Category: The Economy

UPDATE 1:03 PM EST (U.S.A.): Quoting Stephen Harbeck, president and chief executive officer of the Securities Investor Protection Corp. (SIPC), Bloomberg News is reporting that Bernard Madoff’s financial records are “utterly unreliable.” We’ve added a link at the bottom of the post.

Here, below, our earlier post . . .

If you’ve been following the Ad Surf Daily/Andy Bowdoin Ponzi scheme case, you’re missing out if you haven’t been following the Bernard Madoff case.

The cases are similar in that both ASD and Bernard L. Madoff Investment Securtites have been accused of using incoming funds to pay off older participants, thus the “Ponzi” terminology. Affinity fraud also is an element: ASD was popular among people who defined themselves Christians, and Madoff’s offer appealed to members of the Jewish community.

Both ASD and Madoff had a worldwide client base (in Madoff’s case, European financial managers appear to have steered clients’ money to Madoff, while ASD sold directly to clients in Europe and elsewhere). Both companies also had Florida clientele, with ASD conducting “rallies” for less-affluent people to drum up business in the state and Madoff preferring the Country Club approach in Palm Beach.

One principal difference is that ASD defined itself as an “advertising” company that offered “rebates” on ad purchases of up to 125 percent of the customers spend in about four months. Put $10,000 in ASD, and four months later you’d have $12,500. Madoff didn’t uses wordplay in the ASD sense in a bid to avoid regulatory scrutiny, but clients expected their investments to grow 10 percent to 12 percent a year, based on Madoff’s published “results.”

Another difference is the degree of the alleged Ponzi. ASD, whose assets were seized by the U.S. government in August, is expected to top out at roughly $100 million; prosecutors in the Madoff case fear losses could top $50 billion, based on Madoff’s own words.

Yet another difference is customers’ views in the hours after the word “Ponzi” was associated with Bowdoin and Madoff: Many ASD customers blasted the government, arguing that things would have been just fine had prosecutors not meddled in ASD’s affairs. Madoff’s investors, however, were furious with Madoff. They wanted to know why the government hadn’t detected the fraud earlier and stopped it before it mushroomed globally.

What’s strikingly similar about the cases, though, is the degree to which Bowdoin and Madoff traded on their innate charisma: Bowdoin in a folksy, Southern way, and Madoff in a confident, aloof way with a pinch of “regular Joe” thrown in. Bowdoin was “Andy” to his fans; Madoff was “Bernie.”

People waited in line to give them money and let them do their magic. ASD collected tens of millions of dollars from “advertisers” in just several weeks last summer. Some ASD members took out second mortgages and cashed out savings to qualify for matching bonuses at rallies. In Madoff’s case, some people felt genuinely humble that a Wall Street titan had agreed to manage their money.

Roger and Diane Peskin of Bethlehem, Pa., entrusted $3 million earned over a lifetime to Madoff, after having waited six months for the privilege of having their money accepted by Madoff. The couple also took $400,000 from the sale of their home and passed it along to Madoff, according to the Allentown Morning Call.

Unlike Bowdoin, Madoff hadn’t been accused of previous securities felonies. But he traded on a lifetime of supposed business acumen, something Bowdoin did as well. Bowdoin got in trouble with the government after some of his promoters made the claim that he’d received a special award from President Bush for career accomplishments. It turned out the award Bowdoin received was the “Medal of Distinction,” which is handed out by the National Republican Congressional Committee for campaign contributions. An Ohio drug addict got the same award. He, too, claimed close ties to the White House.

Madoff was hailed a trading legend. He’d been chairman of Nasdaq and had a supposed reputation for transparency — except, apparently, when it came down to his own securities company, which people now say was run in secretive fashion.

Person after person has claimed they’d performed “due diligence” on both Bowdoin and Madoff. Since prosecutors seized ASD’s assets in August, however, the company hasn’t published an audited balance sheet. U.S. District Judge Rosemary Collyer ruled last month that ASD had not demonstrated it was a legal business and not a Ponzi scheme at a Sept. 30-Oct. 1 evidentiary hearing. It is not known if the firm even employed an auditor.

Madoff, it turns out, seems to have used a three-person auditing firm that operated out of a 13-by-18-foot office in a suburban plaza. He, too, seems to have a problem on the accounting front. Like ASD, it raises the question if due diligence claims are credible in the absence of verifiable financial data.

Bowdoin has yet to be charged criminally, but his attorneys say that might be coming. Madoff has trouble on the civil and criminal fronts, his reputation in tatters. He had a list of celebrity clients. Jewish charities already have been forced to suspend operations, and the town of Fairfield, Conn., has lost a bundle in its pension fund — money that was supposed to take care of civil servants in their retirement years.

Andy Bowdoin is not Bernie Madoff, and Bernie Madoff is not Andy Bowdoin. Regardless, they are two men from very different backgrounds who had one thing in common: The power to draw money like a magnet and to disarm doubters by putting their individual charms on full display — Bowdoin in Internet videos that reminded people of a sort of Southern Mr. Rogers, and Madoff in Wall Street’s power corridors and the country clubs of Palm Beach: Bernie being Bernie, and Andy being Andy, their critics disarmed, their investors’ financial lives now in shambles.

Bloomberg News: Madoff’s Financial Records ‘Utterly Unreliable’