| 作者 |
 Shit happens, 我明白，but for so long!! 就看不懂了！ |
 |
ceo/cfo
[博客]
[个人文集]
头衔: 海归中将
声望: 院士
性别: 
加入时间: 2004/11/05
文章: 12941
海归分: 491633
|
|
|
作者：ceo/cfo 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
How Bernard Madoff escaped detection
By Erin Arvedlund
Published: September 4 2009 15:38 | Last updated: September 4 2009 15:38
The 18th and 19th floors of Manhattan’s Lipstick Building – named for its shape – were, in the first decade of this century, occupied by a highly respected market-making operation, a registered broker-dealer with heavy trading volumes. Young go-getters scrambled every day for the big trade wins that would make their names on Wall Street. Regulators visited for industry advice from the company boss. And that boss used state-of-the-art computers to match buy and sell orders for important, big-name customers – institutions such as Bear Stearns, Charles Schwab, Fidelity and Lehman Brothers.
The offices were immaculate, decked out in modern, grey and black tones – and buzzing: phones rang, traders shouted. To visitors, it looked like the vibrant, money-making, healthy operation it was on paper: Bernard L. Madoff Investment Securities. Madoff had built up the broker-dealer and proprietary trading businesses over more than four decades. The firm traded stocks, bonds and other securities for customers and on its own behalf. A valuation by advisory investment bank Lazard of these businesses revealed that the broker-dealer grossed $67m in trading revenues in 2006. Of this, $52m came from proprietary trading, or individual traders taking bets and handing over a portion of their winnings to the firm. Net trading revenues in 2006 totalled $72.5m, while expenses – including salaries – were roughly $30m. All told, in that year the firm’s net profit was $41m, a handsome take.
The brokerage business was regulated by the Securities and Exchange Commission (SEC) and other financial watchmen. The regulators reviewed brokerage books and records to verify compliance issues, examined cash flows, trade confirmations, banking records and more. Audits occurred at least once every two years. And yet all of this failed to reveal that the 18th and 19th floors were not the extent of Madoff real estate in the Lipstick building – and that making money wasn’t the sole purpose of the trading businesses.
What the regulators – and the world – came to know this spring was the firm’s other purpose: to lure wealthy investors into a massive Ponzi scheme being operated one floor down. The 17th-floor offices were a shambles. There were papers and printouts everywhere. Where the men and women upstairs were required to wear suits, people here dressed casually; where upstairs, employees worked hard and long hours, downstairs the workers clocked in at 9am and out at 5pm. And while floors 18 and 19 were used to showcase the Madoff operation to the world, visitors to floor 17 were few and far between. The entrance was almost hidden – left of the elevator bank, part of a dark mahogany wall, without a sign or other markings.
In fact, most employees of Madoff’s broker-dealer were not allowed on the 17th floor. “We knew there was a hedge fund downstairs, we just didn’t know much about it,” said one. Robert McMahon, who worked at Madoff for two years as a computer systems contractor, had read an article about Madoff prior to starting his job there – an article that mentioned that Madoff might be running a money-management firm to the tune of $7bn. But when McMahon asked about the advisory business in 2004, “someone told me, ‘It’s none of your business. Don’t mention that article if you want to keep working here. Bernie runs another company. We have nothing to do with that business. Don’t go asking around about it.’ I said, ‘Fine, okay’, and forgot about it.” Five years later, he got a reminder.
. . .
The man in charge of the 17th floor was Frank DiPascali Jr, a college drop-out who often sported Puma sneakers, pressed jeans and a slicked-back “duck’s ass” hairdo. For many of Madoff’s investors, DiPascali was their only point of contact with the family or fund operation over the years, or even decades, during which they were invested. And generally, DiPascali was not a pleasant person to deal with. “I talked to him a few times, and my mom would call him, too,” said one investor in San Francisco. “But over time, I tried not to call them. It was so offensive to me, that customer service was being conducted like that. Frank was rude all the time. It wasn’t personal and it was very unfriendly.”
DiPascali joined Madoff’s firm in 1975, the year after he graduated from Archbishop Molloy, a Catholic high school in Queens. He had been recruited by Annette Bongiorno, Madoff’s long-standing personal assistant and another inhabitant of the 17th floor. Bongiorno and DiPascali were kindred spirits, both from Howard Beach, a tough, working-class neighbourhood in Queens. (In the 1980s, Howard Beach gained infamy after riots spawned by the death of a black man at the hands of white teenagers.) DiPascali’s brother-in-law, Robert Cardile, was also recruited to the firm and, like Bongiorno and DiPascali, stayed there for many years.
DiPascali sat in the south-western section of the 17th floor. Next to him were Cardile; Eric Lipkin, who handled payroll for the entire firm, as well as some client service duties; JoAnn “Jodi” Crupi, who processed client requests and handled money coming in and out of client accounts; and Erin Reardon, who was named by a long-standing investor as a point of contact at the firm. Madoff’s method of operation was to have individual investors open a brokerage account – which wasn’t really a brokerage account as it wasn’t with the broker-dealer side of the business – so that he held custody of their cash. Then, instead of putting their money into a hedge fund, Madoff simply used some of it for himself, and paid off old investors with the newer investors’ money – a classic Ponzi scheme.
Bernard Madoff leaves Manhattan Federal court in March after a hearing on the status of his legal representation in his multi-billion dollar fraud allegations
Investors would write cheques or sometimes wire their money directly into his JPMorgan Chase (previously Chase Manhattan) bank account, number 140081703. This account was where Madoff would do the “cash in, cash out” transactions for investors of the bogus hedge fund. This was nothing like a real hedge fund, where investors fill out paperwork to ensure they are accredited, or wealthy enough to invest, and actually receive shares in a limited partnership. Most Madoff victims didn’t know the difference, however, or if they did, they were coming in through an outside third party, such as a feeder fund. Feeder funds were an important source of investment for Madoff, but so were family and friends – many of whom were working on commission when they urged others to put money with Madoff.
In addition to her secretarial role, Bongiorno, according to a 162-page list of Madoff investors released by the victims’ trustee, acted as a fundraiser for Madoff, recruiting family members and others from her Howard Beach neighbourhood. According to investor lists, and one lawsuit against Madoff, Bongiorno and her husband had been paid to bring in clients, under the account name RuAnn.There was also some investor recruitment taking place on the Lipstick Building’s respectable, 18th floor – in office space reserved for Cohmad, a company owned by Madoff and his friend Maurice “Sonny” Cohn. According to the SEC, Cohmad’s primary business was to raise funds that were funnelled to the 17th floor. Madoff was alleged to have used the Cohmad entity as a sort of friends-and-family cashpoint, to write checks and send out payments for money-raisers – payoffs for people bringing in investors. Cohmad was charged by the SEC and by the investors’ trustee with illegally raising funds for the Ponzi scheme. Cohmad and Cohn have denied the allegations and are seeking to dismiss the suits.
Cohmad paid referral fees, much like a real hedge fund would pay a third party to market itself – although the numbers were striking for being so large. Cohmad’s most successful money-raisers were earning as much as $500,000 a month on referral fees. Moreover, instead of calling the payments what they were, Madoff characterised the fees as trading or brokerage fees, thus giving the impression that Cohmad was doing a lot of trading for Madoff clients.
In small ways, the two businesses – the legitimate broker-dealer and the fraudulent hedge fund – sometimes intermingled. Other examples abound, including that Cohn’s daughter, Marcia Beth, was listed as Cohmad’s compliance officer but also sometimes sat on the broker-dealer’s trading floor. Nor were family connections in the Madoff offices unusual. Peter Madoff, Bernard’s brother, had been part of the legitimate broker-dealer from the start, and Ruth Madoff, Bernard’s wife, had worked there on and off over the years and had an office on the 18th floor. Bernard’s and Ruth’s sons, Andrew and Mark, worked for the firm on the 19th floor, and Peter’s daughter, Shana, had been hired out of law school as the rules compliance officer for the firm’s market-making arm.
A huge cultural divide separated the people in the legitimate and illegitimate Madoff operations. “The people on 19 were on Mount Olympus, they were gods, the big-time prop traders,” said Robert McMahon, the computer systems contractor. “The guys on 18 were tasked to keep the systems running”, referring to the IT systems on the 18th and 19th floors. But the people on 17, McMahon said, were “lower-skilled. That’s being kind.” The 17th floor was “Bernie’s world”, McMahon said, with many of the employees clocking nine-to-five days for hefty salaries. Most had never worked anywhere else on Wall Street. “Clearly they were ignorant about the things they were doing. They were archetypes, just following orders,” said McMahon. “They were like mushrooms. Well fed and kept in the dark.”
Madoff was able to keep the fraud going by compartmentalising or withholding information. Few employees on 17 were qualified to ask why they were completely separate from the broker-dealer on 18 and 19 – and they were well paid, so it perhaps wasn’t exactly in their interest to connect the dots. Two brothers (sons of Dan Bonventre, one of Madoff’s long-standing employees) each made up to $400,000 a year doing reconciliations – or matching up trades with records of the transaction for each client. This was essentially clerical work; typically back-office employees are paid salaries similar to those of secretaries or other administrative workers – numbers that sometimes reached into six-figures in boom-time New York, but rarely as high as $400,000.
. . .
On the west side of the 17th floor, across from Frank DiPascali’s group, Annette Bongiorno had her own office. Bongiorno had two assistants, Winnie Jackson and Semone Anderson, with offices on either side of her. Jackson and Anderson were responsible for researching the prices Madoff’s portfolio shares had been trading at in recent weeks and months. Madoff told people who asked – or some of the people who asked – that he was making money using an investment strategy called “split-strike conversions” – an index options strategy. A hedge-fund manager actually using the split-strike conversion would buy stocks listed in the Standard & Poor’s 100 index with exchange-listed options (securities that give you the option to buy that stock at a later date at an agreed price). He would then buy and sell options against those same index stocks. It was a complicated strategy that Madoff chose as his cover story so as to avoid questions from investors. Also, he needed an investment strategy that could credibly explain how he supposedly achieved specific target rates of return across hundreds of different accounts.
Since Madoff listed only blue-chip stocks in his clients’ portfolio, it wasn’t difficult for 17th-floor employees to get trading data going back in history, even for decades. Investigators believe this is how Madoff was able to engineer his fake trades. Once he had decided that in November 2008, for example, all his clients’ accounts would be up 1 per cent, then he would work backwards – figuring out which stocks he would have had to trade in order to make 1 per cent. Madoff or DiPascali would enter trades that never happened, with real prices, into an old IBM AS/400 computer he used for his advisory business and – voilà! – he had a track record. Then, using a simple spreadsheet such as Excel, more than 2,300 client accounts were updated automatically – dividing among all the accounts the gains from the “trades” that amounted to “profits” of 1 per cent.
Once these “trades” had been made, however, there had to be a paper trail – even if it was a phoney one. According to federal investigators, regulators and Irving Picard, the trustee appointed to liquidate Madoff’s assets, Anderson and Jackson also helped generate stock trade confirmations for client accounts, which purported to show gains. The confirmations, the trades, everything was fictitious. It’s very possible that the team on the 17th floor created the phoney confirmations unwittingly, and were not complicit in the fraud. Last month, DiPascali was charged in the fraud; he mentioned “co-conspirators” in his guilty plea but has yet to name anyone. So far, no one else from the 17th floor has been charged.
Over the years, Madoff sent out thousands of confirmations claiming to justify trades that never occurred. He hadn’t made any trades in customer accounts for at least 13 years, and probably not for decades.
For the most part, the people who got these statements had no reason to suspect that anything was wrong. After all, they showed these statements to their accountants, and their accountants signed off on them. Why should they be suspicious?
. . .
Defrauded investors and their supporters rally in lower Manhattan near the courthouse in which Bernard Madoff was sentenced on June 29
In addition to the compartmentalisation of duties, Madoff didn’t allow employees to archive e-mail on their hard drives or elsewhere, despite SEC regulations that required Wall Street firms do so. Instead, he ordered that all e-mails be printed out and then deleted from computers. Cohmad fundraisers, meanwhile, were ordered not even to use e-mail, not to call investors and not to distribute written marketing materials. For the super-high-tech trading floor on 19 and to keep trading data secure on 18, the Madoff firm had purchased a technology package from Stratus Technologies. Stratus delivered stock and other security price data to traders linked through the company’s network. It specialises in fault-tolerant systems for the securities industry. Meanwhile, the engine behind Madoff’s fraud was the ageing IBM AS/400. “I was always told the AS/400 was Bernie’s – nobody touches it,” McMahon said.
Every day, the Stratus system upstairs would automatically update Madoff’s trading operations with the latest settlement data – the dollars and cents prices at which stocks closed at 4pm, when the US equity market closes for the day. But the AS/400 was not so advanced. At the end of every day, a computer file was sent to update the AS/400 with the latest stock price data. All the data, however, had to be entered manually. Entering the data by hand, McMahon noted, meant that the person doing it could put in whatever they wanted. McMahon said he realised in hindsight why Madoff had locked himself into a cumbersome and expensive-to-maintain IT system: he couldn’t risk being found out as a fraud. “He would have had to hire a consulting firm – outsiders – to help migrate away from the systems he had,” McMahon said. Newer computers would have had their own reporting capability and there would be no need for the AS/400 computer. “All that data would have been migrated and stored to a new system – but again, outsiders doing the work would uncover the disparity of trading data.”
Madoff couldn’t allow them to share the same stock price data because the prices were the essence of the fraud. It turned out that Madoff used historical data to create a paper trail – but sometimes he made mistakes. For example, Madoff’s November 2008 statement showed he bought Apple shares at $100.78 on November 12, about a month before his arrest. But Apple’s stock on that day never traded above $93.24. He also said he bought shares of chip maker Intel at $14.51 on November 12, but Intel’s highest price on that day was $13.97.
A professional trader would have caught such an error. But employees on 17 weren’t professional traders – nor was there much incentive to ask questions. Madoff and other employees on 17 punched in the stock prices provided by Madoff on the IBM AS/400 – and simply entered the figures that would square with the fake returns. Then Bongiorno and her assistants printed up statements and sent them to clients. Madoff made the bet that the clients wouldn’t check. It was one of the few real gambles, in fact, that he made in relation to his hedge fund – a fund he claimed brought in 6 per cent to 20 per cent annual returns thanks to his astute betting skills. But this particular wager turned out to be a good one: the clients, everyone from Minnesota housewives to high-flying London fund managers, got their statements – and then looked no further.
This is an edited extract from Erin Arvedlund’s ‘Madoff: The Man Who Stole $65 Billion’, published this week by Penguin, £9.99. To buy the book for £7.99, plus £2.45 P&P, call FT ordering service on 0870 429 5884 or visit www.ft.com/bookshop
Click here to read a second extract, about the US bank that should have detected the fraud
Click here to learn about other US financiers in the frame for fraud
...........................................
Madoff’s London operation
Bernard Madoff’s London office – or Madoff Securities International Limited (MSIL) – opened its doors in 1983. It took advantage of a new technology: electronic terminals that allowed people to log into and trade on the Nasdaq stock exchange from overseas. At first, Madoff was eager to trade ADRs, or American Depositary Receipts, dollar-denominated securities that give companies outside the US access to the American capital markets. In those early years, the office in London made the Madoff operation more flexible, since employees in the US could make trades only when US markets were open.
By 1989, however, the Nasdaq extended its hours and traded several hundred over-the-counter stocks during the pre-dawn hours on the US east coast, thus allowing firms there to trade during London hours – part of the gradual globalisation that would one day overtake securities trading. This may have made the London office less essential to the daily operations of Madoff’s legitimate broker-dealer and proprietary trading business.
Although Mark and Andrew Madoff, Bernard’s sons, were located in New York, they held ownership and titles as directors in the London operation. Ruth and Peter Madoff also held shares, and Sonny Cohn originally had shares as well. Paul Konigsberg, an accountant and old friend of Madoff’s, was another shareholder. He was not a director and a lawyer for Konigsberg says he didn’t have any “meaningful business role” in the London operation. But according to Madoff investor Steven Leber, he was a big fundraiser for Madoff’s hedge fund since at least 1998. (Leber filed a $4m lawsuit in Florida against Konigsberg and his accounting firm, Konigsberg & Wolf, charging negligence and professional malpractice with respect to a Madoff account opened by Leber in 1998. Konigsberg is disputing the Leber claims in a US court and denies receiving payments from Madoff.)
In 1998, directors of the London operation received emoluments, or payments, totalling £688,570 while the operation reported profits of £1.03m, according to The Wall Street Journal. In 2007, Madoff directors altogether received emoluments of £1.09m, with the highest-paid director receiving £301,437 alone.
Madoff Securities International in London also “traded for Bernard Madoff’s personal accounts and members of his family”, said Irving Picard, the trustee charged by US courts with cleaning up the Madoff mess for individual investors and recouping money from those who profited most. In a filing with the US bankruptcy court, he showed that Madoff began regularly wiring money to the London office to pay for expensive items – for example, a $7m Leopard yacht. At least $250m was allegedly wired back and forth between Madoff’s New York and London offices for such purchases.
In November 2008, Madoff phoned Chris Dale, the finance director of Madoff Securities International in London, and told him to sell an entire portfolio of British bonds. Madoff then instructed Dale to transfer the money – $165m – to his New York business, so he could buy US Treasuries on London’s behalf. Madoff claimed he was worried about the return because of the pound’s fall against the US dollar. “He was worried about the British economy and said he preferred his investments in US treasuries,” Dale told The Independent on Sunday. “This seemed perfectly realistic at the time because of the banking crisis and the pound’s weakness.”
Madoff’s London employees didn’t question the wires, what they were for, or any other transactions. One employee told The Times: “He was the chairman of the company and it was his capital in the business. If he phoned up and told us to move money for him, we did it.” Employees in London said they had no clue that Madoff was using his British outpost as a money laundrette.
The Friday after Madoff was arrested in the US, Stephen Raven, chief executive of Madoff Securities International, was still unwittingly defending the office against Madoff’s larger fraud. He issued an indignant statement: “We only became aware overnight of the news relating to our chairman, Bernard Madoff. His major shareholding in our firm is a personal investment. MSIL in London is a small proprietary trading firm – we are not client-facing and we trade only with the firm’s own money.”
That was true, but the ultimate purpose of the London outpost was very different: it was where, unknown to its employees, Madoff washed his investors’ money and then spent it on yachts, cars and other luxuries.
Copyright The Financial Times Limited 2009. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
作者：ceo/cfo 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
|
|
|
| 返回顶端 |
|
 |
|
-
 Shit happens, 我明白，but for so long!! 就看不懂了！ -- ceo/cfo - (22546 Byte) 2009-9-05 周六, 02:08 (2194 reads)
|
|
|
|
您不能在本论坛发表新主题, 不能回复主题, 不能编辑自己的文章, 不能删除自己的文章, 不能发表投票, 您 不可以 发表活动帖子在本论坛, 不能添加附件不能下载文件, |
|
|
