong because it was guaranteed to fail because it was a ponzi scheme - i.e. paying off earlier investors with the money of later investors with a whole lot of it ending up in his own pocket. Any scheme like this is guaranteed to result in the people at the tail end losing all of their funds. In other words, they were swindled. The money was effectively stolen from them under false pretenses. this was not a legitimate investment like stocks, bonds, real estate, etc.</p>
<p>
One could say the majority of the victims in some sense ‘deserved what they got’ because they invested their money, sometimes very large amounts, in an investment they didn’t understand and yes, they were motivated by receiving a higher return rate than most safer investments. What they did was essentially foolish. However, they were also victimized by Madoff and swindled. I don’t think anyone ‘deserves’ to be swindled any more than if someone’s grandmother fell for any of the swindlers who are trying to constantly trying to take her money through the fake check scheme, the ‘final notice of car warranty’ scheme, the ‘Nigerian prince with your relative who owned a diamond or gold mine’ scheme, the phishing, or anything else. So in the end, I don’t think the victims ‘deserved it’. They were foolich to invest in it but they didn’t deserve to have their money stolen. </p>
<p>Read up some more on what he did and I’m sure you’ll be able to discern the difference between legitimate investments and what Madoff did.</p>
<p>Thank you UCLA dad.</p>
<p>I would also add what makes it particularly fraudulent is that investors were led to believe that their money was earning a return from savvy investments in the market (and they had no way of knowing that they there were in fact no investments, but simply that prior investors were being paid out from the money from subsequent investors).</p>
<p>It is just like any other pyramid scheme. Someone at the outset makes a bundle but it only lasts as long as you have more players entering the game than those already in it. When such future players peter out at a greater rate than the pay outs one needs to make, someone is stuck with the loss. </p>
<p>Of course some argue the market in general has been operating like one big ponzi scheme, but that is worthy of its own thread.</p>
<p>I don’t understand how he could have kept up his Ponzi scheme for so long. After a while, you run out of people to defraud. But I guess the reason he could get away with it is that he wouldn’t need mass quantities of money until lots of people wanted to cash out. Until then, his only expense is to print out a bogus statements.</p>