What Makes a Great Team Member? This is so true! Our project management team, and some other people I know fit this description pe...
Did Bernie Madoff Have a CIO?
Share This -
Here’s my question of the day. For thirteen years Bernard Madoff was able to carry out a Ponzi scheme of staggering proportions, duping, by one estimate, as many as 8,000 or so clients out of $50 billion dollars. .
Of course, we now know that during that period Madoff never actually made a single trade. Instead, he would make phony trades, supporting them with bogus trading tickets using data from past share prices. In other words, he’d show that he bought IBM, say in April at $100 a share and sold it six months later perhaps $113. That trade would reflect the real price at which Madoff supposedly bought the stock in April and its real price when he supposedly unloaded it in October. .
Got that? OK, Madoff would also divvy up the various investments he supposedly bought and sold among the various funds he ran. According to the most recent federal filings, Bernard L. Madoff Investment Securities operated more than two dozen funds overseeing $17 billion. .
As you can see, this operation was highly complicated and complex. Madoff needed a massive database to store all those make believe trades he’d been reporting since 1986. And remember that Madoff had to send his investors a statement at least every quarter showing, gains, losses, current positions, etc.. Then. at the end of December his company would send out an annual statement showing capital gains, losses and any costs associated with Madoff’s magic investment skills. Even in a down year Bernie unfailing generated 10m percent or so in gains for his clients. .
And in a good year? Maybe 12 percent, nothing excessive. This was no get rich quick affair. .
The recipients of these reports were institutional investors and wealthy, supposedly sophisticated individuals. Among them: HSBC Bank, BNP Paribas as well as industry leaders and celebrities in the United States, from Elie Wiesel, the Hollywood director Steven Spielberg, publisher Mortimer B. Zuckerman and the Wilpon family, the owners of the New York Mets.
These investors would peruse their statements, likely congratulate themselves for being fortunate enough to have their money in the hands of Madoff and turn these statements over to their accountants who were paid big bucks to scrutinize them intensely. .
In aggregate this was a whole lot of information to keep track off – 13 years, 8,000 investors, and thousands upon thousands of trades. Then, of course, Madoff needed keep tabs on the money – in this case $50 billion. You know, of course, how a Ponzi scheme works. You rob Peter and several dozen other clients to pay Paul. Nobody has ever worked a scam of this magnitude, not even close. .
Which brings me back to my original question. Did Madoff have a secret CIO, someone who could keep track of all the numbers and ensure they matched up with the real world, someone who could generate flawless financial reports and produce evidence that indeed such and such a trade was made on such and such a date in case some eagle eyed SEC official showed up (not a problem as its turned out). Of course, the date, time and amounts on everyone of those fake tickets need to be reconciled with the same data from the trading floor. .
Well, here’s what we know so far. All the financial reporting was done solely in-house rather than in conjunction with outside custodian (who would provide an independent breakdown of the financial reports). Someone in the company, then, had the brains and the technical skills to keep this incredible fiscal juggling act going for 13 years. .
Madoff's sons, so they say, were clueless about what was going on in the firm and seem unlikely candidates to pilot some high powered database software or spreadsheet tool to ensure that column A lined up with column B. .
So who was Madoff’s go-to IT guy. To pull this off a friend who manages a fund that’s maybe a third of the size of Madoff’s says you’d need maybe a dozen back office people. But these were effectively clerks. Also, we learned Monday from The Wall Street Journal that Madoff had a loyal-- she’d been with the firm for four decades—assistant, Annette Bongiorno, whose job description included, according to the Journal, having her two assistants create bogus trading tickets. .
That’s it in terms of personnel, except for an outside accountant, David G. Friehling who wasn’t – surprise, surprise -- registered with the Public Company Accounting Oversight Board, which was created under the Sarbanes-Oxley Act to help detect fraud. .
Scratch Horowitz, which leaves with … well, Bernie. Maybe you’ve seen those pictures on the news of Madoff sitting in front of the office window in his apartment, where he is confined, working late into the night on his laptop? Here’s what I’m thinking: Bernard L. Madoff Investment Securities’s IT wizard was none other than the boss man himself. .
Comments (3)
1. 03-10-2009 16:15
Hah! Bernie Madoff, CIO Mastermind. On one hand your theory (no doubt tongue-in-cheek) makes sense as in order to pull off a fraud like this over such a long period of time, the inner circle needs to be kept small. At the same time though, a fraud of this scale requires an IT wizard as you suggest. Hopefully they can peel back the onion and get at the entire team behind this fraud, and I'll bet you'll find your computer expert in the bunch.
Registered
2. 03-11-2009 12:50
Well written but kind of late, IMO. Where were the CIO's when the financial crisis started or I should say, before it hit the market? Busy implementing new social networking applications worth millions of dollars? Aren't we responsible for providing the tools to the business community and as IT/Business people and executives raise issues when reading the reports? Maybe we don’t read the 10K report or the profitability reports of the enterprise. “We just run them.” Aren't we the keeper of CRM, ERP and profitability tools? Why make the CIO feel less guilty that the other executives for this financial crisis? Madoff is the latest drop in the bucket but the large financial institutions whose infrastructure is worth tens of millions of dollars should question the CIO role. Let's not kid ourselves by claiming that we are the IT guru's. For years I am preaching business acumen for any CIO. A CIO with no business knowledge does not belong in this day and age to be an executive. Boy, I am really frustrated when I see complacency and this time, I had it. How many more people will loose their jobs in IT before the CIO takes full responsibility for his/her own lack of accountability? Or may be they will ship jobs offshore and save few bucks here and there while cutting their local staff!!! Sincerely yours, Adrian Danescu EVP/CIO
Registered
3. 03-12-2009 09:28
I couldn't agree more Adrian. CIOs need to step up and begin to understand the ramifications of their decisions. Perhaps your last suggestion of shipping jobs off shore was made to poke fun at the endless ignorant approach many senior managers have when it comes to accepting responsibility for their own actions. After all, they will take the pay, just not the blame or responsibility. Still, shipping jobs off shore certainly falls short of the mark when you consider situations like Satyam in India. It is no better anywhere else in the world. Greed and Ignorance are not just doing well here in America. We all need to step it up and stop looking for the easy buck, or a handout from the US Government. CIOs and Sr. IT folk need now to understand business like never before if they expect to be compensated accordingly. Laton's article and the context of the article are worth consideration. How does one guy dupe so many people for so long? I have to believe someone was sitting behind the green curtain, and it wasn't the "Great and Powerful" Bernie Madoff. It was way too much information to track over too long a period for one man alone. Why the guy hasn't already done a final "Perp Walk" and why he hasn't been placed in jail are yet other questions I tend wonder about. I guess, today will tell(?). Will Feds ever be able to fiind the person who masterminded the systems behind Bernie? I doubt it. That would require actually looking behind the curtain.
Registered
Only registered users can write comments. Please login or register.
