No One Would Listen: A True Financial Thriller by Harry Markopolos (rainbow fish read aloud .txt) 📗

45 degree angle. This chart cannot be cumulative in the common usage of the term for reporting purposes, which means “geometric returns. ” The chart must be some sort of arithmetic average sum, since a true cumulative return line, given the listed monthly returns would be exponentially rising (i.e. curving upward at an increasing rate). My rule of thumb is that if the manager misstates his performance, you can’t trust him. Yet somehow Madoff is now running the world’s largest, most clandestine hedge fund so clearly investors aren’t doing their due diligence. And why does he provide the S&P 500 as his benchmark when he is actually managing using a S&P 100 strategy? Shouldn’t the performance line presented be the S&P 100’s (OEX) performance?

19. Red Flag # 23:Why is Bernie Madoff borrowing money at an average rate of 16.00% per annum and allowing these third party hedge fund, fund of funds to pocket their 1% and 20% fees based upon Bernie Madoff’s hard work and brains? Does this make any sense at all? Typically FOF’s charge only 1% and 10%, yet BM allows them the extra 10%. Why? And why do these third parties fail to mention Bernie Madoff in their marketing literature? After all he’s the manager, don’t investors have a right to know who’s managing their money?

20. Red Flag # 24:Only Madoff family members are privy to the investment strategy. Name one other prominent multibillion dollar hedge fund that doesn’t have outside, non-family professionals involved in the investment process. You can’t because there aren’t any. Michael Ocrant, the former MARHedge Reporter listed above saw some highly suspicious red flags during his visit to Madoff’s offices and should be interviewed by the SEC as soon as possible.

21. Red Flag # 25:The Madoff family as held important leadership positions with the NASD, NASDAQ, SIA, DTC, and other prominent industry bodies therefore these organizations would not be inclined to doubt or investigate Madoff Investment Securities, LLC. The NASD and NASDAQ do not exactly have a glorious reputation as vigorous regulators untainted by politics or money.

22. Red Flag # 26:BM goes to 100% cash for every December 31styear-end according to one FOF invested with BM. This allows for “cleaner financial statements” according to this source. Any unusual transfers or activity near a quarter-end or year-end is a red flag for fraud. Recently, the BD REFCO Securities engaged in “fake borrowing” with Liberty, a hedge fund, that made it appear that Liberty owed REFCO over $400 million in receivables. This allowed REFCO to mask its true debt position and made all of their equity ratios look better than they actually were. And of course, Grant Thorton, REFCO’s external auditor missed this $400 million entry. As did the two lead underwriters who were also tasked with due-diligence on the IPO - CSFB and Goldman Sachs. BM uses his brother-in-law as his external auditor, so in this case there isn’t even the façade of having an independent and vigilant auditor verifying the accounting entries.

23. Red Flag # 27:Several equity derivatives professionals will all tell you that the split-strike conversion strategy that BM runs is an outright fraud and cannot possibly achieve 12% average annual returns with only 7 down months during a 14½ year time period. Some derivatives experts that the SEC should call to hear their opinions of how and why BM is a fraud and for some insights into the mathematical reasons behind their belief, the SEC should call:

Leon Gross, Managing Director of Citigroup’s worldwide equity derivatives research unit; 3rd Floor, 390 Greenwich Street; New York, NY 10013: Tel#or[Leon can’t believe that the SEC hasn’t shut down Bernie Madoff yet. He’s also amazed that FOF’s actually believe this stupid options strategy is capable of earning a positive return much less a 12% net average annual return. He thinks the strategy would have trouble earning 1% net much less 12% net.

b. Walter “Bud”Haslett, CFA;LLC; Suite 455;NJ 08065; Tel#:or[Bud’s firm runs $ hundreds of millions in options related strategies and he knows all of the math.]

c. Joanne Hill, Ph.D.; Vice-President and global head of equity derivatives research, Goldman Sachs (NY),; One New York Plaza, New York, NY 10004;

24. Red Flag # 28:BM’s Sharpe Ratio of 2.55 (Attachment 1: Fairfield Sentry Ltd. Performance Data) is UNBELIEVABLY HIGH compared to the Sharpe Ratios experienced by the rest of the hedge fund industry. The SEC should obtain industry hedge fund rankings and see exactly how outstanding Fairfield Sentry Ltd.’s Sharpe Ratio is. Look at the hedge fund rankings for Fairfield Sentry Ltd. and see how their performance numbers compare to the rest of the industry. Then ask yourself how this is possible and why hasn’t the world come to acknowledge BM as the world’s best hedge fund manager?

25. Red Flag # 29:BM tells the third party FOF’s that he has so much money under management that he’s going to close his strategy to new investments. However, I have met several FOF’s who brag about their “special access” to BM’s capacity. This would be humorous except that too many European FOF’s have told me this same seductive story about their being so close to BM that he’ll waive the fact that he’s closed his funds to other investors but let them in because they’re special. It seems like every single one of these third party FOF’s has a “special relationship” with BM.

26. Red Flag # 30: BM’s largest one month loss of -0.55% using index puts does not fit in with the prohibitively high cost of the extremely short-dated OTC OEX put options he would have to be buying to protect his portfolio from losses such that those monthly losses never exceeded -0.55% in any one month.

a. Previously with Red Flag # 4, I mentioned that the cheapest possible put cost for BM would be 8%. That very