On 29th June 2009, the American legal system sent Mr Madoff to prison for the rest of his life. He had been found guilty of fraud on a massive scale and lost investors in excess of £40bn. His actual sentence was over 10 times the amount that his lawyer had pressed for. Perhaps this is poetic justice for the man who appeared to multiply numbers to his advantage for many years.
It was his sons that were left to report him to the authorities as they questioned how he could afford to bring forward bonus payments at a time when they could not afford to pay investors, prompting them to ask the questions that had presumably not been thought of. Within 24 hours their father was arrested on 11 December and charged with securities fraud.
There have been experts that failed to appreciate the workings of the Madoff business. Fund managers, stockbrokers, auditors and regulators all got it wrong. Indeed this is the tale of a family business that went horribly wrong. Several members of the Madoff family worked within the financial services industry, rising to positions of significant power. This is an embarrassment for them as well, hence his sense of shame. One might be concerned how a single individual could actually carry out such a massive fraud, but he refused to implicate others.
This is a case in point that has clear warnings for everyone – for investors, yet again a reminder that when something is too good to be true it probably is. Equally, don’t put all your eggs in one basket, which is something that many of his clients seemed to have done. For advisers, to always be mindful when researching investments, about where the returns are really derived and to look beyond the face of respectability. As for regulators, frankly the focus on stockbrokers has been woefully lacking and it is difficult to imagine how an IFA could ever create a similar problem, yet this is where the focus often lies. As for relatives, this must tear the fabric of a family apart.
Madoff has lost the trust of anyone that had financial dealings with him and the impact of his actions has been catastrophic for many of his clients. Several have literally lost all of their savings. So when selecting an adviser, care is needed. Trust should not be under valued. How your adviser is paid is a key factor in building a trusting relationship.
Has the Madoff case altered your feelings towards the financial services industry?
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