Greenwood and Walsh informed clients – some of whom were “sophisticated” endowment funds and institutional investors – that their “conservative” enhanced stock indexing investment program beat the S&P 500 Index over a ten year period. Given the fact that the two issued USD554-million in promissory notes to cover investment losses and outright theft from the corporate entity that fronted their misdeeds, their claims to have uncovered financial alchemy would appear to be unfounded.
Bernard L. Madoff refused to accept clients employed in the financial services industry. Harry Markopolos, a whisteblower who complained repeatedly to the United States Securities and Exchange Commission (SEC), testified to the United States House of Representatives Committee on Financial Services on February 4th, 2009.
Markopolos dissected Madoff’s alleged “split-strike conversion strategy” into its component parts and revealed that Madoff’s alleged investment returns were numerically impossible. Third-party feeder funds and other financial institutions who shovelled money at Madoff – including Fairfield Greenwich Group of New York and Spain’s Banco Santander – could not perform the same calculations, costing them billions.
If professional investors don’t take the time to find out what’s behind the fancy and complex names of various investment products or “strategies”, how can they cry foul if all crumbles about them?
At what point does caveat emptor compel regulators and the judiciary to ignore the pleas of “wronged” professional investors who didn’t do their math homework and inject a little realpolitik into the global financial system? At what point do investment professionals actually take responsibility for their actions (or lack thereof)?
“I am one of the largest investors in America. I know these things.”
- Robert Citron, former Treasurer, Orange County, California, and convicted felon, to Merrill Lynch in 1993 about warnings from Merrill that Orange County’s derivatives positions faced catastrophe if interest rates rose. Interest rates subsequently rose. Orange County lost USD1.7-billion and declared Chapter 9 bankrupcy on December 6, 1994.
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