True Lies

The whopping 150 year custodial sentence handed down in the US this week to Bernard Madoff provides limited reprieve to the thousands of investors who lost money.

The publicity surrounding the $65bn fraud raises questions again over inadequacies of Government and regulators to monitor a system that is essentially weak if certain individuals within it are intent on committing crimes.

The reason Madoff’s case was so much greater in terms of its impact than anything that had come before it – excluding the sheer amount of funds involved – was that it affected vast numbers of retail investors.

In recent times other large cases, such as the Societe Generale trader Jerome Kerviel who lost $7.1 billion of his company’s money and the infamous case of Barings Bank’s Nick Leeson, who back in the mid-90s sent Britain’s oldest bank into administration for the princely sum of $1.4 billion (a relatively limited amount in this day and age of trillion dollar bailouts), had only been issues within corporations.

While the case of Madoff still affected many institutional investors, with reports Spanish banking giant Santandar lost more than $3 billion while HSBC took a $1.5 billion hit – yet the most saddening stories where those that affected retail investors.

In the UK a 65-year old ex-serviceman took his own life with a pistol on a park bench after failing to come to terms with the fact his ₤1 million in life savings that had been invested with two Austrian hedge funds had actually been a front for filtering money through to Madoff and into his Ponzi scheme.

Meanwhile in the US a disabled man has had his $250,000 trust fund taken as a result of the scam.

Pension funds have lost money for their member’s retirements – these include firefighters from Colorado, Korean teachers and plumbers from across the US.

While many of Madoff’s retail clients were wealthy and a number have been wiped out as a result of the scam, it’s the fact that the ponzi scheme was able to run undetected over so many decades that has disappointed those affected.

The computers used in the group’s former New York head office were some of the first ever commercially sold machines. Staff, investors and regulators were kept away from ever entering the room where the mass fraud was run from.

In fact the computers were never upgraded because fears an external consultant would realise the whole operation was a sham.

The sentence handed down was a statement by the authorities and legal fraternity as the 150 year sentence was six times that handed down to senior managers of the collapsed Enron and WorldCom companies a few years ago.

Nontheless while Madoff will now spend the rest of his days in jail, it’s frightening how much damage one person can do when he/she is trusted by clients (and maybe even regulators) yet in reality is conducting themselves in a very different manner.