Bernie Madoff.

Bernie Madoff Bailout and Hedge-finance Regulation

Outline Background Bailout? Control Moving Forward Conclusion & Ponzi Schemes Moving Forward

Outline Background Bailout? Control Moving Forward Conclusion & Ponzi Schemes Moving Forward

Gravity

World\'s Largest Ponzi Scheme The chapter 11 court discharged a 162-page list naming a huge number of Madoff casualties, including: ◊ Aozora Bank (Japan) ◊ Nordea Bank (Sweden) ◊ Bank Medici (Austria) ◊ New York University ◊ HSBC ◊ John Malkovich ◊ ◊ Steven Spielberg ◊ Fairfield Greenwich ◊ Kevin Bacon ◊

Begs the questions 1) How could this plan continue for so long? 2) How could such a large number of modern people be taken in by a store that gave no information on how it could accomplish reliable returns of 8-13% for a long time, amid both great and awful circumstances?

20+ Years of dishonesty SEC made an awful showing with regards to directing. They too were gotten up to speed with the buildup encompassing financial specialists. Part Strike Strategy – complex with many moving parts.

Begs the questions 1) How could this plan continue for so long? 2) How could such a large number of complex people be taken in by a store that gave no data on how it could accomplish reliable returns of 8-13% for a long time, amid both great and awful circumstances?

Information Cascades Each progressive speculator accepted that the past financial specialist did their due determination "Data falls" – sort of like playing phone. Maybe "complex" money related organizations are NOT insusceptible from buildups

Bernard L. Madoff Professional Accomplishments: Founder of Bernard L .Madoff Investment Securities (BMIS) Chairman of the Board of NASDAQ Founding Member of the International Securities Clearing Corporation in London Board of Governors of National Association of Securities Dealers

Exclusive Circle: Club Madoff Bernie Madoff Ruth Madoff\'s Friends Exclusive Circle International Banks; College Endowments Feeder Funds Mutual Funds

Outline Background Bailout? Control Moving Forward Conclusion & Ponzi Schemes Moving Forward

Yes Bailout . . . . Millions were influenced Not just well off office people, additionally hands on people with retirement stores oversaw by one of the feeder reserves. Support stock investments Bailout It\'s been done before with achievement, i.e. LTCM.

LTCM v. Madoff

LTCM v. Madoff

No Bailout Legal Remedy Available People are now bringing claims against Madoff and feeder stores. Bailout will support Ponzi Schemes If government safeguards Ponzi conspire members, then citizens remain to lose more cash than Ponzi players. This boosts a reasonable individual to share in the following Ponzi diversion as opposed to maintain a strategic distance from it.

Outline Background Bailout? Control Moving Forward Conclusion & Ponzi Schemes Moving Forward

What is a Hedge Fund? Unregistered, secretly oversaw pools of capital Equity investments Leverage and short offering Absolute return Why direct? Long haul motivating force arrangement Retailization Systemic hazard

Securities Act of 1933 Section 4. Exempted Transactions Regulation D, Rule 501 "Licensed Investor" Calculating buyers Regulation D, Rule 506 No more than 35 buyers Sophisticated buyers

Securities Exchange Act of 1934 "Merchant" versus "Broker" In the matter of purchasing and offering securities Registration under 15(b) Section 12. Enrollment Requirements for Securities More than 500 holders of record, and Assets in abundance of $10M

Investment Companies Act of 1940 Section 3(c). Encourage exceptions 3(c)(1) –type support stock investments Up to 100 speculators No open offerings 3(c)(7) – sort fence investments Up to 500 qualified buyers No open offerings "Qualified Purchaser"

Investment Advisors Act of 1940 Section 203(b). Enlistment of Investment Advisors Fewer than 15 customers in recent months, and Doesn\'t hold self out as a venture guide

Other Commodity Exchange Act FINRA ERISA Department of Treasury Fraud

Madoff: Repeated Investigations 1999: SEC send inspectors to audit exchanging rehearses 2000: SEC sends analysts to survey exchanging hones 2004: SEC explores front running assertions 2005: NASD surveys Madoff 2005: SEC examines front running claims 2006: SEC researches Ponzi Scheme affirmations

Madoff Skeptics Harry Markopolos Mark Occrant Erin Arvedlund

SEC: Organizational Problems Understaffed Lawyers not money related specialists Political impacts Little hindrance impact GAO study – 92% of flexible investments in study were not in consistence.

Any Lessons Learned from LTCM? "Interesting qualities and impossible occasions" Amount of influence is once in a while observed today Private gatherings were eager to purchase LTCM Counterparties could have retained misfortunes from a default

Outline Background Bailout? Control Moving Forward Conclusion & Ponzi Schemes Moving Forward

In the end… No Bailout for Madoff casualties Regulation laws appear to be fine. The issue is the general population running the association.

How to Succeed in a Ponzi Scheme Don\'t grow too quick. Indicate terrible numbers now and again. Run while you\'re ahead.