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Thursday, 18 December 2008

Financial Crime of the Year 2008

Nobody has made out like Bernard Madoff, and made off he apparently did, although where the money has gone is not very clear. Some reports mention $50 billion which is a truly staggering sum, if correct.

If it was all on bad investments then the market would have known. Asian financial futures markets knew all about Nick Leeson’s losing ways long before he burnt through all of Baring’s money. The trouble was that Barings management didn’t and the market didn’t think it was the job of other companies’ traders to tell them. Alternatively he may have just be siphoning off the money, but it is very difficult to move large cash balances through the banking system without them being noticed.

Which brings us to the SEC, who had received several complaints over 10 years but had singularly failed to act. A cursory examination of the Madoff Fund’s accounts and bank statements would have shown what was happening on a massive scale, but they didn’t, but that’s civil servants for you.

Which in turn leads us to Nicola Horlick with her media protestations that she couldn’t be blamed if the SEC hadn’t checked out the company. Wrong answer, Ms Horlick. You aren’t paid X% plus upside to make investment decisions based on whether a company has been banged to rights by the SEC. Any fool can do that, and many fools can read a company’s annual reports. That is not how you are paid.

You are paid to understand a company’s business, the industry within which it works and the macro and micro factors likely to affect its future performance.

It seems you didn’t get past step 1 ..... which is why your funds are losing money, your firm is losing money and, as an investment vehicle, my socks (long and black from M&S if you want to know) outperformed your Bramdean Alternatives this year - and didn’t charge any management fees.

So out of a very strong field this year, Financial Crime of the Year 2008 goes to Nicola Horlick.