March 20, 2009 / 4:36 PM / 10 years ago

Madoff employee breaks silence

— The following article is from The Daily Beast —

The attached article is from The Daily Beast. REUTERS/The Daily Beast/Handout

By Lucinda Franks

An employee of Bernard Madoff’s brokerage operations, which were described by the fraudster in his plea agreement as being “successful and profitable,” has told The Daily Beast that they were in fact money losers that acted as a front for his Ponzi scheme.

He said that these businesses, the proprietary and market-making arms on the 18th and 19th floors of Madoff Securities, were designed to lure investors in, especially highly placed figures in society, and to fool the SEC into thinking that he had a large and impressive galaxy of businesses.

But behind the façade, these businesses were a shambles. They were excessively staffed with grossly overpaid people, and run with marked inefficiency, he said.

The employee, who did not want to be identified because of possible lawsuits or threats by victims, was a member of an elite group that designed sophisticated computer-trading programs. His identity was verified by consulting the Madoff employment roster, where he was listed. He also has an employment confirmation letter and a letter of reference from the Madoff firm.

His description of how the legitimate arms of Madoff Securities were run sounds like a skit out of Monty Python. “The three managers who ran parts of the businesses were getting $500,000 to $750,000 a year and they didn’t even know anything about modern computerized trading,” the employee said. They knew only the antiquated methods of talking to clients and trading in the stock market by phone. They mostly socialized, read the news. They would have been unemployable on the outside.”

The employee learned the salaries of his colleagues when he secretly obtained a document listing them. “A senior computer programmer would make $350,000, where in most comparable firms they would be getting $200,000 to $250,000. The customer-relations people, who just handled complaints from clients, were making six figures. There wasn’t anyone who wasn’t paid in the hundreds of thousands,” he said, adding: “There were twice as many people as were needed and there was rampant inefficiency.

“The company could have been profitable but the Madoffs didn’t seem to care. The business model made no sense,” said the employee. “In actuality the trading groups were generating profits and the company had enormous potential.”

The employee was part of a trading group, who were able to break a security code that he says led them to a site that was supposed to be seen only by the Madoff family. It showed the profits and losses of the legitimate businesses. Even in years when they grossed $25 to $50 million, they calculated in the outlandish costs and thus concluded that the firm barely broke even and some years lost money.

Sources in the Madoff investigation confirm the losses that the employee described to me. We sat across from each other at a long black table in the house of an intermediary who arranged the interview. He was nervous, swallowing, hesitating, reluctant to talk. But when we got started, he spoke freely and even eagerly about his strange experiences with the Madoffs. To read the rest of the article click here here

Other stories from The Daily Beast:

How John Stewart Went Bad - by Tucker Carlson - here

The Bag Lady Papers, part 1 - by Alexandra Penney - here

Ruth's Secret Stash - by Allan Franks - here

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