Madoff stated that he’d heard that Menill Lynch, Goldman Sachs, and Credit Suisse wouldn’t do business with him, however, he stated that David Kamansky (Merrill
Lynch CEO), Dan Tully (former Chairman and CEO Merrill Lynch), and the Chairman of Morgan Stanley the did not name John Mack) were clients of his. He stated that these people did business with him and did not think the returns of 10-12% were unusual.
He stated that if you look at his strategy day-to-day, it would be “extremely volatile,
however, month-to-month it would show low volatility. He stated he would hold on to a
loss until it became viable again, and that the strategy itself was real, “not that exotic,”
and “not that unusual.” He noted that he sent [the SEC’s] Lori Richards a copy of his strategy.
Madoff stated that the SEC focused only on front-running in exams, noting the “returns weren’t that spectacular.” He stated that “credible people knew it could be done or else they wouldn’t be clients.” He stressed that the strategy made sense, and that stories of 300% returns were “total nonsense.” He stated that “All you have to do is look at the types of people I was doing this for to know it was a credible strategy.” He added that “Tney knew the strategy was doable,” and that they “Knew a lot more than this guy Harry [Markopolos].”
Monday morning quarterbacks will snicker at the gullibility of Mack, Tully, and Komansky. But the real message here is the same as it always has been:
- Madoff’s returns seemed reasonable, in large part because they weren’t spectacular
- Madoff’s strategy was so complicated that you had to be an options expert to understand that it was impossible.