Madoff Fund was Bust NOT a Fraud, but Fraud Entitles Investors to Compensation

international | crime and justice | other press Friday December 26, 2008 00:24 by Terence

Madoff pulls the wool over everyones' eyes.

In a brilliant piece of detective work and logic reasoning, writer Muhammad Rafeeq has exposed what Madoff is really at by pleading guilty to the $50 billion so called fraud.

Rafeeq worked for many years in large investment firms and knows how the system works. On reading that banks like HSBC and Santander and others have lost billions, he says there is absolute no way that these banks would commit money to a single institute like Madoff without an extensive history of accounts going back at least 3 years and investigation and analysis of the investment model, assets and other data. There are teams of specialists in these banks to do this all the time.

Rafeeq suggests that Madoff fund simply went bust in which case the investors would not be entitled to get any money back. But by claiming it is a fraud and Madoff has pleaded guilty, and the state accepts it, it means all the so called defrauded investors are entitled to be fully compensated under the US government's financial fraud protection scheme.

In this brilliant article Rafeeq brings to the fore what any of us should know as obvious if we think about it and Madoff has deceived us all twice. There is no way that so many people and so many institutes, banks and pension funds would have invested billions with Madoff with absolutely zero oversight or prior investigation.

The more likely scenario is that is hedge fund went bust as are up to 30% of hedge funds are expected to do so. But by pleading guilty, the entire corrupt and criminal system has gone along with his deceit and accepted. It means that the tax payer will ultimately be bailing out these losses. Expect more "frauds" like Madoff to be come to light and the CEOs to strangely plead guilty because they now all want to get on the bailout gravy train.

Here's some choice quotes from the article: The first caught his attention

....So a truly heartwarming confession. And it was apparently made to his 2 sons, both of whom who worked for the fund and who had absolutely no idea that this fraud was being perpetrated, until such time as this astounding confession.

But then I started to look more closely at the mix of investors who have lost money. About half of them are professional investing institutions....
...Spanish bank Santander had £2.1billion of client money with Madoff. HSBC has admitted to lending about £600million to funds who wanted to use debt to gear up their positions with Madoff.


Then the dots begin to join...

I have acted as a professional consultant to major EC and US financial institutions on corporate and institutional credit risk and the idea that anyone in HSBC or Santander could authorise large investment without the internal checks and controls being employed is almost impossible. To try and believe that EVERY institution that invested in Madoff circumvented their internal control procedures IS impossible. ....
....
When the credit committee are called together to review an application, everything is ready prepared for them ..... ..... the lower levels of credit approval process will have prepared a summary of all the application documentation, included in the meeting bundle, with the strengths, weaknesses, and other important credit risk points. This application will usually contain a set of audited accounts going back a minimum of 3 years and most likely 5 years. There will be a full credit breakdown of the investment profile of the business, Madoff's hedge fund, looking at how the fund obtains its returns; investment assets and investment methodology. After the committee is satisfied that all the issues and concerns have been addressed they will vote on the approval or otherwise.

The article provides even more compelling evidence....


So why plead guilty? The answer is simple. Look on the net and you will see that because this case is being labelled a fraud, it would appear that investors are going to be able to claim their investment back under the US government's financial fraud protection scheme. A judge has already given his approval in principle for compensation, without any evidence having been presented and financial fraud being demonstrated in a court of law. And it would appear that there will never be such a demonstration in a court of law. Why? It would appear that all the funds financial records are mostly "missing" (rather like Dov Zakheim's US$1.4tn) and those few records that do survive are in a terrible mess.

However, since the guy has pleaded guilty we do not need to demonstrate the fraud, because he says he is guilty.


And look further on the net and you will see that these "victims" have also been told by the US tax authorities that they will probably also be entitled to claim back some taxes on these defrauded sums.

Rather than saying this hedge fund has gone bust, due to its choice of investment assets and investment methologies, a scenario which is highly probable in the current financial paradigm, since all the professionals are predicting that at least 30% of all hedge funds are about to fail, more than 700 of them, the CEO chooses to fess up to fraud. If the CEO admits the fund has gone bust, then all those wealthy members of the Jewish community get nothing, but if the CEO admits to fraud they get their money back as compensation from the US tax payer, just as they are also drawing money back from the tax payers with the other hand.


The lesson to learn from this article and relatively simple logical reasoning about the facts of the case is how shallow all the other coverage has been and how easily the public even in a huge swindle like this is distracted from the key kernel of truth that common sense thinking about the facts demonstrate.

It should also be quite clear that all the investors and institutes that will get their money back, know that Madoff is falsely pleading guilty and carrying out a fraud by pretending it to be a fraud. Thus they are essentially parties to the crime too.