Madoff and the 50 Bn Usd ponzi scheme

Bernard L. Madoff Investment Securities has been up and running since 1960.
Madoff, a former chairman of Nasdaq, alledgedly applied the "split strike conversion strategy", which essentially meant owning stock and buying and selling options in order to limit downside risk. The management was really tight knit with all of them being family members.

The reported returns were extremely stable with 7.3% - 9.0% since 2004.
For the last decade reported reurns has otherwise been in the low double digit returns.
Due diligence advisor Aksia investigated Madoff´s firm for 18 months and the conclusion was for clients not to invest. Aksia never suspected fraud, however.

During September and October, the firm reported zero ish returns, which surprised many competitors. In early December the firm faced 7BN Usd in redemptions, which could not be met. Hence, the scheme was revealed.

Investors consisted of 11-25 accounts, of which 50% were hedgefunds, the remaining being high net worth families and charities. Hence, many other funds and clients are dragged into this as well, since many of the funds were so called "feeder funds",

The fund managed 17 Bn Usd, leveraged to 50 Bn Usd. The loss is expected to be 50 Bn Usd. Investigators suspect this fraud went on for several years.

Obvious risks are that hedge fund redemptions could see an increase again from investors getting another variable to worry about and asset liquidations as hedgefunds and other investors hit by losses sell other assets to cover.
All in all, not helping sentiment. Us will lead the way on this of course.






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