Osama Bin laden lost $1 billion with Madoff. The author’s joking, of course (but it’s funny – check it out) but I was thinking that the two men were made for each other. Bin Laden’s sharia law forbids the payment of interest on investments and, say what you will about Bernie’s ethics, he never did that. At least he never did that!
Daily Archives: December 29, 2008
Defying the wisdom taught you by your father, you don’t always get what you pay for, especially if what you’re paying for is a promise of careful vetting of investment vehicles and their sponsors.
The federal case against Bernie Madoff starts Wednesday with a preliminary issue of who is the victim eligible for the almost negligible SIPC coverage ($100,000 an account, I think). It would be ironic if Fairfield Greenwich Group were to receive what federal monies are available to investors but that villa on Mustique does look like an expensive place to keep up, so perhaps justice demands that result.
Of more interest is, can individual investors sue FGG and other feeder funds for negligence, breach of fiduciary duty, and whatever other theories their lawyers can dream up (fraud has a nice ring to it) or are they limited to filing arbitration claims? If you open an account with Merrill Lynch or whatever brokerage firms may still exist these days, you’re obligated to agree in advance to submit any dispute that arises to binding arbitration. I haven’t seen the client agreement forms for Noel’s firm but I’d be surprised if they didn’t include such a provision. If so, then reaching the personal assets of the Noels may be even more torturous than first imagined – an investor must file for arbitration, wait a year or so for his case to be heard, win the claim, survive the inevitable appeal (binding arbitration is a term employed only against private investors, never in support of them), go back to the arbitration panel for a final award, file that award in federal court, sue for judgment, then sue to reach beyond the corporate structure of Fairfield Greenwich Group, win and survive the many appeals from that decision and, just in time for your grandchild’s final college tuition payment, collect some money, most of which will go for attorney’s fees.
Or you could pick up your hunting rifle … but that would be wrong.
I mentioned a month or so ago that divorcing couples, saddled with a house worth less than its mortgage, are now fighting over who gets stuck with it. The New York Times has just discovered this phenomenon, so I guess it must be real.
They’re smarter than the latest bunch of realtors claiming to be “green” experts anyway (an admittedly low barrier). Recent polls show that homeowners will pay up to $5,000 to add eco-friendly features to their house if they’ll get it back on resale. If they won’t, they won’t. Since all $5,000 will bring you in the way of eco-junk is a collection of hazardous-waste-spewing light bulbs, don’t look for any immediate changes. The liberal reaction to this will be to impose laws mandating economically wasteful modifications. The free market solution would let technological developments brig the price down. Guess which way we’re most likely to go?
Mario Gabelli has sent out a plug for the value of hedge funds and I suppose that’s fair enough – some funds have done very well this year. Here’s what’s got me puzzled. The letter extols the virtues of hedge funds and promises to show why they’re such good investments, then says:
With the significant help of Tremont Partners, Inc., a publicly traded company on NASDAQ, and its research arm TASS Investment Research Ltd., the world’s leading experts on the hedge fund industry, I present the following history of hedge funds and give a few reasons I believe hedge funds offer an attractive alternative for sophisticated investors. (In the spirit of full disclosure I point out that we are large shareholders of Tremont)
Tremont was sued by investors just a week ago for losing $3.1 billion with Bernard Madoff and it seems likely that that suit is just the first of many. I won’t argue with Mr. Gabelli’s financial acumen – he’s made lots of money during his career; I haven’t – but I’m pretty sure that, were I to attempt to persuade investors to buy into a hedge fund, using Tremont as Exhibit A would be a bad idea.
Just a suggestion, Mr. Gabelli.
Update: The Gabelli history also mentions Alfred Jones, the father of hedge funds. I Googled a bit and came up with this:
Alfred Jones’s investors lost money in only 3 of his 34 years. By contrast, the S&P500 had 9 down years during a similar period. Jones’s worst year was the fiscal year that ended on 31 May 1970, when he lost 35.3% (the S&P lost 23.4% over the same period).
I suppose that if you bought during the good years and sold during the good years you’d have had a happy experience. Buy just before 1970 and your enjoyment? Not so much. Be careful out there.
Update: received this comment:
“FYI Chris -
Mario’s brother ran and perhaps still has in force a joint venture hedge fund with
Bernie Madoff. 50 % was run by Uncle Bernie and 50% by Mario’s brother ( maybe Mario really runs the Gabelli 50 % ??). I wonder when this will be published in the NY Post ? You heard it here first !”
True? I don’t know, but certainly interesting.
While prowling The New York Social Diary for pictures of the fabulous Noel girls (I found some – I’m just saving them for an appropriate time) I came across this picture of a short little guy with a statuesque beauty (well, compared to the fabulous five). Curious about such an odd pairing I Googled the fellow, one Sol Kerzner, and learned that he’s a 63-year-old multi-zillionaire gambling king from South Africa. No word who his new wife was or how they met but I’m sure her heart called out to him. It’s so nice when that happens – age and height difference be damned! Gives hope to all us short, poor, old hacks, eh?
Update: By popular demand, here’s one shot of the Noel girls and their spouses, waiting for the Madoff kids to join them for a 6th Avenue shopping spree.
Here’s a legal stratagem that has as much chance for success as Walter Noel’s idea of suing the SEC: according to The Daily News, Bernie Madoff’s lawyers are considering an insanity plea. For the past 30 years, it seems, poor Bernie suffered from manic depression and actually believed that all those gains were real. I was not the world’s best criminal defense lawyer – just write my clients in jail and ask them – but this one’s going nowhere. Not one inch.
North Street’s Dickie Fuld, desperate to get in touch with his better, Ken Lewis repeatedly tried calling him at home, only to be told by Lewis’s wife to cut it out.
“Desperate to avoid steering his 25,000-person company into bankruptcy proceedings, Mr. Fuld dialed the Charlotte, N.C., home of Bank of America Chairman Kenneth D. Lewis. His calls so far that weekend had gone unreturned. This time, Mr. Lewis’s wife, Donna, again picked up, and told the boss of Lehman Brothers: If Mr. Lewis wanted to call back, he would call back.
Mr. Fuld paused, then apologized for bothering her. “I am so sorry,” he said.
You know Ken was standing right next to her saying: “You answer it, tell him I’m not here!” And which one of them leaked this tidbit?”
Is anyone in town still taking calls from Walt or Monica? I’ll bet even the Round Hill Club’s receptionist is under orders to deny that any member they’re looking for is on club grounds.
I had admired that Frenchman, Thierry Magnon de la Villehuchet for slashing his wrists after losing his clients’ and friends’ money with Bernie Madoff. But this article in today’s Wall Street Journal makes clear that he was involved in the scam - he just didn’t realize who, exactly was to be the victim.
The Luxalpha prospectus never directly mentioned Mr. Madoff, but former colleagues of Mr. de La Villehuchet said it was clear that the New York financier would ultimately be handling investments. “Luxalpha’s main selling point was that it was a conduit to Mr. Madoff,” said one person who was approached by Access recently.
In the prospectus, Luxalpha refered to Mr. Madoff indirectly, describing the fund manager as a prominent New York broker and saying the large volume of trades the brokerage business handled allowed him to anticipate market movements by one or two hours and bet in the right direction 95% of the time.
Investors in Luxalpha, the prospectus said, “will benefit from this unique and privileged position, in full compliance with the law.”
This “unique and privileged position” was in fact nothing more than front running, which is, despite the man’s assurance, quite illegal. Villehuchet thought he was enriching himself at others’ expense – when it turned out it was he who was the fool, he took his life. There you have it.
It will be interesting to see, as this story develops, what sort of marketing promises Walt Noel’s fabulous son-in-laws used to lure European investors. Did they, too offer a bit of front running as the explanation for Madoff’s remarkable trading successes? If so, will they also do the honorable thing. I bet not.
That’s about as stupid as asking Walt Noel for investment advice, but here’s a company that offers, for a fee, to drag a celebrity out to host a party in your digs so that the resulting publicity will attract buyers.
First of all, what “celebrity” is so down on his luck that he’ll contract out for a meet and greet in your split-level? Charo? Michael Vick? And who is going to come out to meet these has-beens?
Second, look at the trouble Greenwich’s own celebrities have in dumping their own houses – Leona’s sits (ok, she may be dead, but after that last round of plastic surgery, could you tell the difference?) unsold despite David Ogilvy hitting it with the largest price reduction in town history. Mel Gibson’s little estate on Old Mill languishes at $35,000,000, as does Diana Ross’s “Belle Haven next to the Thruway by the Sea” house. Regis Philbin (who mightshow up at your own party) can’t move Meeting House Road, David Cone’s old digs in Conyers Farm are standing empty, and so on. In fact, the only celebrity’s house that has sold recently was Jack Paar’s and he was not only dead, his house on Chateu Ridge was a so-so contemporary that didn’t ask for much and boy, did it get it. (Someone I knew who grew up next door to Mr. Paar reports that he was a surly, mean curmudgeon – gosh, do you suppose other celebrities aren’t as nice in person as they appear to be on TV?).
So my advice is, if you want to sell your house, cut its price and can the celebrity angle – that’s advice I’d give to the individuals mentioned above, too.
There’s been another price reduction on 187 Stanwich Road, this time to $2.720 million. Fans of this property will remember that it was purchased last year for $2.615, returned to the market this October at $2.750 and has been dropping in $10,000 increments as it makes its way back to the starting point. Will it stop there, or keep going? I can’t tell you but did you see the Patriots game yesterday where the quarterback pulled off a quick kick on third down? The ball landed on the 20 and, as the 30 mph wind blew, rolled toward the goal line, picking up speed, until a Pats player scooped it up at the one. Maybe something like that.
Caroline Waxler reports that as the result of losing $552 million in its Madoff-invested endowment, a foundation that provided funding to Dress for Success, the group that helps unemployed women wear decent clothes for job interviews is shutting its doors immediately.
It’s a given, I believe, that Walter Noel and his Fairfield Greenwich Group will soon be history – no one who saw how he handled $7.5 billion of other people’s money will trust him to keep hold of the remaining $7.5 billion, surely. Especially as news gets out about the skill sets possessed by his sons in law handling that money; being playboys and children of wealthy Colombian “exporters” does not necessarily translate into financial acumen.
But every silver lining has a cloud, and one such cloud is this prediction that the legitimate hedge funds that FGG placed other money in are going to get hit hard when FGGinvestors pull the rip cord. Yes, it’s an article by Henry Blogett, but he does provide a list of funds that hold FGG money and that might be useful. Your call – the link is here for you to click on, or not.
That’s what we’ve been saying, but here’s someone else saying the same thing. Prices are returning to normal but aren’t there yet if you use almost any income to purchase price ratio. And if the financial services industry has the kind of year we’re all expecting, the income side of the equation is going to drop further. I think buyers are waiting for more than regular pricing anyway – they want, and won’t move, until they see panic prices. So far, only a few builders have hit that stage of desperation; look for more come the new year and if so, those sales will drag down everyone else. Good for buyers, bad for sellers.
Or at least taking baby steps in that direction. 35 Chapel Lane, renovated in 2007, if you think that new gutters, a driveway and new furnace constitute a renovation – I don’t – came on for sale last summer asking $3.5 million, $1.1 million more than the previous highest sale on that street. Yes, it’s on a half-acre and yes it is technically waterfront, but that waterfront is shared by the train and I-95, so it won’t enjoy the premium it might otherwise command. Today it’s been reduced to $2.499, still $104,000 above what new construction sold for in 2004. I’m skeptical, but at least the sellers didn’t raise their price.