The flags are always there, hindsight being what it is.Â But, perhaps we could document these flags after the crash and use them proactively.Â Harry Markopolos warned us about Madoff being a fraud in a detailed November 2005 white paper.Â Mr. MarkopolosÂ found 29 red flags in the Madoff operations that he tried to convey to the SECÂ from 1999 on, but we are trigger shy when it comes to iconic figures.Â Icons know that.Â Throw down the flag anyway.Â What are the flags?Â Well, any timeÂ folks tellÂ you that their trading strategies are proprietary . . . (in the words of the Monty Python boys) Run away!Â And when a firm dispenses with the usual profit-sharing relationship of a hedge fund in favor of commissions (as earned by the firm doing your investing!) . . . Run away!Â Â When those commissions are not disclosed . . . Run away!Â When a major international investment firm has an upstate New York audit firm . . . Run!Â When the principal of the firm maintains a locked office and sole access . . . Run away! When you request information on valuation of investments held in an operation and the information is not forthcoming . . . Run away!Â If you don’t understand the structure of an organization or the interrelationships among and between subsidiaries . . Run away! If there have only been seven monthly losses in a 14.5-year period (and those losses averaged 0.55%) . . . Run away!Â When the company you are investing with tells you not to say anything about your investments . . . Run away and tell!!!Â You can benefit from the perspective of an outsider.Â
Mr. Markolopos has documented more flags, flags, you remember,Â that he began throwing down as early as 1999.Â He is good.Â If only folks had heeded his good advice.