One of the things which reassured Bernie Madoff’s investors was the detailed trading records he sent to investors.
Zachery Kouwe has one such document, and thinks even that one smells a little fishy:
A spot check of the November statement shows some discrepancies. Google, for example, is listed at a price of $337.40 on Nov. 12. Yet according to Yahoo Finance, the Internet search giant’s stock only traded between $312.49 and $287.76.
I don’t think it’s worth reading all that much into that — Madoff was known as a key market-maker in out-of-hours trading, and if someone wanted to buy Google shares before the market opened or after it closed, Madoff might well have been able to persuade them to pay $337.40.
But if all the trades are real, then wouldn’t the money still be there today? Not necessarily.
My gut feeling is that Madoff did enter into many trades, just with less money than he said he had. He would then do two things to the statements before sending them off to clients. First, he would remove a bunch of losing trades, so that the montly statement showed a trading gain. And second, he would apply some kind of multiplier to all trades, so that the total amount under management would line up with the sums people thought they had invested.
But this kind of thing is harder than it looks. Reader Nicholas Weaver emails:
I could do this, quite easily, by going "what gain do I want to show, go back through the records for the past month, and find a series of trades which would match".
But to do this would take a significant amount of computer experience and hackery. Someone like me (A Ph.D. computer scientist) would be able to do it, probably in a few days with current resources. Someone with just good programming skills would, if they were told what to accomplish.
But I doubt someone of Madoff’s generation and background would have the computer chops to do it.
And doing it manually (which some of the mistaken-price for Google suggests, since it wasn’t always correct on the prices, which suggests some significant manual intervention) would be a heck of a lot of work, probably too much work for one man.
Madoff was always known as being ahead of the curve, technologically; I think if there was a way of automating the fraud, he might well have found it. But I think that Weaver’s right that he almost certainly had help, at the very least on the coding front.
I suspect that quite a lot of accomplices will emerge in coming weeks and months, possibly including Madoff’s own family. The large amount of detail in Madoff’s trading statements is itself circumstantial evidence of conspiracy.