The enormity of the Bernie Madoff scandal and the massive losses hitting investors was underscored this past weekend when the Federal Bureau of Investigation (FBI) announced that the $50 billion Ponzi scheme and other frauds would take priority over counter-terrorism cases.
A Dec. 22 Bloomberg article confirmed that the FBI is reassigning agents in New York to focus on efforts that pose the “greatest threat” to Americans. According to FBI official David Cardona, the threat is to the financial system and Wall Street.
On Dec. 11, following Madoff’s arrest by the FBI on charges of securities fraud, the disgraced 70-year-old reportedly confessed that he was the sole person responsible for bilking investors out of $50 billion in a worldwide Ponzi fraud scheme. Victims of the scam not only include Madoff’s direct clients, but also investors in so-called third-party feeder funds and funds of hedge funds that provided billions of dollars in capital to Madoff’s investment business.
The inability of these feeder brokerage firms, which includes OppenheimerFunds’ Tremont Capital Management, to detect Madoff’s fraud in the face of numerous red flags is a sure-fire sign of poor risk management and a failure to perform proper due diligence on behalf of clients and their money. After all, these funds charge investors significant fees for the privilege of their services, typically 1% of the assets under management and up to 10% of the profits. In the end, their negligence of failing to protect investors renders them guilty right along with Madoff.