Securities Docket

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The head of the Securities Investor Protection Corporation and the receiver of Bernard Madoff’s broker-dealer business states that his investigation has now revealed a type of “hybrid fraud” that goes beyond a typical Ponzi scheme.  “We do not seem to be dealing with a traditional Ponzi scheme alone,” Steve Harbeck told London’s The Observer. “This seems to be something of a hybrid,” Harbeck said, adding that the potential losses could be far greater than anyone first thought.

Harbeck did not elaborate on the types of fraud that were emerging, “but sources close to the Madoff investigations suggested the trader may also have falsified tax documents and other records to show fake profits to his investors.” Harbeck did add that the case was unusual because of its scope. “The length of time we are dealing with - which by Madoff’s own admission is at least a decade but probably more like two - is just incredible. A Ponzi scheme might usually last a year or so, but it is usually impossible to keep it going for long periods of time.”

Harbeck also told the Observer that

under a traditional Ponzi scheme it was common to find that just as much cash had been paid out in fake profits to earlier investors as had been declared lost to newer investors. “But with this case being, as I said, a hybrid fraud, it is impossible to say how much has been paid out at this stage.”

Read the Observer article

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