Madoff Fallout–Liablity of Third Party Money Managers

While investors who lost tons of money by directly investing in the Madoff Ponzi Scandal may be unable to recover any money from his firm, those whose funds were invested indirectly through money managers may be able to proceed under a negligence theory.

While money management isn’t the focus of this blog, negligence is. And in today’s New York Times there is a story (European Banks Tally Losses Linked to Fraud) of how “a team from Societe Generale’s investment bank here was sent to New York to perform some routine due diligence” and easily discovered that the numbers didn’t add up. That was in 2003.

And here is the money quote from the article, and the reason other money managers who blindly dumped tons of money on Madoff, may be facing significant lawsuits:

The red flags at Mr. Madoff‘s firm were so obvious, said one banker with direct knowledge of the case, that Societe Generale” didn‘t hesitate [to blacklist the firm]. It was very strange.”

If they were obvious to this bank, why weren’t they obvious to others? This would help to drive a stake through the heart of a defense that Madoff was so crafty that no reasonable investigator would have found the fraud.

A phrase comes to mine: due diligence. Or lack thereof.

See also:


One Response Leave a comment

  • Comments 2010.6.21 at 02:08 | Quote

    Another legal issue, into which I have not looked, is the exposure of those who got their money out. Here’s something from The Big Money, Madoff Madness. The issue is fraudulent conveyances and how far back a bankruptcy court can go. And against whom. And then there are the tax implications.
    # posted by Blogger Joe Garland : December 17, 2008 2:16 PM

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