Archives For Fraud

Poor Ruth Madoff…

June 29, 2009

She has to face living off $2.5 million.

I really feel sorry for her. Please detect the sarcasm in that statement.

This will sound cold but I think she should be impoverished like so many of her husband’s clients were. I think we have to assume that the assets owned by the Madoff’s were acquired through fraud and should be sold off to go into the general fund to pay back shareholders.

Oh well, I guess we should all rejoice in the fact that she will no longer be living the high life. Although a lot of money by most people’s standards, $2.5 million is but a drop in the bucket for someone used to living in the lap of luxury like Mrs. Maddoff was.


One last thing…do you think it was possible that she had no idea that her husband was running a scam? I’m not sure on this one.

Over the last few months, the Wall Street Journal has covered some fascinating stories. This is stuff that would normally be found in a John Grisham thriller but sadly is real:

• The Bernard Maddoff Fraud

• The Stanford Fraud

• Danny Pang

The Danny Pang fraud broke yesterday. If the Wall Street Journal is to be believed, this guy is a real character. From yesterday’s article:

Mr. Pang’s résumé depicts a glittering success story: a Taiwanese immigrant who earned an M.B.A., worked on Wall Street and now heads a $4 billion investment fund. He also became a partner in another fund firm with business luminaries such as Frank Carlucci, the former defense secretary and ex-Carlyle Group chairman, and former Lockheed Martin Chief Executive Norman Augustine.

But both Mr. Pang’s past and his business may not be quite as they appear. The university from which he says he has an M.B.A. and another degree says it has no record of either. Morgan Stanley, where Mr. Pang’s bio says he was a senior vice president and senior high-tech merger adviser, says it can find no record it ever employed him.

Further down in the article:

Danny Pang was born Dec. 15, 1966, in Taiwan, where, according to people who know him, his mother’s family was the wealthy owner of a furniture-making business. He came to the U.S. as a youth. Later, at the University of California, Irvine, he became a student leader, chairman of the Asian Pacific Student & Staff Association in 1988-89.

University records, however, show a “Danny Pang” with his Social Security number and birth date enrolled only for a single summer term, in 1986, and don’t show that anyone with his name or Social Security number ever received the degrees he lists. Asked how someone unenrolled could be a student leader, a university spokeswoman said, “He could just walk on campus, be Mr. Personality and get elected chairman. How would they know if he was a student?”

The article then goes on to say that Pang claims he got his degrees under a Chinese name that we won’t disclose and that he has proof of his degrees but hasn’t provided them.

Not only that, the article directly below this article is about the murder of his wife! According to that article, his wife answered the door one day and some nicely-dressed guy pulled a gun out, she ran away and hid in a closet. The murderer shot her to death as she cowered in a closet. Oh, and all of this happened while Mr. Pang was out of town. He was never found guilty. You can read the article here.

My question is: does fiction mirror life or does life mirror fiction? Hmmm…

This one hits close to home as the Stanford Financial Group is located in Houston.

The SEC has registered a complaint against Stanford Financial Group (, alleging massive fraud. You can read the PDF of the complaint here. If the SEC’s complaint is to be believed, Stanford Financial Group is evil. Read the complaint for yourself.

The complaint is filled with lots of accusations. I found this one from the SEC’s press release interesting:

According to the SEC’s complaint, the defendants have misrepresented to CD purchasers that their deposits are safe, falsely claiming that the bank re-invests client funds primarily in “liquid” financial instruments (the portfolio); monitors the portfolio through a team of 20-plus analysts; and is subject to yearly audits by Antiguan regulators. Recently, as the market absorbed the news of Bernard Madoff’s massive Ponzi scheme, SIB attempted to calm its own investors by falsely claiming the bank has no “direct or indirect” exposure to the Madoff scheme.

The SEC seems to be overreacting to the Madoff tie. When I dug into the complaint, I found exposure of $400,000. From the complaint:

In a December 2008 Monthly Report, the bank told investors that their money was safe because SID “had no direct or indirect exposure to any of [Bernard] Madoffs investments.” But, contrary to this statement, at least $400,000 in Tier 2 was invested in Meridian, a New York-based hedge fund that used Tremont Partners as its asset manager. Tremont invested approximately 6-8% of the SIB assets they indirectly managed with Madoffs investment firm.

Yes, it is exposure to Madoff, but it is relatively small exposure for a company managing billions of dollars.

I did find something kind of interesting while looking around on Stanford Group’s website. For instance, here is some information on their investment strategy. It sounds eerily similar to Madoff’s “strategy.”

Stanford’s Stanford Investment Model (SIM):

The objective of the Stanford Investment Model (SIM) is to provide consistent returns regardless of market volatility, and it is based on the investment philosophy that has been used successfully for all of Stanford’s proprietary funds. We target a consistent yield or income stream as agreed upon with our clients, while monitoring risk and managing the overall volatility of the portfolio.

Our strategy for diversification to minimize the effects of market volatility is sophisticated and far-reaching. We pursue true global diversification with relentless intensity to meet our objective of targeted returns. We carefully consider asset classes, investment strategies, sectors, and regions of the world that most investors either don’t have easy access to or rarely receive information about. SIM was developed first and foremost to minimize the downside risk of a portfolio.

We recognize taking risk is essential to achieve investor goals, but there is a difference between accepting the risk the market gives you and managing that risk.

Although we may not outperform the indices during a bull cycle, our investment strategy is one of long-term consistency through bull and bear markets. The Stanford Investment Model offers investors a truly different view of wealth management.

This stuff is getting more exciting by the day. The best fiction writers would have a hard time coming up with stuff this good.

From, Investors May Have to Surrender Gains ($), in yesterday’s Wall Street Journal:

Investors are unlikely to get back much of the money they invested with Bernard Madoff, and those who took out money in recent years may have to give it back.

Imagine that! You invest with Madoff for a few years and then decide to get out because something doesn’t seem right. So you cash out with a gain. A couple years later you find out he was a fraud and you say to yourself, “WHEW! I’m glad I got out when I did!” Then you find out that you might have to give it all back. Wow!

What if you already spent it? What then? Although the article doesn’t really say, I would think that those people would have to come up with the money some way.

Yet another reason for indexing! (I think I’m gonna write a book!)

Folks, this is why it is SO IMPORTANT NOT TO PUT ALL YOUR EGGS IN ONE BASKET no matter how SAFE the investment seems!

I find it funny that nearly every time that I read a story in the Wall Street Journal about the collapse of a hedge fund or a story about fraud, the words “sophisticated investor” are used to describe those who were swindled or those who lost it all.

Is “sophisticated investor” the new term for “ignorant investor?”

The latest case involved outright fraud. This super-secretive investment advisor presided over the biggest Ponzi scheme ever. Estimates are that Bernard Madoff lost $50 BILLION of investor money. He was paying investment returns of approximately 1% per month to his current investors with money collected from new investors. This 1% monthly return was delivered consistently month in and month out, no matter what the market was doing. RED FLAG!

Why is it that those who are considered rich always think they have to use some sort of “sophisticated” investment strategy? What’s wrong with them using low cost index funds like the rest of us use?

My advice: the next time you hear an investment advisor say something like, “This is a rather sophisticated investment strategy…,” RUN FOR THE DOOR!

For more information on the Madoff Fraudster, see:

Financial World Still Amazed Over Madoff’s DownfallUSA Today

Banks Shrug Off MadoffForbes