Made Off Theft (Madoff): Was Madoff an Investment Advisor?

by | Dec 19, 2008 | Asset Management

The federal, state and local governments are co–losers with Madoff investors.

Lots of questions are starting to surface regarding Bernard Madoff, and the scam that he’s been running — apparently, for years.

I’m starting to read questions like “not charging an advisory fee, only working for the commissions…isn’t that a conflict of interest?” Of course it is — and no investment advisor would ever (or should ever) work under terms like that.

Another question that’s being asked is “when did this actually stop being an investment program and start becoming a Ponzi scheme?” Until all the details are in, I think people need to assume this has been a Ponzi scheme…all along… from the very beginning.

One more question being asked (which I addressed earlier) is “how can one person run a scheme like this — on this magnitude, and for this length of time — without anyone else being involved, or aware of it?” Of course.  We should all be skeptical.

Another red flag (and how could so many smart people miss this one?): how was it that no dividends were ever reported?  Sometimes you wind up holding a stock through the dividend — by accident!  And not one dividend was reported…ever?

The topic I raised on several blog posts elsewhere, took a different slant from the “shock and surprise” many commenters posted.  My point was this: it’s probably a safe assumption that people paid ordinary income and capital gains on fictitious transactions — in many cases, for years.  We’re talking about a tremendous amount of taxes being recouped by investors who can file amended returns.

Taking that concept one step further: let’s assume that everything was fictitious — the statements, the trades, the returns — everything.  What we’re really looking at is not losses, but… theft.

I’ve heard that theft losses can be written off entirely against your income.  I’m not an accountant, and don’t give tax advice.  Let’s put this in perspective: if you lose money in the stock market, you “net” your gains and losses and can take a maximum of $3000 capital loss each year.  The remainder gets carried forward into the future, until it is completely used up.

However, if you lost $1 million, due to theft, you can write off the entire $1 million as a loss against your income.  And if that wipes out your entire net income for the current year, you can go back the last three years and amend those tax returns — and then carry the remainder forward — until is used up.

Will investors be made whole?  No.  No chance.

Under this scenario, the federal, state and local governments are the co–losers with Madoff investors.  And who will make up the deficit caused by this?

You got it.

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