Saturday, March 14, 2009

Worse than Madoff

Bernie Madoff now is prisoner #61727-054.

But still walking free are the vermin parasites of the Madoff scandal -- the "fund of funds" managers who take fat fees for dumping client funds in other funds that take fat fees, without even bothering to check if the latter are fraudulent (much less high-quality enough to justify paying two layers of fees to be in them.)

[] Fairfield Greenwich Advisors had $7.5 billion of the $14 billion under its "management" in Madoff.

[] Tremont Group Holdings, owned by OppenheimerFunds and Massachusetts Mutual Life Insurance Co., had $3.3 billion, more than half its assets, in Madoff.

[] Ascot Partners had $1.8 billion, substantially all its assets, invested in Madoff.

[] Rene-Thierry Magon de la Villehuchet, manager of Access International Advisors, owned a castle in Europe and lived a life among the European nobility and as an international yachtsman on the fees he took from investing $1.4 billion of his clients' funds in Madoff.

The list goes on.

In my book these guys are in a very real way even worse than Madoff. With Madoff, as with the likes of Al Capone, you at least have to give the devil his due for actually putting the work into committing an historical crime and taking the risk of ending his days in jail for it.

But these fund of funds managers committed no-effort fraud to coast to riches. The lack-of-diversfication alone in pouring the bulk of their funds into Madoff should be clear breach of fiduciary duty for a professional investment manager, IMHO -- before even getting to their lack of due diligence in selecting superior funds to invest in, which is their purported justification for charging fees to clients to put their money in fee-charging funds.

And without these guys funneling all their billions into Madoff, he couldn't possibly have performed his scam on nearly as large a scale or for as long.

Well, we'll eventually see what the courts have to say about them -- but if they wind up in one circle of hell lower than Bernie I won't be surprised.

There's a lesson here for the average investor: beware in picking a fund manager, and never pick a fund manager to pick your fund manager. The person responsible for your money is you.