Goldman, Merrill Saved Clients From Madoff Disaster

Time to applaud Goldman, Merrill, and other major Wall Street firms for paying attention to the Madoff red flags and protecting clients from disaster. This caution makes the confidence of Fairfield Greenwich, Tremont, and other sophisticated asset managers who fell for the scam all the more embarrassing.

FT: Large Wall Street firms privately harboured suspicions about Bernard Madoff’s investment business, in some cases steering clients away from dealing with him…

Banks were sceptical that Mr Madoff could deliver the consistently high returns that he reported, and they were also put off by a lack of transparency at his investment firm…

Fabio Savoldelli, chief investment officer of Merrill Lynch Investment Management prior to its 2006 merger with BlackRock, sounded the warning internally years ago… Two years ago, an internal Merrill report drawn up in connection with Merrill’s European fund of funds group, concluded the group should not deal with Mr Madoff, the financial adviser said. “We had a red light on doing business with him. There was no transparency.”…

Goldman Sachs Asset Management said it “never felt comfortable with Madoff”, because it “never understood the investment process or the returns . . . if clients wanted to invest with him, they did not do it through us”.

Goldman’s scepticism extended to Tremont Group Holdings, a fund of hedge funds based in Rye, New York, that gave more than $3bn to Mr Madoff through several channels. In 2001, when Tremont was sold to Oppenheimer, the brokerage, Goldman was representing another potential buyer. But Tremont did not let Goldman’s team have a close look at the firm’s operation, so Goldman’s client backed out.

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