The Securities and Exchange Commission investigated alleged Ponzi schemer Bernie Madoff eight times and found only minor infractions. Nothing even close to the $50 billion fraud he supposedly perpetrated. But Cramer’s one-time review of Madoff’s business showed his legendary returns were anything but.
How’d Cramer do it? He ran the numbers. Something you’d assume the SEC could also do. That 80% return Madoff claimed for the period between early 2000 until October 2008? Turns out the number was closer to –2.66%, at least according to Cramer’s research. All the SEC had to do was check the performance of the options Madoff said he was trading to figure this out. Cramer did it…
That’s why he doesn’t want anyone believing the SEC’s claims that it had no way of knowing just how fraudulent Madoff appears to have been. Despite letters to the SEC’s Boston office about the alleged Ponzi scheme, there was still no in-depth look at the strategies Madoff was using to make those “big” returns.
The feeder funds that invested with Madoff were just as bad. These “funds of funds” could have figured out what was going on but never bothered to try. In fact, one such fund, Tremont, went so far as to put their complacency into writing. Check out this pull-quote from a document the firm sent to clients: “…in addition, information supplied by the investment advisor may be inaccurate or even fraudulent. The co-managers are entitled to rely on such information (provided they do so in good faith) and are not required to undertake any due diligence to confirm the accuracy thereof.”
So Tremont’s clients shelled out big bucks to have their money managed by people who didn’t think it was their job to responsibly manage their clients’ money. Make sense?
Hence Cramer’s outrage. The SEC has no excuse for its complete and total miss of Madoff’s allegedly fraudulent behavior, and these feeder funds, while they might deny it, are responsible for their clients’ losses.
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