Last Friday, the SEC published the exhibits for Investigation of Failure of the SEC to Uncover Bernard Madoff’s Ponzi Scheme (Report No. OIG-509). That was 536 separate exhibits tying to fill in the background on what happened with the SEC and Madoff.
The one that caught my eye was exhibit 104
that summarized a June 17, 2009 interview of Mr. Madoff while he sat in Metropolitan Correctional Center. Inspector General H. David Kotz and Deputy Inspector General Noelle Frangipane were the interviewers.
For me, one of the issues with Madoff was “What made him go bad?”
Personally, I don’t think he intended to start off with a Ponzi scheme. Most Ponzi schemes start off legitimate, then something goes wrong. They fudge the returns hoping to make it up later. Those later returns are elusive and the promoter keeps the lie going.
According to the summary on page 8 of exhibit 104 that is what happened to Madoff. The problem occurred when Madoff “made commitments for too much money” and “couldn’t put his strategy to work.” he could not get the returns he wanted. Then he thought:
“Fine, I’ll just generate these trades and then the market will come back and I’ll make it back… and it never happened. … It was my mistake not to just be out a couple hundred million dollars and get out of it.”
Unfortunately, the summary does state when this transgression happened. So we don’t know when his company began the Ponzi scheme. At least as far as Madoff is claiming
Personally, I think this may have been the biggest transgression and the one that clearly put it into the Ponzi scheme category. But that sounds like a big position for your first lie.
Hopefully, we will hear more about what really happened. Until then, here are some other takes on the Madoff information:
- Bernie Madoff Speaks (and Lies) While Arthur Levitt’s Memory Fails Him from Seeking Alpha
- NBC Video: Madoff Mocks the SEC’s Incompetence from Securities Docket
- Madoff: SEC never thought it was a Ponzi scheme by Marcy Gordon for The Washington Post
- Jailhouse Interview: Madoff Rips SEC, Calls Schapiro a “Dear Friend” in The Wall Street Journal‘s Deal Journal
- The SEC’s massive Friday night dump… by Michelle Leder for Footnoted.org
- Take a Closer Look at the S.E.C. Madoff Exhibits in The New York Times
- Innocence Lost by Erin Arvedlund for Portfolio.com
- Don’t Ask, Don’t Tell by Erin Arvedlund for Barron’s