A FINANCIAL SERIAL KILLER – as Erin did – he hid behind the shield of “proprietary”: In other words, it’s my secret sauce – think McDonald’s Big Mac special sauce dressing or the recipe for Coca Cola – and I don’t have to tell you, so bug off . Of course, the reality was that for over 45 WHAT MADOFF SAID HEWAS DOING
Madoff discouraged investors in his fund from talking about it, and he avoided any kind of publicity for it. This was part of his “velvet rope” approach, as Erin calls it – to create the impression of exclusivity, in order to heighten the appeal of getting access to his fund. Madoff even sometimes turned money away – figuring that over the longer term he’d wind up attracting a lot more investors by making them want in all the more. He hid behind the shield of “proprietary”: In other words, it’s my secret sauce – think McDonald’s Big Mac special sauce dressing or the recipe for Coca Cola – When pushed to discuss the fund’s strategy – and as disclosed in offering memorandums at the time – Madoff said that he used a “split-strike conversion strategy” that involved “buying stocks in the Standard & Poor’s 100 index and buying and selling options against those same index stocks,” Erin wrote in Too Good to Be True . This explanation had the benefit of causing non-finance types, whose eyes tend to glaze over at the first whisper of investment jargon, to tune out, because it sounds complicated and confusing. And when Madoff was pressed and I don’t have to tell you, so bug off.
years, Madoff’s fund (a total misnomer) didn’t make a single trade. “[Madoff] was simply taking investors’ money, depositing the money into his Chase Bank in Manhattan – account number 140081703 – and sending it back out to earlier investors,” Erin reported. (One of the many extraordinary regulatory cracks that Madoff somehow managed to slip through was that Chase Bank never asked questions about a bank account – the entire Madoff Ponzi operation was all run through a single account – that saw tens of billions of dollars pass through it.) AN UNLIKELY FRAUDSTER In the aftermath, it’s easy to forget that for years, Madoff was a Wall Street star. With his brother Peter, Madoff set up a pioneering electronic- trading brokerage. He pushed Nasdaq into the forefront of share trading (and was chairman of the exchange in the early 1990s). He laid the groundwork for the instantaneous trading that we know today. Madoff paid customers to attract their orders – also called payment for order flow – a practice that was revolutionary at the time but became commonplace. At its peak, Madoff’s brokerage house accounted for as much as 10% of total New York Stock Exchange share trading volume. “Madoff helped create the modern market
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May 2021
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