We explore the scandal from multiple angles.
The effects of the alleged Ponzi scheme perpetrated by Bernie Madoff are still reverberating around the world. While news reports can provide the facts--at least those that are known--investors, naturally enough, want more than that. To help Morningstar.com readers make sense of this complex and unfortunate affair, we provide here comments from a variety of Morningstar experts who have explored the scandal from multiple angles.
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Madoff Reminds Investors (Painfully) to Do Their Homework
| Benjamin N. Alpert, CFA | 01-29-09
Red flags that robust due diligence should have identified.
Over the last several weeks, the news has introduced many institutions and individuals who were duped into investing with Bernie Madoff. There has been too little discussion, though, of what individual high-net-worth investors and other institutions should have seen to avoid a Ponzi scheme of this sort in the first place. Following are some of the biggest red flags, which can serve as useful warnings for any investor performing due diligence on a portfolio manager.
How the Smart Money Can Stumble
| Gregg Wolper | 06-17-08
Made Off with the Money
| John Rekenthaler, CFA | 12-17-08
In separate pieces, vice president of research John Rekenthaler and senior mutual fund analyst Gregg Wolper take a look at one of the most perplexing questions: How could so many sophisticated investors, including experienced hedge fund managers, be taken in? It's worth noting that Wolper's column was published six months before the Madoff scandal was uncovered. No, he didn't know the Madoff revelations were coming. But his take on how leading hedge-fund managers sometimes invest based on personal relationships and herd mentality rather than the sophisticated research for which they win acclaim became eerily relevant after the Madoff news broke.
Madoff and Mutual Funds
| David Kathman, CFA | 01-13-09
Three Lessons from the Madoff Scandal
| Sonya Morris | 01-05-09
We also know that Morningstar.com readers have a special interest in mutual funds and how they might be affected--or not--by the Madoff fallout. So mutual fund analyst David Kathman looked at how mutual funds could, or could not, end up in a similar state, and finds that the rules governing mutual funds do give their shareholders many advantages in this regard--if not ironclad protection. Meanwhile, director of international training Sonya Morris draws broader lessons from the affair that can be applied by fund managers and ordinary investors alike.
Madoff's Supposed Option Magic
| Philip Guziec | 12-19-08
Finally, derivatives strategist Philip Guziec provides a detailed explanation of the nuts and bolts of the strategy that Madoff was said to be using. Could it have provided the results Madoff claimed? Could it work at all? Do options and other derivatives themselves bear part of the responsibility for the blowup? You might be surprised at Guziec's conclusions.