It should be needless to add that had any of us small fry had an inkling that Madoff was not even making the trades he claimed to be making, again many of us would have been out of Madoff in a New York minute, as soon as claimed trading proved unverifiable, because he not only was not doing all that he claimed to be doing (viz, he was not buying options), but he was not even buying and selling securities.
Now, what makes all this so piquant, what makes it so wrongheaded, vicious and, let's face it, sometimes anti-Semitic for persons to blame the small fry victims for investing with Madoff, is that some of the world's most sophisticated and greatest investors put money with him even though they knew much or all of this and even knew far more than the points described above. The case of James Simons' company is instructive.
Simons, for reasons alluded to earlier, has to be considered one of the most brilliant and successful investors of recent years. And, as detailed extensively in Kotz's report, Simons' company developed deep suspicions about Madoff's bona fides for many of the very reasons set forth above, plus several other, often very sophisticated, reasons as well. Yet despite its suspicions, Simon's company left half its investment in Madoff until it later removed that half for (unstated) reasons that were unrelated to a possible fraud. Despite all its knowledge of things that didn't add up, knowledge wholly outside the ken of innocent small fry and going far beyond points discussed above, Simons' company (Renaissance Technologies) could not bring itself to believe Madoff was a fraud, because he had been inspected and given � ���"a clean bill of health� �� � by the SEC. As Kotz said (emphasis added):
Nat Simons, the portfolio manager for Renaissance's Heritage fund, a hedge fund of funds, who held a Madoff managed investment in 2003 and whose e-mails triggered the 2005 NERO examination (as described in detail in Section IV above), cited their understanding that the SEC had looked at Madoff and given him a clean bill of health as a reason they did not initially divest themselves of their Madoff-related investment. Simons Testimony Tr. at p. 28. Renaissance understood from Madoff that the SEC had examined � ���"the whole business.� �� � Id. at p. 17. Renaissance research scientist Henry Laufer agreed, � ���"What was also on our minds " was that Madoff had been investigated � ��" and cleared� �� � by the SEC.
Laufer Testimony Tr. at pgs. 35-36.
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