Madoff out on bail, but few friends remain

What happens to friends? Bernard Madoff used to have plenty of them. Now it appears they are in scant supply. Madoff , 70, was arrested and charged with securities fraud last week after allegedly admitting that his investment-advisory business was “basica

What happens to friends? Bernard Madoff used to have plenty of them. Now it appears they are in scant supply.

Madoff , 70, was arrested and charged with securities fraud last week after allegedly admitting that his investment-advisory business was “basically, a giant Ponzi scheme” and that losses from the fraud were at least $US50 billion.

Madoff was released today on a $US14.3 million bond secured by his Manhattan apartment. The initial bail package required four co-signers, but Madoff could only rustle up two – his wife and his brother.

But Madoff still seems to get favourable treatment after a US magistrate modified the conditions. Under the new bail package, Madoff will be required to be on home detention with electronic monitoring and on a curfew, requiring him to be at home from 7pm to 9am. Madoff’s wife, Ruth, will surrender her passport, and properties in Montauk, New York, on Long Island and in Palm Beach, Florida, will be put up as security.

Meanwhile investigators are beginning to ask serious questions. The US Securities and Exchange Commission chairman Christopher Cox says he is very troubled that the SEC never investigated the investment business of Madoff, even though solid evidence of an alleged Ponzi scheme had been brought to the agency over a long period.

Cox told reporters that what concerns him most is the fact that over the period of several years, nearly a decade, credible information was brought to the agency but at no point was it referred to the commission for a proper investigation.

And if you missed it yesterday, here is the SmartCompany guide to ripping off investors – and how Madoff built his firm and attracted some of the smartest people in the world to invest.

1. Be exclusive: Madoff created an air of exclusivity around his firm. He personally courted clients from exclusive clubs including the Palm Beach Country Club and rejected many, cultivating a sort of Midas Club. His A-list of investors then acted as a tool to attract others.
2. Be likable and well connected: Madoff and his wife Ruth were described as likeable and understated. They were keen golfers and popular on the social circuit. Madoff liked to entertain investors on a 55 foot fishing boat called Bull and at one of his three homes.
3. Have a scheme: Madoff instituted a Ponzi scheme whereby early investors are paid with money raised from subsequent investors.
4. Get a network to recruit on your behalf: Madoff had “friends” who recruited on his behalf, helping him access the wealthy in other states.
5. Be a great salesman: Madoff always advised people not to sink in a lot of money at the start, believing that if they started off small, they would increase their investments later. Of course this contributed to his “credibility”.
6. Be seen to follow rules: Madoff sent out monthly detailed reports to investors showing their trading activity and investments.
7. Avoid big name accounting and audit firms with reputations to protect: Madoff used an unknown auditing firm, made up of several people.
8. Be close to regulators: Although many people raised concerns at the steady 10% return he gave to investors even in bear markets, apparently the investment advisory business was not closely inspected by regulators. Madoff has actually admitted he was “close to regulators”. How close and to whom is yet to be confirmed.
9. Establish credibility: Madoff advised the regulators. He was a former Nasdaq chairman and an adviser to the Securities and Exchange Commission on how to regulate the market
10. Buy influence: Madoff was a generous political donor and philanthropist, and a prominent member of the Jewish community, setting up a charitable foundation.