OK, things have been kind of negative over the past few days here on the Trim, but this needs to be broken down for you simple motherfuckers.
The man pictured above is Bernie Madoff. Today Bernie admitted to perpetuating the largest investor fraud ever committed by a single person, pleading guilty to charges that he had defrauded his investors of almost $65 billion.
$65 Billion. Once again, $65 Billion.
Here's how he did it.
Bernie ran a Wall Street firm called Bernard L. Madoff Investment Securities LLC, which at last check was worth well over $100 billion in liquid assets. This firm has an Assets Management division, responsible for taking peoples money and investing it, then paying dividends on those investments. Who's money was he taking? Try Stephen Spielberg, Elie Wiesal, possibly 50 Cent and definately Sterling Equities (the investment vehicle of the Wilpon family, which owns the New York Mets baseball team) among 4,800 others. That should tell you that the average investor can't just up and decide to give their cash to Madoff, you have to be in the know to get in on the deal. And rightly so, since Bernie's inverstors had been enjoying returns ranging from 15% to 22% for the past 30 years. Surely this is a safe bet, well known firm, big name investors, The Securities and Exchange Commission even gave Madoff's company a clean bill of health in early 2000, there could be no problem here. Right?
Wrong.
The problem was, there was no need for Madoff's company to show how and where these returns were coming from. The way they described their investments was to say "The "New York people" have a system whereby they place a series of instant trades — at once with futures, currencies and stocks — and out of this magic recipe fell a tiny 1% guaranteed, no-risk profit for the group. You do that 20 times a year, take away management fees and, voilà, a steady 15% return" (lifted from Time Magazine, minor changes). Madoff was supposed to have some "black box" model that signaled when to buy and when to sell, making Madoff's investments apparently a sure thing.
In other words, we take your money, buy stocks, wait until those stocks rise by 1% (which when you're buying stocks by the millions happens almost instantly), sell them again and there you have it, a 1% gain. Do this 15 or 20 times a year, and you're golden. No risk 15% returns for all.
Sounds too good to be true. And it was.
What was actually happening was the worlds simplest investment fraud, even more basic than your average Pyramid Selling scheme.
Maddoff was running a Ponzi, a massive, unbelievably stupid Ponzi scheme with no way out, except total and complete bankrupcy for all involved.
A Ponzi scheme is an investment scam that pays returns to investors from their own money or money paid by subsequent investors rather than from any actual profit earned.
To break that down even simpler, lets say I give you $1000 to invest, and you say i'll get a 10% return on that. Then the homie BigDubbs from NOTR (shouts and respect) wants to get in on that good action, so he gives you a G-stack too, and you say the same thing to him.
Now instead of investing that scrilla, you hold the dough and when it comes time to pay our dividends, you use my cash to pay Dubbs his $100 dividend, and use his cash to pay mine.
As you can see, noones actually made any profit, and eventually this bad boy's gonna collapse in on itself. Which is exactly what happened to Madoff and his crew. They used new investors money to pay off massive dividends (we're taking in the millions) to older investors, and they just kept digging themselves deeper and deeper into a financial quagmire.
As it turns out, Madoffs investors hadn't even invested any cash for years. They were just paying people off with other peoples money, until one day about 3 months ago, Madoff just admitted it. He actually told his sons that the Assets Management arm of his company was "one big lie". Remarkably, or possibly in one of the most forsighted moves ever, his sons told the feds. The next day, Madoff went down. Hard.
And the stock market went to shit quick smart, as people realised that their money suddenly wasn't there any more. Their money which only existed in abstentia, now didn't even exist there. It was all gone. All of it.
The amazing thing is, well, actually there's a lot of amazing things about this. The first amazing thing is that this got to be this size without anyone questioning how a company can steadily pay up to 15% dividends, year after year. Hello, SEC...? Isn't it your job to make sure this type of shit doesn't happen?
Secondly, if it wasn't for a $7 billion dividend payment that they couldn't make, then this fraud would have continued until god knows when.
Thirdly, Officials at the Financial Industry Regulatory Authority told The Post that after examining more than 40 years' worth of financial records from Madoff's now-defunct broker dealer, there are no signs that Bernard L. Madoff Investment Securities ever traded shares on behalf of the investment-advisory business at the center of the scandal.
Once again, it's possible that THIS MULTI BILLION DOLLAR SHARE-TRADING COMPANY MAY HAVE NEVER EVER TRADED WITH ANYONE.
So there it is kids, hopefully you now understand a little more about how Bernie Madoff ripped off Charities, schools, banks, NFP organisations, not to mention the thousands of individual investors who have now lost everything.
I promise to make the posts a little lighter over the nesxt few weeks, noone likes to focus on the negatives of life, but I think it's important that people understand this junk, as it might one day make you think twice if someone offers you money for nothing.
Because believe me when I say, there is no money for nothing in this life.
Unless you grow weed.
Peace.
