The news of Bernard Madoff's alleged $50 billion Ponzi scheme sent shock waves down Wall Street this morning, but it seems enough 'red flags' had been raised by at least one due diligence firm to steer some hedge fund
managers, high net worth individuals, and institutional investors away. Yet it was also revealed today that even the owner of the Mets baseball team is among his victims.
The powerful New York financial advisor whose handful of clients routinely expected -- and received -- double digit returns, up market or down, may have instead been running a decades-long scheme that defrauded investors of $50 billion, according to a one-count criminal complaint unsealed Thursday in federal court in New York. Madoff, 70, a former chairman of NASDAQ, was an investment adviser who catered to a handful of high net worth clients, one of whom told ABC News that Madoff was so sought after that, as recently as two months ago, he was turning down potential new business.
Employees of the firm are now packing up their belongings and some have lost their life savings. But the research firm Aksia which also provides advice to pensions, endowments, foundations and insurance companies, says they were already steering clients away from Madoff's hedge fund based on a "host of red flags."
According to the letter to its clients, Aksia "published extensive reports on several of the 'feeder funds' which allocated their capital to Madoff Securities ... Our judgment was swift, given the extensive list of red flags."
Aksia said in its letter that when the firm checked the auditor of Madoff's fund they found the operation was quite small, given the amount of money being handled.
The accounting firm, says Aksia, had just three employees, "of which one was 78 years old and living in Florida, one was a secretary, and one was an active 47-year-old accountant (and the office in Rockland County, N.Y., was only 13 ft x 18 ft large)."
In addition to Aksia, today news began to swirl around the case that raised questions as to whether the Securities and Exchange Commission had responded appropriately to other red flags raised earlier by investors.
Other investors large and small, however, appeared today to be suffering from their trust in Madoff.
Fred Wilpon, owner of the New York Mets baseball team, is chairman of the board and co-founder of Sterling Equities, a firm that invested with Madoff.
Sterling Equities today issued a statement that said, "Among our various investments, we have accounts managed by Madoff Securities. We are shocked by recent events and, like all investors, will continue to monitor the situation."
Sterling has been hurt before by funds that turned out to be frauds. The firm, which has developed 17 million square feet of commercial real estate and owns the New York Mets, also funded Sterling Stamos Capital, in which it maintained a limited partner minority interest. That fund invested in Bayou Capital, and subsequently was damaged when it turned out that Bayou, run by Sam Israel III, was something of a Ponzi scheme itself. Israel was convicted of fraud, sentenced to 20 years and subsequently tried to escape imprisonment by faking his own death earlier this year.