No One Would Listen: A True Financial Thriller (57 page)

Potential Fall Out if Bernie Madoff is found out to be front-running customer order flow:

1. This would be just one more black eye among many for the brokerage industry and the NYSE and NASDAQ. At this point the reputations of both the NYSE and NASDAQ are already at rock bottom, so there’s likely little downside left for these two troubled organizations.

2. The industry wouldn’t miss a beat other than for the liquidation of Madoff Investment Securities, LLC. Figure it will be similar to REFCO’s demise only there won’t be a buyer of the firm given that they cheated customers who would all be embarrassed to remain customers once the news they’ve been ripped off is on the front-pages. These former customers are more likely to sue for damages than remain customers. Unsecured lenders would face losses but other than that the industry would be better off.

3. At least the returns are real, in which case determining restitution could keep the courts busy for years. The Class Action Bar would be thrilled. A lot of the FOF’s are registered offshore in places where the long arm of the law might not reach. My guess is that the fight for the money off-shore would keep dozens of lawyers happily employed for many years.

4. The FOF’s would suffer little in the way of damage. All could be counted on to say
“We didn’t know the manager was generating returns illegally. We relied upon the NYSE and NASDAQ to regulate their markets and prevent front-running therefore we see no reason to return any funds. ”

Attachments:

1. 2 page Summary of Fairfield Sentry Ltd with performance data from December 1990 - May 2005.

2. Copy of the May 7, 2001 Barrons’ article,
“Don’t Ask, Don’t Tell; Bernie Madoff is so secretetive, he even asks his investors to keep mum,”
written by Erin E. Arvedlund.

3. Partial list of French and Swiss money-managers and private banks with investments in Bernie Madoff’s hedge fund. Undoubtedly there are dozens more European FOF’s and Private Banks that are invested with BM.

4. 2 page offering memorandum, faxed March 29, 2001, for an investment in what I believe is Fairfield Sentry Ltd., one of several investment programs run by Madoff Investment Securities, LLC for third party hedge fund, fund of funds. I do not know who the source was who faxed this document since the fax heading is blank. The document number listed at the bottom of the page appears to read I:\Data\WPDOCS|AG_\94021597.