Great Mirror of Folly

Mark Hebner's Response to Madoff's Mayhem

Great Mirror of Folly


Play Video Like so many of you, I have watched in great dismay as the horrific details unfold regarding the Bernard Madoff investment scam—one that has quickly shaped up to be the biggest such scam in history.

We have learned that as much as $50 billion dollars of wealth from international banks, fund companies, private foundations, institutions and individuals has been wiped out by a Wall Street con man who exploited his track record and experience to bilk innocent investors—some out of every penny they had.Media pundits have issued accusations that the SEC fell down on the job, ignoring earlier inquiries surrounding Madoff’s activities that didn’t pencil out. But, as I see it, simply pointing the finger at the SEC cannot fully prevent future catastrophes of this type, especially if investors continue to allow personality and reputation to supersede due diligence and full disclosure.

Bernard MadoffMadoff was a veteran industry insider whose reputation elevated him to a level of trust that was left unchecked on every level. Madoff’s associations with industry groups, politicians, charitable groups and country clubs empowered him to perpetrate a massive fraud that could only be carried out when a cunning sociopath meets high society.

At IFA, we are sickened by the losses of every individual and institution involved in the Madoff scam. This was money accumulated through hard work, intended for a meaningful purpose, invested with trust and eradicated by a simple scheme allegedly carried out by a once very trusted individual.

In light of this experience, investors are scrambling to learn what is left, if anything.

Certainly, many are questioning how they can truly know who to trust with their assets and what is the basis for that kind of trust? 

Many of Madoff’s victims came from his own New York and Florida social and religious affiliations. These connections can be the origin for important relationships, but they are not a sufficient and final filtering process for choosing a trustworthy financial advisor.

It’s important that investors ask a potential advisor significant questions that can help ferret out potential problems:

“How transparent are my investments?” Specifically, “Does my statement come from a reputable brokerage house like Schwab or Fidelity that actually custodies my investments?” And, “Do I know what I am holding, and at all times?” As a broker-dealer, Madoff custodied his own investments—a big red flag.

“Are my investments marketable securities with daily valuations that I can find on the web, or in the newspaper?”
“Are my investments fully liquid?” “If I needed access to my money right away, would I be able to sell investments and get a check tomorrow?”

If investors had asked these questions before they surrendered their assets to the allure of false profits supported by vague documentation and scant accounting, they would have been content with never mixing business with pleasure.

As it is, vast, generational fortunes have been swept away with the tide of broken trust and shattered dreams. It was not supposed to be that way, and it shouldn’t be.

By following a few simple guidelines, you can avoid the types of schemes that we have seen recently, and are certain to see again. You can rely on your own good judgment rather than hoping that the SEC will adequately police the system. You can eliminate the fear and dread that will lose your assets to a slick-talking con-man who’s long on promises and short on data.

In investing, there is no free lunch. But, when you invest properly, you don’t need one. You can and should only trust your assets to an investment advisor who provides reputable reporting and disclosures for marketable investments that are fully liquid and transparent. When you do that, you can put your head on your pillow at night knowing that your money will remain your money!