Tuesday, January 20, 2009

Madoff/Fairfield Update

I rushed out a letter on this subject last month and I’m thinking it got circulated around a bit, as I subsequently saw many references to Madoff’s golf scores, and now many others seem to be calling the Fairfields and Tremonts “enablers” as well. My view on the affair hasn’t changed: con men come and go, but it was irresponsible third party fund raisers who made this one the biggest con job in human history. Few end investors bothered to do due diligence themselves on Madoff since such respectable groups had presumably checked him out.

What’s kind of interesting, sociologically, is how big this story remains. The media are breathless, and bloggers are ferreting out every conceivable angle. I personally know a score of people who are addicted to every new scrap of new information, and they are not disappointed with what each new day offers. Just the other day it was revealed that Madoff’s own sister lost a pile. Wow, that is cold. And just yesterday, a small item on Fairfield Greenwich jumped out at me. They had a close relationship with Union Bancaire Privée, a Swiss bank that had its own Madoff feeder fund. Apparently, three of Fairfield’s other funds-of-funds - the ones that theoretically had nothing to do with Madoff - had money in this feeder. Huh? Fairfield had direct access to Madoff, so why would it pay someone else for access? One guess is that it was some kind of quid quo pro arrangement; Fairfield and Bank Privée did business on a number of levels, so perhaps they were getting a fee break somewhere else, perhaps on advisory services their management company was receiving from Privee. Very bad. Another possibility is that this was a way to channel money to Madoff from other Fairfield funds without letting this fact be completely clear to investors (i.e. ones that had possibly taken a pass on the direct Madoff feeder). Also very bad.

Fairfield’s already the subject of three class actions on its Madoff feeder (the Sentry Fund). Me thinks the other investors will sue also once they figure all this out. I harp on this because these “feeders” have given the entire industry a black eye and they deserve whatever’s coming to them.

No comments:

Post a Comment