Are these feeder funds like the Ariel Fund, aggrieved victims, conspirators or just professionally negligent and/or incompetent in losing their clients’ money in Madoff’s scheme? Many pocketed hefty fees to fund lifestyles. Bernard L. Madoff was arrested on December 11, 2008 and charged with federal securities laws violations. His highly sophisticated and massive fraud is considered to be the largest in history.

“The complicated relationships between Bernard L. Madoff Investment Securities, its feeder funds, and those funds’ investors are already creating a complicated tangle of lawsuits, with investors suing both Madoff and the feeder funds, while the feeder funds themselves [. . .] consider their own legal options (FINalternatives 2009-01-08).”

Madoff Feeder Funds: FIM Kingate funds, London, UK; Fairfield Greenwich Group, Conneticut/NY; Ariel Fund,

tags: feeder funds, hedge funds, Madoff, Kingate, Ariel, New York University, white collar crime, regulation, complex financial instruments,
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Webliography and Bibliography

2009-01-08. “Madoff Feeder Funds Consider Lawsuit Against Accused Ponzi Schemer.” FINalternatives: Hedge Funds & Private Equity News.

Berenson, Alex; Konigsberg, Eric. 2008-12-21. “Firm Built on Madoff Ties Faces Tough Questions.New York Times.

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Deborah Yedlin (2008-12-30) of the Calgary Herald’s Business section succinctly summarized the economic nightmare of 2008 in which the investment banking industry collapsed, Chicago school economics theories were debunked and their heroes dethroned, trusted risk management managers were vilified, and the axis of financial power shifted from the West to the East.

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Citations

“The consequences of the lack of regulation in the shadowy subprime housing market, and the ability of banks to get loans off their balance sheets and have investment banks repackage them as rated securities, allowed for the spreading risk. It was a practice that was supposed to ensure if something went bad, the damage would be contained because the exposure would be spread out. It was an axiom that was lent an even greater reliability because U. S. Federal Reserve chairman Alan Greens-pan was a believer in it. As many are now painfully aware, the dominos began to fall when two hedge funds at Bear Stearns collapsed in late 2007. This started the clock ticking on the 84-year-old investment bank, which proceeded to lose the confidence of investors and counterparties and was sold post-haste to JP Morgan Chase in March for $10 a share with the “help” of the U. S. Federal Reserve and its investment banking veteran, Hank Paulson (Yedlin 2008-12-30).”

“Nobel Prize-winning economist Paul Krugman, in opining on the multi-billion fraud perpetrated by Bernard Madoff, suggested one of the reasons he was not discovered was because of society’s worship of the wealthy. Too many, he said, have drawn the conclusion that people who have made huge sums of money must be very smart and to question these individuals would be to insult them (Yedlin 2008-12-30).”

Webliography and Bibliography

Yedlin, Deborah. 2008-12-30. “Storybook year ends in economic nightmare.” Calgary Herald.

US Circumlocution Offices [1]: Federal Reserve approved General Motors (GMAC) Financial Services’ application to become a bank-holding company which will let them benefit from government bailout dollars. New York University sued Merkin GMAC chairman for feeding money to Madoff and concealing involvement from investors like NYU.

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Notes

1. Charles Dickens invented the term Circumlocution Offices to describe governmental and bureaucratic indolence and incompetence. By passing work through many hands of the Circumlocution Offices, it is easy to avoid doing anything. Dickens’ character in Little Dorrit, Mr. Merdle, who embarked on a fraudulent scheme is now being compared to Madoff and institutions such as the U.S. Securities and Exchange Commission (SEC), etc are being compared to Circumlocution Offices.

“The U.S. Federal Reserve on Wednesday approved GMAC Financial Services’ application to become a bank-holding company, a status that would give the auto-financing arm of General Motors Corp. access to government bailout dollars and the Fed’s discount window. The move complements a $17.4 billion emergency loan package the government extended to GM and (Wall Street Journal 2008-12-24)…

“Merkin, who is chairman of GMAC LLC, is named in the lawsuit brought by NYU, along with his Gabriel Capital LP fund and Ariel Fund Ltd. GMAC is the finance business owned by General Motors Corp and private equity firm Cerberus Capital Management LP. The Funds ‘feeding’ money to Madoff, including Ariel, made a conscious effort to conceal Madoff’s involvement from their own investors,” the NYU lawsuit said. “This concealment was a requirement dictated by Madoff, which was agreed to by Merkin and other ‘feeder’ funds (McCool Reuters 2008-12-24).”