Financial Firm Marketing Strategies: Madoff

As of this posting, there have been more than 5000 news stories and blog comments, but since I'm connected to one of the several hundred individual investors that were victimized, the tell-tale signs of something awry were as plain as the nose on anyone's face.

Since 2001, the marketing strategies used by Madoff were lampooned by at least two different forensic accounting firms enlisted by the very very few that were responsible enough to hire a third-party expert before proceeding with investing. Based on those reports, those particular prospective investors walked away. Two of them ran away. And those reports were ultimately circulated throughout the hedge fund industry.

1. the only 5 people with access to the firm's financial records were immediate family members, all with the name Madoff
2. the auditing firm that published the firm's statements was a 2-man office in the suburbs of NY.
3. If one asked too many questions, they were not allowed to invest.
4. Professional hedge funds, that employ mathematicians with knowledge of the purported strategies used, repeatedly stated the those strategies simply couldn't produce the types of returns promoted by Madoff.

For a successful fraud or Ponzi scheme to work, you only need one element: Greedy Investors. Those that put their entire net worth with a firm that claimed to engage in stock and option trading during a period of historic market volatility, but somehow managed to produce consistent 10 percent returns and pay out the same amounts on a monthly basis, despite a 40% decline in the stock market were delusional and greedy.
Of course, shame on the SEC for violating their own mandates and failing to examine the firms records for the past two years.

Yes, shame on the "advisors" that put their clients money into this firm and had failed to hire a third party auditing firm in advance; and shame on the third party auditors that failed to come to the same conclusion as the two auditors that distributed their "red flag" findings to the industry at large several years ago. Those that breached their fiduciary responsbilities should be held accountable. Too bad that their E&O coverage was written by AIG.

The hedge fund industry at large has prided itself on marketing strategies that otherwise incorporate phrases such as secrecy, special, select, proprietary, cannot be disclosed.

Amazingly, those marketing strategies will continue to work, as long as greed remains a primary motivator.