Friday, December 12, 2008

The Madoff Fraud

The criminal complaint against Bernard Madoff is truly a stunning indictment on the American financial system. How is it possible for any single individual or investment firm to perpetrate a 50 billion dollar fraud? Although the actual losses are not known at this point, Bloomberg news has been reporting numbers in the range of $20 to $50 billion. The Madoff news is sending shockwaves through the asset management and hedge fund business because redemption requests were already extremely high. How can the American people be expected to have confidence in the institutions and individuals that have been entrusted to run their money? I would expect a further escalation of redemption requests at all asset managers and hedge funds. Middle market firms are particularly susceptible because many of these firms have weak compliance structures. Most of the profits the financial sector reported over the last few years have been derived from blatant manipulation and outright fraud. In that regard, the Madoff news should be a wake up call for everyone that remains in denial.

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