Word: madoff
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...Markopolos said Madoff was earning 82% of the S&P 500's return with less than 22% of the risk, but his returns only had a 6% correlation when Markopolos expected "something like a 50%" correlation. "If your returns are coming from the S&P 100 stock index, you better at least resemble that stock's performance," he said. He also compiled statistics from S&P 100 index options and from the Chicago Board Options Exchange as reported in financial media. "There were not enough index options in existence for Madoff to be managing the split strike conversion strategy...
Markopolos described the crooked returns as "the equivalent of Major League Baseball player batting .966 and no one suspecting a cheat." In the hearing, he used his arm to show the straight upward growth of Madoff's funds, up 45 degrees without any down ticks. "This was the first sign that this was a fraud," Markopolos said...
...independent investigator said Madoff's fraudulent fund was in the $3 billion to $7 billion range in 2000, then a year later grew to near $20 billion, and then eventually to its reported $50 billion in late 2008. He said there were at least 14 feeder funds...
...Madoff's greatest talent, the witness indicated, was his use of a "hook" or lure to play "hard to get" and the false security of exclusivity, a hallmark of a Ponzi scheme...
...story that seemed part financial doctoral thesis and part financial thriller, Markopolos told of his years of toil on the Madoff case, with often "disastrous meetings" with SEC enforcement chiefs. It was in 2005 when Markopolos wrote his now famous and lengthy report detailing Madoff's giant Ponzi scheme and pointing out 29 red flags. He sent it to the SEC, and nothing happened. But when he finally met the SEC's Boston branch chief, Mike Garrity, who had a willingness to "think outside the box," he felt some hope...