CovOps
 Location : Ether-Sphere
Job/hobbies : Irrationality Exterminator
Humor : Über Serious
 |  Subject: Madoff victims were with him to commit tax 'fraud!'  Sun Jun 28, 2009 8:16 am | |
| One of the great "unanswered" questions of the Bernie Madoff scandal is the following: How could so savvy investors, people well versed in business and finance be taken in by a ponzi scheme? Well we all "know" they were mislead, and they were victims, right? Well it becoming more clear that although most were victims, they clearly weren't "blameless". It seems Madoff's major selling point was tax avoidance so "good" it may actually have risen to the level of tax evasion!
Like the classic Nigerian email scam, promise a huge return from a shady activity, and people will accept it. "Hands off as long as I'm making a profit and don't get dirty myself". This was part of the secret that Madoff was protecting, and the reason people didn't dig deeper into what he was doing.
But luckily for us a financial blogger named Edward Jay Epstein is on the case. Even as the traditional media (with the exception of The New Republic) ignores the now suspect victimhood of many of these "victims", new question are being raised. It is a legitimate question; "how could so many savvy investors have been mislead?" is now morphing into "could so many savvy investors have been mislead?". Was there an alternative motive going on?
A missing piece in the Madoff puzzle is the motive of his early wave of investors in Madoff's operation before he had established an impressive track record. Why did a dozen or so multi-millionaire businessmen put both a large share of their personal wealth and that of their tax-exempt foundation in multiple accounts with Madoff? If these financially savvy investors only wanted to compound their wealth, other highly-regarded money managers, such as George Soros, Julian Robertson and Paul Tudor Jones, then offered better track records over longer periods as well as much safer financial controls, including outside custodian and auditing services. Presumably Madoff was able to offer these wealthy investors some other service they could not obtain elsewhere. But what?
The secretive way in which he personally ran his operation from a small office in the Lipstick building in New York may well have been part of the inducement. Since he alone handled each account and determined its profits and losses from each putative transaction, he was in a unique position to custom-tailor how they were allocated between a client's taxable personal accounts and his tax-exempt charitable account.
See it was the ability to avoid tax receipt that made it worth while to get with Madoff. Although Bernie Madoff was generating ridiculously stead returns, they weren't necessarily outsized in the world of hedge funds. For a long tern investor George Soros would have generated better returns over a ten year period, although with more ups and downs.
But as their wont to do now a days, the traditional media develop a "narrative" and all subsequent stories follow that narrative. Very little "investigative" reporting was down to follow up on it. Nothing much beyond the human interest stories of, whom these people were, what they did, how they were introduced. The financial press are mostly free market, deregulation, low tax cheerleaders, these day (CNBC, WSJ, etc) so it no wonder they didn't delve deeper into the tax angle. It didn't fit their narrative. They also don't in most cases support the concept of progressive taxation. "Of course these people should have been trying to avoid taxes". But when attorney and accountant dug deeper? Well let us look at some of these tax liabilities in question.
Irving Picard, the court-appointed trustee in the bankruptcy liquidation of Madoff's firm, found correspondence in Madoff's files showing that investors specified the loss that would be helpful.
Indeed, he charges in court papers that one of these early investors, who had $178 million in different Madoff accounts, requested as reported by the Wall Street Journal, "fictitious losses from Mr. Madoff's firm, apparently to offset gains he made through other investments in order to avoid taxes." He cites another early investor, who had nearly a billion dollars in 12 different accounts for his family and foundation, who, according to Picard, had an assistant at his foundation request a $12.30 gain for his foundation. According to him, there were wide variations in different accounts. Even though allocations between accounts might raise tax evasion issues, all the investors cited in the Trustee's suit deny any wrongdoing, and no charges have been brought against anyone to date except Madoff himself, who pleaded guilty to fraud in March 2009, and his firm's auditor, David Friehling, who is out on bail awaiting trial.
You have $178 Million an account that generates a steady return yet you report a loss? You have $1 Billion (yeah that $1,000,000,000) in an account that generates a steady return yet you only have a $12.30 gain! Um OK, yeah that makes sense. No charges have been brought up to this point on that? I'm thinking that there is something fishy going on there, in my humble opinion. The IRS has ruled that egregious tax avoidance schemes and there proponents are subject to prosecution. These income tax deniers are being prosecuted. So how about a $12.30 tax claim on let's say $1 Billion dollars? Does that seem believable?
Where was the IRS during this time? Someone reports $12.30 in income gains on a Billion dollars of assets, and that doesn't trigger an inquiry or an audit? The IRS was neutered during the Clinton administration by the Republican Congress, and then castrated by the Bush administration. This helped enable these types of shenanigans.
Can very many of these people make a legitimate claim of innocence in court that they didn't suspect improper action? Their is case law that specifies that a person who bought stolen goods can't claim innocence if the price they paid is out side the realm of a believable price for the worth of the goods. For example, you can't drive down a back alley and buy a brand new Mercedes for $500 cash, and then later claim innocence. You could be prosecuted for receiving stolen goods. A similar body of case law is being developed to prosecute tax deniers.
As law suits brought by bankruptcy trustee Picard and the ongoing federal investigation proceed, and we learn more about the special services Madoff provided "victims," including the bespoken allocations that allowed them to reduce their taxable income and the zero-fee management that allowed feeder funds to harvest a huge bounty from his phantom profits, it may be useful to ponder W.C. Fields famous dictum "You can't cheat an honest man."
Yes I'm by nature a cynic. When you hear a story that too good to be true, or read a tale that doesn't have the ring of plausibility to it you antenna should go up. Were all these people really that naive? Yes there are real victims in this affair. Yes there is something to be said of people wanting to get into an exclusive club, there is no denying that. But too be exclusive in your clientele, you have to be offering something exclusive. Tax avoidance that borders on tax evasion seems to be the order of the day. This should also give pause to people who were clamoring for the government to bail out these victim. I'm tired of people who bitch, and avoid taxes, claim to hate government intervention, until they need it. I hope all legitimate victims are made whole, but all tax avoiders should be prosecuted to the fullest extent of the law.
http://www.dailykos.com/storyonly/2009/6/25/746677/-Many-Madoff-victims-were-with-him-to-commit-tax-fraud!
dopper0189, you're just a garden variety moron! |
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