Madoff: The $50 Billion Ponzi Man (NDAQ)

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Bernie Madoff, the former non-executive Chairman of the NASDAQ (NASDAQ: NDAQ), has been arrested on an investor fraud case that has massive implications over trust and legitimacy on Wall Street.  The good news is that this fraud does not appear to be a systematic risk event.  The bad news is that the losses may be well into the "billions" of dollars.  The second bit of bad news is that this is just another mark against an already tarnished image on Wall Street.

If the charges are true, Madoff reportedly told senior employees at the firm that his fundswere essentially a big lie and a Ponzi scheme.  He has also reportedlytold authorities that he was solely responsible.  The actual losses are unknown.  It could be a few billion, and it could be allthe way up to that $50 billion number.  Either way, it sounds like manyclients have only been paid back with other client funds.  That onlylasts so long, and those who were repaid with funds that were nottheirs could likely become the subject of a civil suit.

We have heard over and over in the past how many money managers andfund managers have questioned how on earth Bernard L. Madoff InvestmentSecurities LLC had annual returns in many years where the marketreturns were less than good.

While the NASDAQ: OMX Group (NASDAQ: NDAQ) is not directly involvedhere, Madoff is a former Chairman.  He is also a member of thenominating committee (prediction: he won’t be by the end of today), andhis firm is supposed to be a market maker for "about 350 Nasdaq stocks."

Interestingly enough, the Madoff.com website is still up and running.Its STANY Party 2008 was given more attention than many other issuesand nothing appeared to be up in the "Client Notices" other than ListedStop Orders Procedures and Unusual Market Conditions Policy.

Wall Street’s reputation and image have been deteriorating for morethan a year now.  Main Street is going to get to trump Wall Street foryears now where it comes to making the rules and what sort of excesseswill be allowed.  Mr. Madoff, who sounds like he is about to becomeInmate Madoff, just took that tarnished image down another notch.

Jon C. Ogg
December 12, 2008