How To Keep Your Money - Or at Least Some of It

by Joanne Parrent

Let's say it is 2006 and you or your charity or your company is flush with cash. You are looking for a safe place to put your money, but a place where you could be able to earn a respectable return on your investment. A friend tells you about an exclusive private investment fund that he could help you get into - Bernard L. Madoff Investment Securities. Your friend, who is invested with Madoff, has been earning 10-15% returns for years. You trust your friend and are grateful for the tip. You invest with Madoff. In December 2008, you learn you have lost your entire investment.

Now, let's present a different scenario. Let's say it is 2006 again, but this time when you get the tip from your friend about the Madoff company, even though you trust your friend, you decide to do a little due diligence of your own before you invest. You come to us, as do many clients who want background research on individuals and companies before they do business with the company or individual. We proceed to do a full background check on Madoff and his companies.

Among the many reports you get from us is a media report which includes articles written about Madoff or his company. You scroll through them and read a story published in Barron's Magazine. May 7, 2001. The story, entitled "Don't Ask, Don't Tell," questioned Madoff's remarkable investment performance and quoted experts who were highly skeptical of Madoff's claimed results. One financial adviser who was quoted pulled his client's funds out of Madoff's company precisely because Madoff was so secretive and would not explain how he maintained his steady returns even in down markets. The article's writer attempted to talk with Madoff but all he would say is, "It's a proprietary strategy. I can't go into it in great detail." After reading the article, you wonder whether or not you should invest your money with this man simply because your friend trusts him or if you, like the Barron's author, should be skeptical.

You decide to take another look at some of the reports we provided. You discover that one of his companies, incorporated in 1946, 133 EAST 64TH STREET CORPORATION, has had 50 judgments and liens against it, several in recent years prior to 2006. Why? If he has always been doing so well, why the trouble paying his taxes or other creditors?

There aren't too many red flags in our report, but these two trouble you. You sleep on it and decide to invest your money elsewhere.

Now, it's December, 2008. You have lost perhaps 30% of your current portfolio because of the financial crisis and market downturn, but your friend who had invested with Madoff has lost all of his money. You are grateful you called us. Your return on your small investment in our services, saved you the loss of your entire portfolio.

The above is just an example of why due diligence is worth the expense. Bernard Madoff's ponzi scheme is perhaps the largest and most dramatic of the frauds and scams that are out there in the business world, but it is only one of many. We have helped our clients prevent business mistakes that would have cost them thousands of times the cost of our work.

When you think you can afford not to do due diligence, remember Bernie Madoff.

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