Ponzi Scheme vs. Regulation Cost

Chidem Kurdas

Brokerages can play a key role in stopping fraud. Thus in 2008 Pershing stopped wiring money for its customer, Robert Allen Stanford’s Houston-based company.

What Corzine Did to MF Global

MF Global was a futures brokerage, not a hedge fund.  Yet it went bankrupt because

MF Global Insight from Previous Bankruptcy

The largest independent commodities brokerage went under. Money was missing. Client accounts were frozen. A bunch of hedge funds were among the unsecured creditors.  It was the fourth largest bankruptcy in US history.  That was six years ago,

Ex-SEC Counsel $140,000 Madoff Benefit

Chidem Kurdas

It would make great satire. David Becker shaped regulatory policy for years as the Securities and Exchange Commission’s general counsel. His “wisdom and careful judgment” was celebrated by SEC Chair Mary Schapiro. Now his conflict of interest as an investor with Bernard Madoff is to be reviewed by Congress and the Justice Department. 

Madoff Ruling: A Question

Chidem Kurdas

An appeals court upheld the Madoff trustee’s decision that the former clients of the defunct firm have a claim only to the capital they originally invested, not the profits Madoff fraudulently reported on their accounts.  This has precedent from past Ponzi schemes, where investors who took out more than their capital had to return the difference. It’s a reasonable principle not to allow fake profits, though a hardship on people who relied on them, like New York Mets owners Fred Wilpon and Saul Katz. The supposed gains, after all, came from other investors’ money.

But there’s something else going on.

Madoff Trustee and the 1,001 Lawsuits

Chidem Kurdas

In one particular respect, government-appointed bankruptcy trustees resemble Scheherazade of the 1,001 Arabian Nights. She had a secure tenure with the Sultan as long as she kept spinning the fairy tales.

Madoff Black Box vs. Gut Feel

Chidem Kurdas

Bernard Madoff told Securities and Exchange Commission examiners an evolving tale as to how he made money. He started with a black box, which may sound like another reason to suspect computerized models. One examiner wrote: “no discretion on the part of Madoff—everything is determined by the black box.”

Then Madoff changed his tune. Yes the computer model signaled when to enter and exit the market, but he “was adamant he also uses his ‘gut feel’ to make these decisions.”

The lesson from this little story: it is better to be presented with a black box than to be told the guy’s gut is making the money. 

Hedge Fiction: Murder, Mayhem, Prosopagnosia

Chidem Kurdas

Reading The Gods of Greenwich by Norb Vonnegut made me feel sorry for Steven Cohen. He is featured in this novel as the familiar “Stevie” who runs SAC Capital in Stamford. A main character, a hedge fund manager who collects art, “wants to become Stevie Cohen”. This is presumably meant to give real hedge fund color to this garden-variety crime caper.

The book contains one amusing character. But not a lord of the market—-rather, an angelic-looking blond nurse named Rachel. She comes across as the sharpest thinker and ablest operator among the whole cast. An RN in her day job, Rachel has a second career as a contract killer. 

Madoff Puzzle: How His Reputation Survived

Chidem Kurdas

Hedge funds lose their clients and tend to shut down when they are investigated by government agencies or face civil lawsuits. Raj Rajaratnam’s Galleon Group and Arthur Samberg’s Pequot Capital, accused of abusing inside information, come to mind. Both long-time managers closed shop.

Madoff Hindsight: What They Knew

Chidem Kurdas

A central claim of the lawsuits brought by Irving Picard, the Madoff bankruptcy trustee, is that his various targets knew of the fraud, should have known or in some cases could have known. You start noticing how murky these allegations are when you talk with people who had dealings with Mr. Madoff.