Wednesday, December 17, 2008

Madoff's Funky Account Statements

Doctored account statements have to ultimately be at the center of the Madoff fraud, there is simply no other way that one could have run this scam for so long. You have to report holdings and trades to customers at some point in time, and if you are a broker-dealer, you have to do it monthly.

I mentioned in an earlier post that this fraud must have involved the brokerage firm, and not just Madoff's investment advisory business. That became clearer when SIPC stepped in to start liquidating the broker-dealer.

Now the NY Post has an article which claims it has found glaring errors on the brokerage firm's account statements. According to the article:

For example, one statement that's part of a Nov. 30 performance
report suggests that Madoff's outfit purchased shares of Apple at
$100.78 on Nov. 12.

However, even when accounting for a usual three-day settlement
period, the stock never traded at $100 a share. Its trading range on
the day that the shares were supposedly bought was between $90.01 and
$92.43, sources noted.

Such inaccuracies appear throughout the performance statement. In
another case, the Madoff statement reflects the purchase of Citigroup
shares at $12.51 on Nov. 12, even though the stock that day traded in a
range between $9.52 and $10.63.

"Everything's a couple bucks off," said Jonathon Trugman, founding
partner of New York hedge fund Pendulum Capital Management, who
reviewed the documents but did not invest with Madoff.

"To find something as glaring as the price of Apple stock, what more do you need?" said Trugman.





Indeed, what more do you need? Was anyone looking at these statements. I have been involved in cases where unsophisticated investors check the prices on their account statements. No one was checking Madoff's?

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