Toomre Capital Markets LLC

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Madoff's Fund May Never Have Made Any Investments

Bernie MadoffAccording to an January 16th 2009 overnight report from Reuters, an industry-run regulator for brokerage firms, Financial Industry Regulatory Authority ("FINRA"), reports that Bernie Madoff's investment operation may never have executed a single trade! That is right!! This fraudster appears to never have invested any of the money he received over the years from investors. As a result, the detailed statements mailed to investors each month are likely to be no more than an elaborate mirage.

"Our exams showed no evidence of trading on behalf of the investment advisor, no evidence of any customer statements being generated by the broker-dealer," said Herb Perone, spokesman for the FINRA. Given that FINRA supposedly conducted an audit of Madoff's broker-dealer firm every two years since it started back in 1960 and did not highlight anything as seriously amiss, one does wonder just what was included in such regulatory reviews. One also has to question what type of due diligence each and every investor and/or "feeder fund" conducted around Madoff's investment operation, especially when there never was a single trade!!

One also has to wonder just when Madoff's fraudulent activities started. Toomre Capital Markets LLC ("TCM") understands that Bernie Madoff's first client was Carl Shapiro. If there truly were no trades, did Bernie just report fictitious numbers to Mr. Shapiro? It would be truly ironic if the ultimate success of Bernie Madoff's fraudulent activities were based on fictitious account statements sent to that very first investor.

No doubt the "success" of Mr. Shapiro and other very early investors were used to trumpet the supposed expertise of Madoff's investment strategies. Did the Madoff fraud really start with that first investor, who perhaps did not review his initial statements too carefully? From all of the news reports, Madoff attracted funds through word of mouth. One investor would tell another prospect of just how wonderful the Madoff returns were. In the late 1980s and early 1990s, the reported returns were in the range of 13.5% to 20% according to documents from SEC litigation. One wonders what Madoff reported to Mr. Carl Shapiro in those early years.

Toomre Capital Markets LLC also wonders just how Bernie Madoff came to take on Carl Shapiro as a client. Was by chance Mr. Shapiro a client of the accounting firm Alpern & Heller? Or was it through some connection of a common religious faith? Was there any connection back at Bernie Madoff's start with Frank Avellino or Michael Bienes?