Madoff Village

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The List is out. We’re talking about the official list of purported Madoff victims—at least the ones that have come foward so far to cry foul.

And the list of victims of Bernard Madoff’s alleged long-running Ponzi scheme is long. Very long. The 162-page filing, submitted Feb. 4 with the US Bankruptcy Court in Manhattan, contains about 13,000 names and addresses. Printed in agate-size type, the list resembles something of a phone book—even though the telephone numbers of the victims aren’t included.

In time, The List is likely to grow even longer. It doesn’t appear to include the names of investors who got exposure to Madoff through a myriad of subfeeder funds. These tiny hedge funds invested all of their clients’ money with a dozen or so giant feeder funds—like Tremont Group and Fairfield Greenwich Group—which dealt directly with Madoff. It makes sense to think of The List as a phone directory. In effect, The List contains the name of the residents of what we call Madoff Village—a mythical land where investors could come to count on consistent, double-digit returns. In Madoff Village, the super-rich, as well as more ordinary investors, had all come to believe that someone had found a way to tame the market, defy gravity, and post solid returns year after year.

In Madoff Village, you had doctors, lawyers (even Madoff’s own attorney), accountants and other professionals. There were celebrities, the super-rich, politicians. There also were banks, hedge funds and brokerages. And there were a large number of charitable groups, religious foundations, museums, hospitals and pension plans also buying into the dream.

In Madoff Village, there were people and institutions from all walks of life. That’s one reason this presumed $50 billion scandal has been so far reaching and unnerving to investors—even ones who had no money invested with the 70-year-old disgraced stock trader.

The one enduring lesson of the Madoff affair is that investors—no matter how sophisticated—should never get seduced by the promise of something that seems to good to be true. It’s for this simple reason, that the Securities and Exchange Commission should be faulted for not doing more to uncover the alleged fraud.

Sure, it’s difficult to find fraud. But the SEC, as we now know, had plenty of tips about something amiss at Madoff’s firm. And the commission even performed its own earlier investigations, but found nothing seriously wrong.

Still, the investigators should have been more skeptical and more cynical than the investors, who for a time, were living large in Madoff Village. After all, investigators at the SEC don’t make enough to have gained entrance to Madoff Village.

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