उसकी टोपी इसके सरपे - अमेरिका का सबसे बड़ा फ्रौड़

What do George Carlin and Bernard Madoff have in common?

The late comedian immortalized oxymorons, those absurd word pairs like "jumbo shrimp" and "military intelligence." Mr. Madoff just put the silliest of all financial oxymorons into the spotlight: "sophisticated investor."

The accounts managed by Bernard L. Madoff Investment Securities LLC reported gains of roughly 1% a month like clockwork, with nary a loss, for two decades. Why did that freakishly smooth return not set off alarms among current and prospective investors?
Of all people, sophisticated investors like Mr। Madoff's clients should know that if something sounds too good to be true, then it's not. But they believed it anyway. Why?

Mr Madoff emphasized secrecy, lending his investment accounts a mysterious allure and sense of exclusivity

The initial marketing often was in the hands of what one source described as "a macher" (the Yiddish term for a big shot). At the country club or another exclusive rendezvous, the macher would brag, "I've got my money invested with Madoff and he's doing really well."

When his listener expressed interest, the macher would reply, "You can't get in unless you're invited...but I can probably get you in."

Strategy : A triple-threat combination. :- Influence: Science and Practice
Makes investors feel that it is

==> The inherent domain of people who know more than we do.
==> This uncertainty leads us to look for social proof: evidence that other people we trust have already decided to invest.
==> And by playing up how exclusive his funds were

==> Hedge fund shifts investors' fears from
==> From risk that they might lose money
==> To the risk they might lose out on making money.

==> If you did get invited in, then you were anointed a member of this particular club of "sophisticated investors."
==> Once someone you respect went out of his way to grant you access, it would seem almost an "insult" to do any further investigation.
==> Hedge fund manager also are known to throw investors out of his funds for asking too many questions, so no one wanted to rock the boat.

==> This members-only feeling blinded many buyers of Manager’s funds to the numerous red flags fluttering around his operation.
==> When you are in an exclusive private club, you do not go rummaging around in the kitchen to make sure that the health code is being followed.

Here we have the biggest dirty secret of the "sophisticated investor"

Last year, the Greenwich Roundtable, a nonprofit that researches alternative investments, conducted a survey of consultants. It's hard to imagine a more sophisticated crowd.

==>One out of five investors in the survey reported that they "always follow" not a formal checklist or analytical procedure, but rather "an informal process" of due diligence.
That's for sure.
==> One out of four investors surveyed will write a check without having studied the financial statements of the fund.
==> Nearly one in three will not always run a background check on fund managers; 6% may not even read the prospectus before ever committing money.

"Due diligence, is the art of asking good questions." It's also the art of not taking answers on faith."

If you invest with anyone who claims ;
==> never to lose money,
==> reports amazingly smooth returns,
==>will not explain his strategy,
==> Refuses to disclose basic information
==> discuss potential risks, you're not sophisticated. You're an oxymoron.

Two years ago, at a hedge-fund conference in New York, attendees were asked to name some of their favorite and most-respected hedge-fund managers. Neither George Soros nor Julian Robertson merited a single mention. But one manager received lavish praise: Bernard Madoff.

Folks on Wall Street know Bernie Madoff well. His brokerage firm, Madoff Securities, helped kick-start the Nasdaq Stock Market in the early 1970s and is now one of the top three market makers in Nasdaq stocks. Madoff Securities is also the third-largest firm matching buyers and sellers of New York Stock Exchange-listed securities.

New potential victims emerged of Wall Street veteran Bernard Madoff's alleged giant Ponzi scheme, with international banks, hedge funds and wealthy private investors among those sorting out what could amount to tens of billions of dollars in losses.
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New York Mets owner Fred Wilpon, GMAC LLC Chairman J. Ezra Merkin and former Philadelphia Eagles owner Norman Braman were among the dozens of seemingly sophisticated investors who placed money on what could prove to be history's largest financial scam.
Giant French bank BNP Paribas, Tokyo-based Nomura Holdings Inc. and Neue Privat Bank in Zurich are also exposed, according to people familiar with the matter.

And at least three funds of hedge funds -- which raise money from investors and farm it out to hedge funds -- may have significant losses. Fairfield Greenwich Group and Tremont Capital Management of New York placed hundreds of millions of their investors' dollars into funds overseen by Mr. Madoff. On Friday, Maxam Capital Management LLC reported a combined loss of $280 million on funds they had invested with Mr. Madoff.

"I'm wiped out," said Sandra Manzke, Maxam's founder and chairman. The Darien, Conn., fund of hedge funds will have to close as a result of the losses, she said.

Mr. Madoff was arrested and charged Thursday. Prosecutors allege that the 70-year-old Mr. Madoff hid losses, paying certain investors returns using principal he received from other investors. (Iski Topi Uske sirpe)

Prosecutors and regulators have yet to determine how much has been lost, or the amount in assets still held by Mr. Madoff's business.

The alleged fraud has "swept up some of the most prominent and wealthy Americans, along with many people who thought they were embarking on a comfortable retirement and have now been left destitute

Seeger Weiss LLP represents more than 30 investors with losses they believe could total more than $1 billion.

In criminal and civil complaints, Mr. Madoff is quoted as saying the losses could amount to $50 billion.

Details emerged Friday of how Mr. Madoff ran the alleged scam, fostering a veneer of exclusivity and creating an A-list of investors that became his most powerful marketing tool. From New York and Florida to Minnesota and Texas, the money manager became an insider's choice among well-heeled investors seeking steady returns.

By hiring unofficial agents, tapping into elite country clubs and creating "invitation only" policies for investors, he recruited a steady stream of new clients.

During golf-course and cocktail-party banter, Mr. Madoff's name frequently surfaced as a money manager who could consistently deliver high returns. Older, Jewish investors called Mr. Madoff " 'the Jewish bond,' " says Ken Phillips, head of a Boulder, Colo., investment firm. "It paid 8% to 12%, every year, no matter what."
As his reputation grew, Mr. Madoff gained the trust of prominent businessmen, including ex-Eagles owner Mr. Braman, who owns a chain of Florida auto dealers. A voicemail message left with Mr. Braman's office was not immediately returned.

Mets owner Mr. Wilpon, who also owns real-estate investor Sterling Equities, often raved about Mr. Madoff's investment prowess and invested tens of millions of dollars of both his own money and the team's with his company, say financiers who have worked with him.

Mr. Madoff handled investments for the Judy & Fred Wilpon Family Foundation, which distributed about $1 million a year in 2005 and 2006 to charities, according to its most recent federal tax returns..

Mr. Wilpon's Sterling Equities said in a statement: "We are shocked by recent events and, like all investors, will continue to monitor the situation."

Mr. Merkin, the chairman of former General Motors Corp. financing arm GMAC, which had $1.8 billion under management as of Sept. 30, had substantially all of its assets invested with Mr. Madoff.
Mr. Merkin said he had personally "suffered major losses from this catastrophe."

Mr. Madoff tapped social networks in Dallas, Chicago, Boston and Minneapolis. In Minnesota, he attracted investors from Hillcrest Golf Club of St. Paul and Oak Ridge Country Club in Hopkins, investors say.

One of them estimated that investors from the two clubs may have invested more than $100 million combined.

One of the largest clusters of Madoff investors was in Florida, where losses could be substantial. Mr. Madoff relied on a network of friends, family and business colleagues to attract investors. According to investors and agents, some of these agents were paid commissions for harvesting investors. Others had separate, lucrative business relationships with Mr. Madoff.

"If you were eating lunch at the club or golfing, everyone was always talking about how Madoff was making them all this money," one investor says. "Everyone wanted to sign up."

Jeff Fischer, a top divorce attorney in Palm Beach, says many of his clients were also Mr. Madoff's clients. "Every big divorce that came through my office had portfolio positions with Madoff," he says.

Two of his investors said that among his clients, Mr. Madoff was considered a money-management legend; they would joke that if Mr. Madoff was a fraud, he'd take down half the world with him.

Richard Spring, a Boca Raton resident and former securities analyst, says he had about $11 million -- or 95% of his net worth -- invested with Mr. Madoff. "That's how much I believed in him," Mr. Spring said.