So CFAI ethics rules dictate due diligence, diversification, etc. etc. My question is: should the CFAs that invested money with Madoff loose their charters?
no way in hell
ceo1975 should lose your charter since you used CFA as an noun.
touche! I actually thought about that when posting…lol
^LOL, just kidding. If somebody is determined to commit out-right fraude, it is too hard to detect when it is coming.
ceo1975 Wrote: ------------------------------------------------------- > So CFAI ethics rules dictate due diligence, > diversification, etc. etc. My question is: should > the CFAs that invested money with Madoff loose > their charters? Are you kidding?
typically one does their due diligence using resources like the Auditor and the SEC, who theoretically preform robust examinations. should they be fired… YES.
Fairfield Greenwich prided itself on due diligence. LOL
Yeah, there’s a huge difference between being wrong and failing to perform due dilligence. Given the steps Madoff took, no way. Simply asking that question in my mind is fairly abbrasive and carries the trademarks of news media hindsight qb’ing and fingerpointing behavior.
ceo1975 Wrote: ------------------------------------------------------- > So CFAI ethics rules dictate due diligence, > diversification, etc. etc. My question is: should > the CFAs that invested money with Madoff loose > their charters? YES + 75 Lashes
I was under the impression that track-record is only a small piece of the due diligence process. You still have to check structure, source of alpha, risks, blabla … I mean I know HFs who have returned over 30% annualized over the last 3 years and they can’t raise a dime, simply because no one knows (understand) what they’re doing.
“should the CFAs that invested money with Madoff loose their charters?” No but the stupid greedy funds of funds managers should lose their jobs. Also, this is yet another example of how pathetic America’s regulatory systems are. America is really shining bright these days. Bunch of incompetent suckers are found everywhere. Makes me sick.
ceo1975 Wrote: ------------------------------------------------------- > So CFAI ethics rules dictate due diligence, > diversification, etc. etc. My question is: should > the CFAs that invested money with Madoff loose > their charters? Should you be punished because the Made in China products you buy are most likely manufactured by exploiting (monetarily and otherwise) rural people from China and Mongolia?
What I’m getting at is that I believe that Due Diligence would included taking Madoff strategy and do a simulation and seeing if such returns (like no negative monthly returns) were at all possible. I don’t think seeing the Auditor’s letter (who was a no-name guy) and seeing the they filed with the SEC were sufficient. I believe several money managers, including JP Morgan, did this and declined to invest with the guy because of this.
ceo1975 Wrote: ------------------------------------------------------- > What I’m getting at is that I believe that Due > Diligence would included taking Madoff strategy > and do a simulation and seeing if such returns > (like no negative monthly returns) were at all > possible. I don’t think seeing the Auditor’s > letter (who was a no-name guy) and seeing the they > filed with the SEC were sufficient. I believe > several money managers, including JP Morgan, did > this and declined to invest with the guy because > of this. It’s hard to catch a truly determined and devious scamster, and it seems that Madoff was world-class. While hindsight might make it look glaringly obvoious what “should” have been done, hindsight is always perfect. Due diligence above the minimally required level is always a trade-off between costs and benefits, and doing all possible tests is seldom feasible.
ceo1975 Wrote: ------------------------------------------------------- > What I’m getting at is that I believe that Due > Diligence would included taking Madoff strategy > and do a simulation and seeing if such returns > (like no negative monthly returns) were at all > possible. I don’t think seeing the Auditor’s > letter (who was a no-name guy) and seeing the they > filed with the SEC were sufficient. I believe > several money managers, including JP Morgan, did > this and declined to invest with the guy because > of this. I’d say there is a lot more to it. There are several components: 1. Madoff had an advisory business that farmed out his options strategy to sub funds via managed accounts (the advisory business and the sub funds are not regulated by the SEC, but audited by top tier firms). This includes several providers of leverage, big 4 accounting firms, world class administrators. 2. He had a market making business (as an broker dealer it is regulated by the SEC & FINRA). FYI Many hedge funds have their own market making business to get better access to the market via improved automation. Notice then, that the whole organisation is not audited/regulated by one organisation here and you start to see why this fraud became possible. This is a failure of checks and balances at the heart of the financial system. A rationale for some investors: Red flags: 1. Very consistent returns, The manager did post negative months. Just not that many over a long period - very high positive to negative month ratio. 2. Small auditing firm for the administrator Compensating controls for these specific red flags: 1. His early involvement with the formation of NASDAQ (as Vice Chairman/40 years in the industry) and the firms’ large options market making ability (as one of the first to grow this business) gave him an edge on flow/automation. Conceivably, this then provided the Madoff organisation with the ability to provide liquidity to the options market and franchise this out to sub funds i.e. he had was in a key part of the value chain and earned money from it (much like any investment bank) which smoothed returns (not front running - the firm passed two SEC checks before). Futher it is not unusual for fairly consistent returns with option strategies (think derivative arb). 2. A key requirement of all broker dealers in the light of Enron is SEC regulation under the public oversight board (PCOAB - I think). Added to that, the firm is regulated by other organisations, e.g. FINRA Here’s the rub then: - Several organisations looking at all aspects of his book, one weak link. - His background is above board. - He pays out money quickly to investors over many many years. Ok, hindsight is a great thing… - If you arent invested, clients will constantly ask you why. This is a firm that gets audited every year from top 4 firms, that gets collateral from large banks, has the SEC looking at its books. If you had to reject every investment that was too good to be true, you might never invest. What if Warren Buffet was exposed tomorrow? Did you invest? Why? It raises some interesting questions. Think of someone who you believe has integrity at your firm and then you wonder if they could do the same. Anyway, bottom line, checks and balances. I sort of feel sorry for the SEC, they will bear the brunt of this. Yet I read they have to audit 11,000 organisations. All complex in a fast growing business. It will of course happen again. Just read your history books on financial markets. The best Ponzi scheme IMO was the one John Law created. A Scotsman who sold claims on Louisiana to the French (and caused the downfall of Louis XIV, whom Louisiana is named after). Last thought - lets hope the film is good.
In the WSJ today they had an example of the client statements sent each month. The guy showed the profit on the options positions and never mentioned the loss on the long stock position. If that’s not a red flag, I am not sure what is. My guess is the people who invested with this guy did so based on one factor only. He’s a dedicated Jew and dedicated Jews are not supposed to rob other Jews. Forget anything else about due diligence, that’s the bottom line.
I really fell uncomfortable with phrases like “He’s a dedicated Jew and dedicated Jews are not supposed to rob other Jews.” All my academic bells and buzzers start going off that say don’t go there. mudda - I haven’t followed this as much as you clearly, but my impression was that they had only a small firm doing the auditing, not a small auditing firm as the administrator and a big 4 firm doing the auditing. If you are correct on that, I would say that a small firm as admin doesn’t mean squat. Who cares who the admin is? That wouold be the tiniest of red flags for me. In fact, I don’t want a big 4 firm doing the admin because it’s expensive and admin fees come directly from the fund. The admin doesn’t do any real compliance work anyway (or any work that I believe is worth anything) so I want some tiny firm doing it for no money. I would invest in a hedge fund without an admin and think I had run into someone progressive.
JoeyDVivre Wrote: ------------------------------------------------------- > I really fell uncomfortable with phrases like > “He’s a dedicated Jew and dedicated Jews are not > supposed to rob other Jews.” All my academic > bells and buzzers start going off that say don’t > go there. This doesn’t exactly sound PC, but I think he makes a good point and think this probably was a factor in the lack of DD on Madoff. Plus, if you replace Jew with Christian it doesn’t sound as bad.
I actually feel a lot more comfortable if we replace the sentence with something true like: “He’s a dedicated Jew and dedicated Jews are not supposed to rob anybody.”