In the recent interview done from Butner US federal prison Bernie Madoff speaks about financial market, its rules and how to avoid scammers like him. Madoff is called the biggest fraudster of all times. He was sentenced to 150 years with restitution of $170 billion for the biggest pyramid scheme in history. In 2008 when he was arrested, Madoff Investment Securities had about 4800 investors with estimated liabilities of approximately $65 billion. Still due to ignoring opportunity costs and taxes about a half of Madoff's direct investors avoided money loss.
He managed to full regulators for couple of decades before he was uncovered. Moreover, he managed to operate his ponzi schemes for that long because he had a lot of credibility. "I had 11% and 12% returns (per year), which were not that unusual at that time. So no one questioned me, and I was able to continue."
Nowadays things on financial market are not that transparent as they supposed to be as well. And one of the biggest challenges to gain profits falls on an individual investor. According to Madoff, "People are very gullible. Scamming investors has been going on since the beginning of time, and I don’t think it’s going to end.
Use a qualified adviser." The individual investor is the last person that has any information, he said. And summarizes that time of qualified advisers are gone and there are not many of them left. And even if you have such adviser you do not have any proven guarantee to avoid fraudulent schemes. Securities are heavily underequipped and their personnel has lack of knowledge and often inept.
"The SEC needs more resources to protect investors. It’s grossly undercapitalized and it doesn’t have money to hire the right people. Basically it’s a training ground, by the time people are qualified they leave and work for private firms. They didn’t catch me because the whistleblower, Harry Markopolos, was leading them down the wrong alley. He was an idiot."
According to Madoff, hedge funds are the biggest danger on the market right now. And this is because you don't have to register your fund with SEC if it contains less than $100 million. The only solution to regulate them properly is to introduce independent fund custodians, which sounds unreal.
His investment recommendations add up to index funds or government bonds. He said that most of all you'll avoid scammers but the estimated interest might be less than inflation rate. To his mid market is much less complicated than most people think it is.
"People asked me all the time how did I do it, and I refused to tell them, and they still invested with me.
My investors were sophisticated people, smart enough to know what was going on and how money was made — but still invested with me without any explanations. Things have to make sense to you. If you don’t understand the investment, don’t put your money there."
All these make us suppose that he was not the only one working on same schemes even today.