Madoff Scam Report

[The biggest scam ($ 50 B) that Wall-Street had ever known]

D.R.Karthik

D.R.Karthik Page 1
 CONTENTS

 Introduction - Scams going Global

 Madoff - Who is he?

 2009 Scammers list following Madoff’s

 Ponzy scheme

 Investment Scandal

 Size of loss to investors

 Affinity Fraud

 Imprisonment

 Lesson from the last speech

 Precautions

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 PONZI SCHEMES & THE NEW WAVE OF FRAUD

INTRODUCTION – “Scams going Global ”

Scammers typically prey on the greedy, desperate and gullible.

And right now, as job losses mount, retirement funds drain and the stock
market falls to levels not seen in 12 years, many consumers truly are
desperate right now, making them perfect targets for financial scams.

Globalization has caused the number of financial scams from

overseas to multiply at a stunning rate, the U.S. State Department said in
a 2007 report. And the financial gambits have literally run the gamut,
ranging from Internet dating to “overpayments” for purchased products
– and including such long-running standbys as inheritances from long-
lost relatives, bogus fees for work permits and even money-laundering
schemes.
Advances in technology – especially the Internet, and such developments as online
auctions – have enabled new types of scams. Money lost in Internet crimes topped $240 million
in 2007 – a $40 million.

Madoff-Who is he?

 Bernard Lawrence "Bernie" Madoff founded the Wall Street firm Bernard L. Madoff
Investment Securities LLC in 1960, and was its chairman until (his arrest) on December
11, 2008.
 He is the Former Chairman of NASDAQ Stock Exchange.
 He is also a Philanthropist.
 He is the admitted operator of the Ponzi scheme that might be "the largest investment
fraud in Wall Street history".

2009 Scammers list following Madoff’s

The revelation that Bernard Madoff duped thousands of in a massive Ponzi scheme has
led to a crack down on corporate fraud and penny ante financial scams. These eight perpetrators
have already made this year’s Hall of Shame:

 Bernard Madoff operated the largest Ponzi scheme the world has ever seen. On March 12,
Madoff pled guilty to an 11-count criminal complaint admitting to defrauding nearly 5,000
investors of about $65 billion.

 James Nicholson, manager of an unregistered hedge fund, was also arrested by the FBI on
Feb. 25 under suspicion that he has sapped as much as $900 million from clients since
2004.The SEC filed a complaint that said Nicholson told investors his hedge fund’s assets
were valued between $600 million and $900 billion, when such was not the case. The
complaint also said that Nicholson set up a fake accounting firm to conceal his company’s
true financial health.

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 David Copeland Reed was arrested on Feb. 24 and charged with wire fraud and money-
laundering violations. In 2001, his Internet bank, OSGold, promised a 30% compounded,
three-month return with a 45% annualized return. Some 66,000 accounts were started in 12
months, and then Reed disappeared with along with the $12.8 million in the bank.

 Robert Allen Stanford and two of his associates were arrested on Feb. 26 for an alleged $8
billion fraud. According to the complaint, Stanford Financial Group sold about $8 billion in
CDs to investors, saying the CDs high rates were possible because of the firm’s 15-year
history of making investments with double-digit returns.

 The Commodity Futures Trading Commission last month charged Paul Greenwood and
Stephen Walsh with fraud, misappropriating about $553 million in investor funds – from
charities to retirees – and using it for lavish personal items. Also linked to the fraud was
Mark Bloom, who was charged with taking $13.5 million from institutional investors and
sinking it into a fraudulent hedge fund, as well as using the money to enrich himself.

 Marc Dreier was sentenced to 20 years in federal prison on July 13, 2009 for his
involvement in a massive scheme to sell $700 million in fictitious promissory notes.

Ponzy scheme
A Ponzi scheme is an investment fraud wherein the operator promises high financial
returns or dividends that are not available through traditional investments. Instead of investing
victims' funds, the operator pays "dividends" to initial investors using the principle amounts
"invested" by subsequent investors.

History of Ponzy scheme : Ponzi schemes are named for Charles Ponzi, who deceived
thousands of New England residents into investing in postage stamps back in the 1920s. Ponzi
thought he could take advantage of differences between U.S. and foreign currencies used to buy
and sell international mail coupons. Ponzi told investors that he could provide a 40-50% return
in just 90 days compared to the interest rates for bank savings accounts, stocks and bonds.

Investment Scandal
Concerns about Madoff's business surfaced as early as 1999, when financial analyst-
whistleblower Harry Markopolos informed the SEC that he believed it was legally and
mathematically impossible to achieve the gains Madoff claimed to deliver. He was ignored by the
Boston SEC in 2000 and 2001, as well as by Meaghan Cheung at the New York SEC in 2005 and
2007 when he presented further evidence. Others also contended it was inconceivable that the
growing volume of Madoff accounts could be competently and legitimately serviced by his
documented accounting/auditing firm, a three-person firm with only one active accountant.

Size of loss to investors

David Sheehan, chief counsel to trustee Picard, stated on September 27, 2009, that about
$36 billion was invested into the scam, returning $18 billion to investors, with $18 billion
missing. About half of Madoff's investors were "net winners," earning more than their
investment. The withdrawal amounts in the final six years are subject to "clawback" (return of
money) lawsuits.

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 Former SEC Chairman Harvey Pitt has estimated the actual net fraud to be between $10
and $17 billion. Erin Arvedlund, who publicly questioned Madoff's reported investment
performance in 2001, stated that the actual amount of the fraud will never be known, but is likely
between $12 and $20 billion.

Affinity fraud

Madoff's Ponzi scheme preyed heavily on his fellow Jews, destroying the fortunes of
numerous Jewish charities and institutions. Affected institutions include Yeshiva University, the
Women's Zionist Organization of America, and Steven Spielberg's Wunderkinder Foundation.
Jewish federations and hospitals have lost millions of dollars, forcing some organizations to
close. The Lappin Foundation, for instance, was temporarily forced to halt operations because it
had invested its entire $8 million endowment with Madoff.

Imprisonment
On December 11, 2008, the Securities and Exchange Commission (SEC) charged
Bernard L. Madoff (Madoff) with securities fraud for a multi-billion dollar Ponzi scheme that he
perpetrated on advisory clients of his firm.
The complaint charged Madoff with violations of the anti-fraud provisions of the
Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of
1940. In addition, the U.S. Attorney’s Office in the Southern District of New York also indicted
Madoff for criminal offenses on the same date.
On March 12, 2009, Madoff pled guilty to all charges and on June 29, 2009, federal
District Judge Denny Chin sentenced Madoff to serve 150 years in prison, which was the
maximum sentence allowed.

Lesson from the last speech

While awaiting sentencing, Madoff met with the SEC's Inspector General, H. David
Kotz, who is conducting an investigation into how regulators failed to detect the fraud despite
numerous red flags. Madoff said he could have been caught in 2003, but bumbling investigators
acted like "Lt. Colombo" and never asked the right questions.

"I was astonished. They never even looked at my stock records. If investigators had
checked with the Depository Trust Company, a central securities depository, it would've been
easy for them to see. If you're looking at a Ponzi scheme, it's the first thing you do." Madoff also
told Kotz in a June 17, 2009 prison interview that if investigators had checked with the
Depository Trust Company, a central securities depository, it "would've been easy for them to
see" the Ponzi scheme, Madoff said in the June 17, 2009, interview that SEC Chairman Mary
Schapiro was a "dear friend," and SEC Commissioner Elisse Walter was a "terrific lady" whom
he knew "pretty well."

Lessons

 Often keep track on records once invested.

 Investors have the right of questioning. Make use of it to prevent scams like this.
 Lack of due-diligence & incompetent staff work or neglecting allegations of financial
experts and whistle-blowers plays major role in such scams.

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Precautions
Some major DON’Ts as precautions to Avoid Losses on investment Financial Services:

 Don’t panic. Be sure that you know the point at which you can lose the legal right to own
your home. Make sure you understand all the deadlines for responding to court documents,
documents from lenders and other important papers.

 Never sign a contract under pressure. Take your time to review the paperwork thoroughly,
preferably with a lawyer who is representing your interests only.

 Don’t sign away ownership of your property (often referred to as a “quit claim deed”) to
anyone without advice from your lawyer. Be especially suspicious of offers to take over
ownership of your home as part of a deal that will allow you to lease it and then buy it back
after two or three years; experience shows that the buy-back is often extremely expensive or
otherwise out of reach, so in reality you either never get your home back or, if you do, you
have paid an outrageous amount to recover it.

 Don’t pay your mortgage payments to someone other than your lender even if he or she
promises to pass the payments on to the mortgage company. And if you find you cannot pay
your mortgage do not ignore warning letters from your mortgage lender. Call your lender or
a lawyer for help.

 Beware of any home sale contract where you are not formally released from liability for your
mortgage. Surprisingly, some people lose their home but still wind up holding the mortgage!
Make sure you know what rights you are giving up in any contract and that you agree to
giving them up.

 Never make a verbal agreement. Get all promises in writing and get copies of the agreement.

 Don't sign anything containing blank lines or spaces. Information can be added later without
your permission.

 Don’t fall for promises, often used to lure homeowners into deals that will cost them far, far
more than they will “save.”

 If you do not speak English, use your own translator; do not depend on the “rescue” firm’s
translator or anyone else’s.

Conclusion “ Investors be-aware!!! ”

There is no substitute for this! There will be scams not only in Wall Street but also in
Dalal Street too! until there are investors tempted towards heavy & unimaginable returns.
Through proper track-on-record and recognition after supervision to the financial & investment
services would be done by the Government to the max, in order to prevent these kinds of scams.
It is noted that the big scams are achieved only by the big geniuses! Still there will be flaws in any
wrong doing. So with that in mind any such scams can be lime-lighted. But clever investors
won’t undergo such risks. So avoiding risky investments like this would reduce large scale scams.

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