A nice summary:
“The reality is “many people on Wall Street knew there was something amiss with Bernie,” says Erin Arvedlund, author of the newly published book Too Good To Be True: The Rise and Fall of Bernie Madoff.
Back in 2001, Arvedlund wrote a piece for Barron’s questioning the legitimacy of Madoff’s stellar returns, while the now defunct trade publication MAR Hedge and would-be whistle blower Harry Markopolos also raised red flags.
Arvedlund said nothing came of those inquiries for a variety of reasons:
Cozy Relations: In the 1970s, Bernie Madoff’s innovative use of computer technology helped the Nasdaq break the NYSE’s monopoly on trading volume. “As a result,” Arvedlund says, “he was spoken about in hushed tones” by regulators who were charged with creating that alternative market but “had not clue how to do it.” Madoff ultimately became non-executive chairman of the Nasdaq, further cementing his reputation as a pillar of Wall Street society, and his niece, Shana Madoff, married a former SEC attorney named Eric Swanson.
Fear of Bernie Backlash: Many on Wall Street were afraid to raise concerns about Madoff because some of the industry’s biggest names, including two former Merrill CEOs, were invested with him, Arvedlund says. “I think it came done from on high that you don’t want to screw around with Bernie,” she says.
Don’t Stop the Gravy Train: Clearly, the big feeder funds had incentive to turn a blind eye to any wrongdoing, namely the fees Madoff paid them. And many on Wall Street thought Madoff was merely “front-running” his clients, which apparently was an acceptable scam vs. running a Ponzi scheme. Also, anyone who refused to do business with Madoff knew clients would and could take their assets somewhere else. “On Wall Street, that can cost you your job,” Arvedlund says.”
Just because you are paranoid doesn’t mean there isn’t a conspiracy 🙂