Honesty

March 12, 2009 2:12:06 PM PDT
Trust no one. That sounds harsh, and if in fact we actually lived our lives chanting that mantra, we wouldn't get very far. Life is, after all, a series of leaps of faith.

But when it comes to people who have a handful of gimme and a mouthful of much obliged, maybe "trust no one" isn't such a bad motto.

Certainly the investors in Bernie Madoff's Ponzi scheme may be feeling that today.

The investors, perhaps thousands of them, may have poured in up to $65 billion over the past two decades. They've known for weeks their money is probably all gone, but it had to pain them all over again when they heard Madoff admit in federal court this morning that he had invested virtually none of it.

Turns out, the supposed genius of Wall Street is nothing more than a common thief.

He told a federal judge that he started fabricating trades in the early 1990's in an attempt to quick-fix financial problems caused by the recession.

Maybe he thought he could right things by being a fraud, and that the lying would end before anyone caught on.

But Ponzi schemes don't work like that. They spin out of control faster than one of Sandy Koufax's early-career curveballs. (Koufax was, in fact, a Madoff investor. He's also Jewish, like most of Madoff's clients.)

It takes so much effort to run a Ponzi scheme, so much brain power. You have to wonder just how successful and legit Madoff might have been had he put all his effort into really trading stocks, instead of just pretending, and sending out fabricated trading statements to his investors - who didn't bat an eyelash, and believed what they were told.

But the truth is: Madoff made it up. All of it. And tonight, those who paid no attention to the supposed wizard behind the curtain, are kicking themselves.

"We got statements every month," one investor told me today. "They said, 'you sold so many shares of this, and bought so many shares of that.' It was pretty good - 21%, 22% a year. But when the mutual funds were going nuts and getting 30% returns, Madoff's investments didn't look outrageous."

It was during the downturns that the warning signals should have gone off, says this investor.

"When things were bad, he was still turning 10% profits. Maybe that should have been a red flag." And so what now? Madoff, 70, will be sentenced in June - he faces 150 years in prison, and that's likely where he will die.

His wife and two sons worked in the same office with Madoff for all those years - what about them? What did they know? And will they face any charges?

And what of all those low-paid assistants who helped make up and mail out fake investment statements.

And, finally, what about those investors who both made and lost money? Should they be forced to give the ill-gotten profits back? They call them "clawbacks," and it will be fascinating to see just how successful the bankruptcy trustee will be in getting some of that money back.

If the funds are in a certificate of deposit, they might be easy to trace. But not so easy if the money is now invested in a new vacation home on the beach.

We'll have the latest on the Madoff scandal, and reaction from investors, tonight at 11.

At the bottom of this column are some of your responses to our question yesterday about investors having to return any ill-gotten gains. Some fascinating thoughts, and I thank you all.

Also at 11, we'll preview what should be a raucous meeting tomorrow - and emergency gathering of the MTA, where its so-called doom-and-gloom budget predictions will be confronted.

Speaking of money, Eyewitness News reporter Carolina Leid takes a look at a new trend in small business loans - called micro-loans, aimed primarily at women entrepreneurs. It's a fascinating program and has saved businesses that otherwise might have gone under because traditional banks didn't loan them money.

We'll also have any breaking news of the night, plus Lee Goldberg's AccuWeather forecast, and Scott Clark with the night's sports. I hope you can join Sade Baderinwa (in for Liz Cho) and me, tonight at 11.

BILL RITTER

And here are your Madoff responses:

"Hi Bill. Seriously, the whole Madoff thing makes me ill. have to wonder at such greed...I jut can't relate! It begs the question, who can we trust? Do we have to start running background checks on our investors now as well as our teachers, nannies, etc.? Like I said, I have a hard time understanding greed; maybe I'm weird, but I'm happy to have a roof over my head and a meal on my table and something to wear on my body. I believe in honesty, so if I thought I had taken too much from someone or taken money that didn't belong to me, you bet your sweet head I'd do my best to return it even if I had to spend years paying back. Perhaps I'm not the norm, and maybe that's good.

Lee Storm, Madison, NJ.
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"I believe most of the first investors entered as the last ones, thinking they would receive what was promised. If this proves to be true, then no money should be returned. The ones to repay are Madoff, his wife, family and all others involved. They should not be left with a home, money, etc. like the cheated investors. More should go to jail. It was so sad to see the lady who had to move and place her mother in an assisted-living facility because her life savings were gone."

From a man in the Bronx.
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"Bill...you need more information before you go making fancy analogies. Your illustration that suggests somehow that most or all early investors received more in supposed profits than they invested originally is all wet. What about early investors who had a smaller amount of money in this 'fund' for years, and then deposited a significant amount late into the life of this scheme? This is what happened in my family. We have invested with Madoff for many, many years, yes. We collected alleged profits, yes. But they were a pittance over time as compared with what some of us in my family deposited during recent years. That far larger deposit is gone--far exceeding any upgrade to my supposed kitchen."

Rich Chalek, New York
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"Bernard Madoff should have his homes, real estate, money and anything else of value taken from him. He should then be left in the streets of New York City stripped of all personal belongings other than his family. They should be left penniless, with no roof over their heads just like some of their victims. Taxpayers should not be forced to pay for their stay on this planet."

Karen Glasser, New York
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"What would the CEO of AIG & Goldman Sachs say? Oh, sure I've got mine but I'll give it back? In your dreams ...It's the same with the original investors of Madoff: 'I've mine. Try getting it back dude, 'cause I ain't giving it back!' "

Tom Smith, New York
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"As an honest investor, I did nothing wrong. I am legally, ethically and morally entitled to the interest and profits I earned on my investment. If I had known that this was a Ponzi scheme and that I would benefit while others would likely lose, then I would be liable - legally, ethically and morally. The guilty party, the responsible party, is Madoff. He has money and assets in real estate and personal possessions and he and his legal wife, who for better or worse is his life partner, are responsible. They must liquidate their assets for distribution to the injured parties."
Bob Edwards, New York


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