Madoff Displayed Charms Of A Practiced Huckster

Bernard Madoff was charged with securities fraud Dec. 11. The story about the alleged $50 billion Ponzi scheme hasn’t been out of the news since then — not even for a few hours.

Over the weekend we reported that the assets of the Elie Wiesel Foundation had been wiped out in the alleged Madoff fraud. Not even Nobel Prize winners are immune from the charms of a practiced huckster.

Madoff insisted his trading formula was “proprietary.” Investors say he told them to keep their relationship “secret,” that nobody needed to know he was handing their money — and yet people couldn’t keep the secret, which is how Madoff got more clients. Some charities already have closed, throwing employees out of work, canceling important research and projects and making the world a little darker place.

Lawsuits are flying left and right: New York University, for example, sued Ezra Merkin, accusing him of entrusting investment money to Madoff while not performing due diligence.  Merkin is a funds manager and also the chairman of GMAC, the lending arm of General Motors Corp.

Ponzi: There’s not another five-letter word quite like it. High net-worth individuals in Palm Beach are selling real estate and yachts to get by. Members of the Jewish faith have been particularly hard-hit. This case is many things. One of them is affinity fraud, something that is proliferating online.

Madoff is infamous now, his Hollywood story of rising from humble life guard to corporate baron in tatters. Someone apparently stole a $10,000 statue depicting a life guard from Madoff’s Florida home. Madoff odds and ends are beginning to appear on eBay.

The Bernard Madoff case is a cautionary tale. At it’s base, however, it’s a simple tale of moving shells and playing word games to hide forbidden math. Forbidden math doesn’t sell because it takes away the dream.

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9 Responses to “Madoff Displayed Charms Of A Practiced Huckster”

  1. Patrick,

    Another sad, cautionary tale. Another “If it sounds too good to be true…..” scenarios. The Madoff case is an interesting variation of a slow Ponzi and is very similar to the Petters Ponzi case in Minnesota (a mere $3 Billion Ponzi). The math of Madoff still doesn’t work, and still violates the Black Box rules for sustainability. Situations like ASD and the possibly emerging AVG are FAR easier to spot as scams — they violate the Black Box analysis and become unsustainable very, very rapidly.

    Once again, a Ponzi scheme is perpetrated using affinity fraud to take advantage of the best characteristics of humnakind (such as trust and faith in others). It is a real shame that the Wiesel Foundation has been taken down (but hopefully not out) by this case.

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  2. Pat,

    I agree wholeheartedly, although I think that part of the problem is evident on your own blog, where as I type this I am also looking at 2 google ads for online ponzi schemes, both of which are clearly illegal money games.
    I understand you have no control over the ads Google runs, and the nature of your content will draw these ponzi scheme ads to your blog, but isn’t there something wrong with this picture?
    Can we complain to Google or someone about this?

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  3. Ay, Gregg, it’s a sticky wicket. I’ve seen those ads — here and on other sites that write about autosurfs and/or Ponzi schemes. An autosurf-related keyword entered by the advertiser triggers them if publishers produce content that uses the keyword.

    Within a few days of the ASD asset seizure, I started to see “What next?” ads. And some Internet Marketers actually teach using words such as “scam” in ads to get additional search volume, a practice that can harm a brand quickly.

    The “pro” argument for running such ads often comes down to 1st Amendment issues and what degree of monitoring is affordable and prudent; the “con” argument is that an illegal business shouldn’t be permitted to advertise an illegal business.

    The problem with banning the ads is that it would turn Google (and virtually all publishers) into the cops while creating a slippery slope — that’s in theory, of course. “Legal” often is determined after the fact.

    For now, at least, education is the remedy — an underwhelming response, but one that reflects the reality. Filtering probably can take care of part of it, but the advertisers use multiple keywords.

    There is no perfect solution, and your point is well-taken.

    Thanks for the note.

    Patrick

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  4. What I’m thinking Patrick, is does Google have real contact information for it’s advertisers? Requiring them to provide verifiable proof of identity would put a quick stop to people like you trying to do the right thing being an involuntary promoter. I think making people prove who they are before they start yelling fire in the theater is well within the First Amendment, or at least a responsible move.

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  5. Hi Gregg,

    Yes, Google Adsense (for publishers) does verify identities. When you register, you have to fill out a tax form, provide an SSN or EIN, make certifications and go through a process of verifying your bank account.

    Google Adwords (for advertisers) also verifies identities, but I can’t remember the extent of the verification process. I do remember having to provide the basics — name, address, etc. — along with a credit card for billing purposes. Google has the means to “marry” accounts internally, and they do take steps to know who they’re doing business with.

    Google does ban the advertising of certain products. Here is a list:

    https://adwords.google.com/support/bin/static.py?page=guidelines.cs&topic=9271&subtopic=9279

    Autosurfs using the Ponzi model don’t seem to be on the list. I’m not qualified or authorized to speak for Google, of course. But it seems that, if enough members of the advertising-consuming public contacted them and educated them on the dangers of autosurfs, perhaps they would heighten their monitoring of such ads.

    There also seems to be a new filtering option called “Ad Review Center.” I just noticed it today and can’t speak intelligently on it yet. It appears to provide a way for publishers to filter ads if advertisers target a site based on the content of the site.

    Regards,

    Patrick

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  6. I haven’t done so recently, but in the past Google has been contacted about the advertisements for obvious ponzi schemes. Google did nothing. No reply, no enforcement of their AUP, no cancelling ponzi HYIP/AutoSurf ads, nothing.

    “Madoff insisted his trading formula was “proprietary.”” – that sounds like exactly what Bryan Marsden said about his magic PIPS formula that could earn 2% a day. I guess it shows that the same “formula” works no matter what the size of the ponzi scheme.

    Another Madoff story here:
    Deadline for Madoff to reveal assets expires Wednesday
    http://uk.biz.yahoo.com/30122008/323/deadline-madoff-reveal-assets-expires-wednesday.html

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  7. I suspect a true hedge fund (as opposed to a HYIP scam calling itself one, which I’m sure will be the trend eventually) may be able to hide behind the “proprietary methods” but for the vast majority of financial products available to the public, just claiming it, without providing detailed accounts of the funds and management is in itself a sign of a scam. Call your super new perfectly legal and earns 2% a day scheme whatever you care to, if you’re asking people on the internet to invest with you, you have to provide detailed information not only on the investments themselves, but on the people in charge of it. Don’t let anyone give you any excuse about their privacy or the secret nature of their investments, if they don’t tell you BEFORE they take your money, it’s a scam.
    If we could just get the general public to understand that statement, half the battle would be won.

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  8. Gregg,

    Very well stated! I’m working on an analysis of investment schemes based on statistics in order to try to get at the answer to “What are the odds that an investment can sustainably yield x% over time?” I already know part of the answer — 2% per day is statistically essentially impossible. The long-lived Ponzi’s like Madoff and Petters have rates of return that are statistically very unlikely, but not impossible. That’s why they lasted so long. ASD (and the other obvious HYIP Ponzi’s) of course are far easier to spot, whether by Black Box (if their terms are known, like ASD) or secret (statistical analysis of returns).

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  9. Hi Gregg,

    I’ve read a few reports about Madoff getting angry when people pushed him for details. Seems as though “proprietary” was his default position. The word itself can be a smoke screen.

    Thinking about the word reminded me of the defenses some ASD members employed: Everything is OK as long as people are getting paid, so why rock the boat with unpleasant questions about mathematics and sustainability?

    I noticed a person pushing a new scam — and at scam.com, of all places — rationalizing it as just another business in which there are winners and losers. His only criterion appeared to be that “it pays.” How it pays and who gets burned along the way were immaterial to his point of view.

    Some of these terms — “proprietary” and “due diligence,” for example — get thrown into the mix to add an air of legitimacy. Some of the autosurf players confoundingly use the language of investments and then deny they’re selling investments.

    Like Andy Bowdoin, Madoff was light on specifics. Heck, I’ve read ad materials from ASD promoters that bragged about “earnings” of $1,000 a day for only minutes of work clicking on untargeted advertising. It was accepted as gospel. Spend. Click. Get rich. Recruit family. Make them rich.

    Madoff didn’t run a click program, of course. But it was a program that required people to pony up tidy sums and, like a click program, traded on human foibles: the belief all work associated with prudent investing could be taken off the table, owing to the presence of genius at the head of a system unlike any other in the world.

    Once Madof’s people were “in,” they felt unique. Some of them brought in family and friends so they, too, could feel unique — all the while immersed in the illusion of fantastic profits. People couldn’t wait to gush about their ties to Madoff, just as some ASD members couldn’t wait to gush about their ties to Bowdoin.

    Patrick

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