I Love Reports

I'm the kind of guy that likes reading NTSB accident reports. The Hurt report was fascinating but I've just found the best read since the 9/11 report.

It is titled "The World's Largest Hedge Fund is a Fraud" and dissects Madoff Investment Securities Ponzi scheme. Some of it is at a high level which is when my eye start to glaze over but with a start like this it is hard not to be riveted for all 15 pages:

I am a derivatives expert and have traded or assisted in the trading of several billion $US in options strategies for hedge funds and institutional clients. I have experience managing split-strike conversion products both using index options and using individual stock options, both with and without index puts. Very few people in he world have the mathematical background needed to manage these types of product but I am one of them...Due to the sensitive nature of this case, it's dissemination withing the SEC be limited to those with a need to know...As a result of this case, several careers on Wall Street and in Europe will be ruined. Therefore, I have not signed nor put my name on this report. I request my name not be released to anyone other than the Branch Chief and Team Leader in the New York Region who are assigned to the case, without my express written permission. The fewer people who know who wrote this report the better. I am worried about the personal safety of myself and my family.

The author goes on to list 29 Red Flags, including this gem:

Fed Flag #24: Only Madoff family members are privy to the investment strategy. Name one other prominent multi-billion dollar hedge fund that doesn’t have outside, non-family professionals involved in the investment process. You can’t because there aren’t any...

Then the author begins instructing the SEC (over three years ago!) exactly who to interview and even how to interview them:

...the SEC should call: Leon Gross...Leon can't believe that the SEC hasn't shut down Bernie Madoff yet. He's also amazed that FOF's actually believe this stupid options strategy is capable of earning a positive return much less a 12% net average annual return. He thinks the strategy would have trouble earning 1% much less 12% net. Leon is a free spirit, so if you ask him he'll tell you but you'd understand it better if you met him at his workplace in a private conference room and tell him he won't need to have Citigroup lawyers present, you're just there for some friendly opinions. He talk derivatives at a high level, so ask simple "yes or no" type questions to start off the interview and then drill down.

Jeeze, I wish I work for the SEC where citizens did all the work for me.