A Rogue is a Rogue is a Rogue
On April 14 a headline appeared on my newsfeed: “Bernie Madoff dies in prison at age 82”. For those of you that may be unaware, Bernard “Bernie” Madoff is one of Wall Street’s greatest rogues of all time. He initiated a “Ponzi scheme” that operated for years. In essence, he used new investor deposits to pay earlier investors while simultaneously creating fictitious account statements indicating consistent growth in all accounts. The novelty of his approach was that it was not a get rich quick scheme, but “get rich over time – a sure thing” that lured in his victims.
Madoff’s fraud was eventually exposed by his son and resulted in losses estimated to be around $65 billion, including money from some very prominent figures. He was serving a 150 year sentence in North Carolina at the time of his death.
In my career, I have seen other market manipulators who, like Madoff, sought illegal gains using some form of market manipulation. Others achieved ignominy as a result of outright fraud and conspiratorial schemes. Perhaps a quick visit to the Wall Street Hall of Shame will remind us that there really is no “get rich quick”, no “sure thing” when it comes to building wealth.
The Hunt Brothers engaged in market manipulation, trying to corner the silver market in 1979-80. “Silver Thursday” is the day it all unfolded, as the price of silver fell and the three brothers could not meet margin requirements. While they lost billions, others riding their coattails lost too. They almost put their broker, Prudential Bache, out of business.
In 1986, I remember reading the Dow Jones Newswire (the tape version) announcing Ivan Boesky had been charged with insider trading. Boesky was a Wall Street arbitrageur who often worked with Michael Milken at Drexel Burnham. Boesky cheated by using non-public information to gain an edge. The movie Wall Street, starring Michael Douglas, is a caricature of Boesky. He took down accomplice Martin Siegel of Kidder Peabody, and eventually helped get Milken indicted. He wasn’t too proud to sing, I guess.
The 1980’s also saw the rise and fall of Charles Keating, whose willingness to commit fraud and conspiracy was truly shocking at the time. He used depositors’ funds for his investments in outrageous and unprofitable ventures, bribing politicians along the way. The subject of a congressional inquiry, he claimed innocence even as he was taken away to prison.
A more recent insider trading villain, Raj Rajaratnam, used his connections at some of the finest investment banks to perpetrate his fraud. The former Galleon Fund trader served his time in a Massachusetts federal prison.
A review of Wall Street rogues wouldn’t be complete without mentioning Enron, the once great oil and gas company that went bust in the blink of an eye. Kenneth Lay and his whiz kid CEO Jeffrey Skilling fabricated accounting statements and disguised actual financial records. They were heralded as pioneers in “off balance sheet” financing until it was exposed that they had simply “cooked the books.” Lay died of a heart attack before sentencing. Skilling was convicted and served his time in prisons in Alabama and Colorado.
All of these are examples of fraud and/or market manipulation. They all involve wealthy men who sought greater wealth and did not care about fairness nor the morality of their actions. Before you say it, Martha Stewart was also convicted of insider trading during my career, but her fraudulent gains were chump change in relation to these other examples.
The thing that strikes me most about all of these cases, none of these individuals needed the money. Madoff had a successful brokerage firm before he started his money management unit. The Hunt Brothers inherited $5 billion from their father. Boesky had been a successful investment banker accumulating substantial wealth. Enron had been a steady oil and gas distributor; its parent company, Houston Oil Company, was founded in 1920. In every case, the primary motivation was greed. Pure and simple, despite Gordon Gekko’s claim “greed is good”, it was greed that led to the illegal and harmful actions of these fraudsters.
A rogue is a rogue is a rogue, to paraphrase Gertrude Stein. I hope you enjoyed the brief walk down memory lane. And the reminder that greed can warp our thinking.
Ralph McDevitt April 15, 2021
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