The SEC analysis of its bungling of the Madoff matter is producing lots of interesting tidbits, including the fact that Renaissance Technologies grew suspicious of Madoff back in 2003 and eventually pulled its investments from him.
[....] Henry Laufer, Renaissance’s chief scientist, expressed amazement at Mr. Madoff’s ability to exit the market, selling its investments and holding primarily cash in a way that consistently staved off losses other investment firms suffered.
The timing of the moves, Mr. Laufer said, was almost statistically impossible. Mr. Laufer told the SEC in testimony earlier this year that “we would have loved to figure out how he did it so we could do it ourselves.”
He added: “And so that was very suspicious.”
Renaissance didn’t pull its Madoff investments immediately, according to the report. Nathaniel Simons told regulators that one reason was that the firm believed the SEC had closely examined Mr. Madoff’s investments, and that regulators could readily perform the same analysis Renaissance did of Mr. Madoff’s trading strategy.
“[Y]ou just assume that someone was paying attention to make sure that there was something on the other side of the trade,” the younger Mr. Simons told the SEC.
“We did feel that despite the fact that we’re kind of smart people, we were just looking at matters of public record,” he said, according to testimony in the report.
However, Renaissance’s discomfort with Mr. Madoff became greater, prompting the firm to withdraw money from the investments, people familiar with the matter said. Earlier this decade James Simons urged investors he knew also to withdraw, they said.
Renaissance employees expressed dismay to the SEC’s watchdog unit this year that regulators hadn’t unearthed Mr. Madoff’s fraudulent trades. “This is not rocket science,” Mr. Laufer told the inspector general’s office, according to Friday’s report. He added that an SEC examiner could “wander down, you know, to Goldman Sachs and wander over to their options department and ask them, how does somebody execute $10 billion of options, and find out it’s very difficult.”
So where was Walter Noel during this period? He and Andres were selling up a storm, pulling friends into the Madoff vortex not warning them away as Mr. Simons did. Why? I suggest that Simons wasn’t running a fund feeder, so he couldn’t pocket 20% of the illusory profits Madoff was claiming. And that affected his judgment.
A reader sent me this link to a WSJ article which I missed in all the excitement of setting up my new business venture (below). Massachusetts’s AG rejected an offer from FGG to compensate all that state’s victims for every penny they lost. The AG claims his state’s residents lost $6 milion with FGG, FGG said “okay, here: take it back”. Not sufficient. The AG wants more discovery and, prossibly, this being a position held by politically ambitious persons (see Blumenthal, Richard, eg), a show trial. Hmmm. More fun scheduled for September 9th.
Received the following email from some Fairfield Greenwich Group PR guy. I’ll call him after lunch and report back but it sounds like fun. Oe question: where is FGG getting the money to pay a PR firm?
I just left you voicemail. I’m a media adviser to Fairfield Greenwich, and some comments that were posted to an item on your blog have raised concern. I hope there’s an easy way to resolve it. Please give me a call at [ ] , when you have a moment.
UPDATE: I spoke with Mr. Faison, who turned out to be very polite and had a simple request: someone commenting on an unrelated blog posting here several months ago had put up the name, address and telephone number of a person vaguely related to FGG and would I consider taking it down off the Internet? Of course I would do that and have done so. I try to weed out that stuff before it gets posted because it can lead to real abuse of people, but this one slipped by. So now it’s gone, end of matter. How dull.
I did express my surprise to Mr. Faison that FGG was still around to pay a PR firm and he told me that “there are a lot of law suits out there” who knew? And Faison’s firm is working on putting out fires. Interesting.
Madoff trustee Picard in settlement talks with Fairfield Greenwich Group. As noted earlier today, Noel’s Fairfield Sentry Fund was dissolved yesterdayin the British Virgin Island, Attorney Boies is just one of dozens of lawyers clawing their way up the road to Walter’s house and, all in all, things look bleak for Walter and the Fabulous Five. Will they discover that “tomorrow is another day”? Will they have to leave Tara? Tune in, as the world turns.
As (the original) Fake Walt points out below, Frontline’s story on Bernie Madoff and Fairfield Greenwich Group’s involvement in the fraud was entirely inaccurate and false, in so far as it related to FGG’s participation, so, according to this press release, we should all give up and go home, after issuing a nice apology to Walt. If they say so it must be true, so apology duly noted. I remain just a tad skeptical, though, and I’m not entirely convinced that this bit is going to take FGG completely off the hook:
The Frontline program contained several other stark errors, as well. For example:
- Frontline inaccurately portrayed a December 2005 call between Madoff and FGG personnel, in preparation for an interview with the SEC. Frontline failed to disclose that, prior to the call, FGG had requested permission from the SEC to speak with Madoff, and that FGG people discussed the Madoff call with the SEC afterward. Most important, records clearly show that FGG personnel responded truthfully to all of the SEC’s questions.
- Frontline erroneously portrayed an on-site visit to Madoff’s office by FGG executive Jeffrey Tucker, implying thatTucker never received verification of Madoff’s trading. In fact, Tucker was shown an electronic screen with DTC records of Fairfield client trades.
- Frontline erroneously reported that FGG’s due diligence operation was located solely in Bermuda. In fact, as Frontline producers were informed, FGG professionals actively monitored the investment with Madoff and conducted due diligence both in Bermuda and at the firm’s New York headquarters.
Look: Ican certainly understand how a genuine “electronic screen” could fool even a trained investor – happens to me all the time – why, just last fall, I saw a Patriot fumble on the five yard line and I tried to pick up the ball through my plasma screen and run it in for a touchdown. Boy, was my face ever red! But I wonder whether the defrauded investors will be so understanding. They should be, of course, but sometimes, when $7.5 billion is lost, people just aren’t as kind as they otherwise might be.
Madoff trustee sues another feeder fund for $1 billion. Picard seems to be working his way up the food chain, from small to large. Hmm, who lost more than a billion dollars with Bernie? Oh, yes.
In the latest of a series of aggressive actions against the funds that helped to prop up Bernard Madoff’s Ponzi scheme, the trustee of Mr. Madoff’s investment firm sued a hedge-fund investor for more than $1 billion, claiming the fund “should have known” about the fraud.
Trustee Irving Picard, who is collecting the assets of Mr. Madoff’s firm to distribute to investors burned in the scheme, said Harley International (Cayman) Ltd. invested more than $2 billion with Mr. Madoff, receiving an average annual return of 13.5%. Mr. Picard said the Cayman Islands-based fund ignored warning signs that should have alerted it to the fraud.
Harley International couldn’t be reached for comment.
So we can continue to hear from Walter Noel after he and Monica remove themselves from the Round Hill cottage and move to a cardboard box in Baldwin Park. News today that thea Madoff trustee has sued a second feeder fund, former GMAC Chairman Ezra Merkin, for $558 million in fees he took out when he “knew or should have known” that Bernie was a fraud. At the rate of one feeder fund every other day, I’d expect Walter and the Fairfield Greenwich Group to be teed up Monday or Wednesday, depending on whether that Rye firm (Trenton? How quickly we forget) goes first.
As trustee, Mr. Picard can sue investors for any money withdrawn from Mr. Madoff’s firm “in bad faith,” including if they knew or should have known Mr. Madoff was engaged in fraud. Mr. Picard is relying on records he collected from the Madoff firm going back to 1995 and, for now, will be able to seek funds withdrawn only in that period.
Mr. Picard, an attorney with Baker & Hostetler LLP, is expected to sue more feeder funds, said lawyers involved in the Madoff bankruptcy case. But even if he wins in court, Mr. Picard may have trouble collecting much of what he is seeking. That’s because most of the money has already been distributed to the funds’ clients [unless, like Walt, you were pulling out $270 million a year for yourself - Ed]. If those clients had no inkling there was fraud, Mr. Picard won’t be able to touch funds they withdrew from their accounts, those lawyers said.
In his first suit alleging bad-faith withdrawals, Mr. Picard targeted the assets of another individual who ran a feeder fund, Stanley Chais. The suit seeks the return of $1 billion that Mr. Chais and his family withdrew from Mr. Madoff’s firm since 1995. Mr. Chais allegedly “knew or should have known” of the fraud because his family’s personal investment accounts with Mr. Madoff averaged annual returns of 40%, in some cases reaping 300% in one year, according to the complaint.
Mr. Merkin’s investments differ from those of Mr. Chais. The returns for Mr. Merkin’s funds averaged 11% to 16% annually. And, unlike Mr. Chais, Mr. Merkin didn’t have personal accounts with Mr. Madoff’s firm. Instead, Mr. Merkin collected a management fee.
In Thursday’s lawsuit against Mr. Merkin, Mr. Picard said that as a sophisticated fund manager, Mr. Merkin should have noticed the myriad warning signs that could have indicated Mr. Madoff was engaged in fraud. Among the clues: Purported trades made by Mr. Madoff, which were listed in account statements sent to Mr. Merkin, could never have taken place, a fact that Mr. Merkin could easily have detected, the suit alleges.