Visualization of Madoff Securities "Feeder Funds"
Jan
28
Based upon the recent sharp increase in website visitors and both the public and private feedback, Toomre Capital Markets LLC ("TCM") appears to have become one of the better resources for information regarding the Bernard L. Madoff Investment Securities, LLC fraud scandal. TCM's two principals, Lars Toomre and Aldon Hynes, are geeks at heart and tend to be better with numbers and technology than names and social relationships. Of course, though, the Madoff fraud abounds with so many investors, organizations, charities, lawyers and other entities that have names and relationships that cumulatively quickly become overwhelming.
Hence, Lars and Aldon thought that this website's readership might appreciate some visualization to assist in gaining a better understanding of some of the many principals and relationships that are a part of the Madoff fraud scandal. Most of the labels on the visualization below link back to other content on this website. This first graph (of what may become several) depicts what we acknowledge is incomplete information about the major "feeder funds" that contributed investor dollars to the Bernie Madoff's investment operation:
Visualization of Madoff Securities "Feeder Funds":
TCM would appreciate receiving comments in the section below about information that should be incorporated into the above graph. We will endeavor to update both this post and to produce additional social network graphs about other portions of the complex Madoff fraud social network map. Reader comments and thoughts are not only welcome, but also highly encouraged.
madoff
I would find it interesting to have an estimate of all fees the feeder funds earned in the last couple of years. In my point of view these "kick back" are the only point that needs regulation
Madoff Feeder Funf Diagram
I have a (continually growing) Madoff site now up to something like 120 pages of text and pictures, pretty well organized and referenced. All the material is in one essay, so it's an easily searchable Madoff archive. I'd like my archive to be as complete as possible, so I would like permission to include your excellent feeder diagram with, of course, source credit to Lars, Aldon and your URL.
My site is Madoff Ponzi.
Keep up the good work on Madoff. I see your site is now recognized by the New York Times. Feel free to browse in my archive and use what you want.
-- Don
Madoff and Insurance Companies
Has anyone investigated Madoff's connection with insurance companies, such as Madison National Life Insurance Co., which is part of Independence Holding Company, Stamford, CT ?
Madoff feeder funds visualization
Great work putting this together. A few comments/corrections: 1) from the BMIS account statements I have seen, the so-called "direct investors" were not really investors becasue Madoff wasn't running a fund. Each client had their own individual account. 2) Cohmad Securities did not place any client funds with Madoff, it introduced people who then established their accounts directly with Madoff.
Thank you for the feedback
Thank you for your feedback. In my own mind, I have been unsure how to describe the people who were invested in the Madoff pool either through Cohmad Securities or through direct accounts with Bernard Madoff Investment Securities. As a result, I simply have described them as a source of funds with the label "Funds". As I understand, Bob Jaffe was paid a commission on the funds he collected and funneled presumably through his employer of record, Cohmad Securities. I wonder how they recorded the payments for those introductions.
On another note, you mentioned that you have seen "BMIS account statements." By chance, have you seen three BMIS accounts with three different investors for the same month in which they did not make any deposits or withdrawals? Could you either share such documents with me or alternatively share how similar or dissimilar the holdings and trades during the month might have been? Specifically, I am wondering if client A had an account of one million and client B had a separate account of ten million, whether the statement for client B was simply ten times the size of the amounts reflect on the statement of client A. The one sample BMIS client statement I reviewed had an unusual number of shares in each security holding which made me think that Madoff and whoever was helping him simply had one model portfolio and they then would scale it to make the fraudulent statements balance out to whatever was the purported return for the month.
Contacting TCM
Thanks for your offer on the spreadsheet with a summary of purported Madoff trades. I very much would like to see it. As always, you can get to me via e-mail at Lars (at) Toomre.com.
Both Aldon Hynes and Lars Toomre have been quite busy on a client project which is now calming down a bit. That is fortunate. Now we can again focus on the Madoff threads and a whole bunch of other topics, in particular future of mortgage finance and credit default swaps. I just learned that Lars Toomre is quoted in a March 12th edition of The New York Times about Bernie Madoff and his accountants. I will write more about all of this later in the day.
trading records
I have en excel spreadsheet that shows the trading records for an account with madoff for the year 2007. Would this help? If so, let me know when I can send it to you by pdf.
Jaffe Introduced Clients Directly to BMIS
You are close. Jaffee did not actually collect funds, he would introduce potential clients to BMIS, and then BMIS would pay him a referral fee based on the amount these clients ended up placing with BMIS. As I understand it, Jaffee's broker license was registered with Cohmad but his activity referring clients to BMIS was not done thru Cohmad, and his referral fees were paid directly to Jaffee from BMIS. I am still investigating whether anyone else at Cohmad was referring clients and if so, how they were compensated.
Statement wise I have seen several. It seems there was a relatively small "basket" of stocks/bonds of which different clients would hold different subsets. It wasn't just a matter of different numbers of shares - the clients were not all in the same stocks/bonds at the same time. Sometimes one client would be "out of the market" entirely, while another was all "in". For each stock there were also a number of puts and calls each month, the hedging strategy which Madoff pointed to as his "secret sauce". Interestingly clients didn't just receive statements, they also received confirm statements each time a stock was supposed to have been bought or sold. There was a fairly high level of churn in the accounts I saw. This was a pretty impressive fake job. My guess is that it must have been driven by a very sophisticated software program which in effect mimicked an entire electronic stock exchange, but with a smaller number of stocks. Also each year in December BMIS would covert each client's accounts to cash, and then immediately repurchase. I'm not sure how this fits, but it made for a lot of short-term capital gains every year. Hopefully the victims will be able to get back some of the taxes they paid on the fraudulent capital gains.
So what was Cohmad doing?
So what was Cohmad doing? They had clients, hundreds even. And they had brokers trading in the markets sitting right next to the Madoff prop desk on the 19th floor....
Cohmad only had a couple of
Cohmad only had a couple of traders, and they were mostly just doing trades for its own "mom and pop" brokerage clients. Madoff threw some trading business Cohmad's way, but no big orders, and all the orders came from Madoff's market making business, not from the BMIS investment side. And they were real trades, unlike the BMIS "trades" which seem to have been faked from way back when. This is what makes your question so interesting: why would Madoff use Cohmad at all? My best guess...legitimacy (Cohmad was a NYSE member) and window-dressing.
Was Cohmad a NYSE member?
My readings about Cohmad Securities contain conflicting information about whether it indeed was a NYSE member. Andy Madoff is quoted as saying some BMIS trades were done through Cohmad because it was a NYSE member and BMIS was not. Other content (including the WSJ) has suggested that this was not true since Cohmad was not a NYSE member (but cleared through one, the old Bear Stearns and now JP Morgan clearing division). From the original Massachusetts regulatory action against Cohmad Securities in 1990, I am guessing that it partially existed to sell municipal and corporate bonds to its retail customers as well as stocks.
Cohmad NYSE Member At One Time
My understanding is that Cohmad (or perhaps Cohn personally?) was a member of the NYSE at one time, but for the past several years at least they have been clearing through others. And you are correct about the bonds.
You said that Cohmad was
You said that Cohmad was trading for its own 'mom and pop' clients, but their clients appear to include Carl Shapiro, Noel Levine, Robert Lapin... and many Madoff employees, their IRAs, educational accounts for their children. These people didn't need Jaffe to get introduced to Madoff. So, was Cohmad just window-dressing? Could it have also been a feeder into the BMIS investment side? Or did it do some trades for those accounts once they'd invested with Madoff?
The "mom and pop" reference
The "mom and pop" reference was to an old-fashioned customer service oriented type of brokerage operation, rather than a commentary on the wealth or stature of the account holders. Cohmad had a very good reputation as a brokerage firm, and many people in the community had accounts there. From all accounts the investors who were introduced to BMIS via Cohmad were dying to get accepted as BMIS clients. Virtually all of them knew Madoff to some degree, but he had a reputation as being difficult to approach, and very choosy about who he accepted as clients. He supposedly rejected a significant portion of those who approached him, often for no reason. Knowing of Maurice Cohn's long-time friendship with Madoff, would be investors made their approach via Cohmad in hopes that Madoff would look more favorably on their request. Madoff certainly didn't need any help from Cohmad getting these people to give him their money, so it may have been window dressing as you suggest, part of the "exclusivity mystique" Madoff cultivated.
Cohmad mentioned here
I am wondering if you have seen this? I'm interested in your opinion.
Bernard Madoff, the Mafia and Friends of Michael Milken
Naked short sales the real secret sauce?
Wow, this whole area of naked short selling is way out of my area of expertise, but I bet TCM could evaluate the credibility of these claims. It is true that the SEC ruling allowing naked short selling is known (or was known anyway) as the Madoff Exception. Could it be this is how he managed to make money without actually ever buying or selling any stocks? Fascinating stuff, thanks for pointing it out.