BERNIE, IRVING, IRA, WHERE DID THE $$$ GO?

(The Madoff Palm Beach Home)
One of our followers posed the question, 'Where did the money go?' Back in January I speculated on where the money went, but that was before Irving Picard, the SPIC trustee, disclosed that Madoff didn't purchase any securities for his fund for 13 years.

I haven't seen any analysis to answer the question at hand. So I will try to speculate again. However, I am going to need help. Please comment or email me with suggestions, serious suggestions only Univac, as to where the cash may have been gone.

Here are my latest thoughts. First, it wasn't $50 billion, Bernie rounded to the nearest $50 billion. After all why would we believe the figure he said? It is probably lower. So let's say that the accounts totaled $43 billion at December 15, 2009.

Second, the figure was inflated by false profits for, let's say 30 years. At a 12% fake rate of return, the principal would double every SIX years. So for example, if Bernie was running $100 million in 1979, that be $3.2 billion in 2009! So that is $3.1 billion of fake profits or said another way, of the $3.2 billion in those investors accounts, 97% was from fake profits. Another example is one of the educational institutions that originally said it had lost $125 million and later said it only invested $14 million.

Additionally, say Fairfield/Greenwich, one of the feeder funds which allegedly had $7 billion invested with Madoff, put the money in on average in 2003. Therefore its hypothetical $3.5 billion investment would be worth on paper $7 billion at a 12% rate of return. Some $3.5 billion of fake profits. And if the rate of return was 20%, the initial investment may have only been $2.3 billion which would have tripled to $7 billion or fake profits of $4.7 billion!!!

Third, the compounding of returns from 12-20% over 30 years requires an enormous amount of cash coming in every year to fund redemptions and withdrawals.

Fourth, there still were investments that were made over 20+ years that lost value or at least didn't keep up with the fraudulent rate of return.

Fifth, and a minor number in this fraud, is the money that used to fund the operations and the extended Madoff family's lifestyle for 30 years. That may included the $70 million Ruth is trying to keep. Throw in the Palm Beach house, the Hampton house, the French Riviera house, a plane, the kids homes and spending for 20 years each since they worked at the fund. Then throw in all the donations made by the extended Madoff family.

So a hypothetical summary, with no empirical data to support it, may be as follows:

Fraud $50 billion

Rounding $ 7 billion
Fake profits 30 billion
Investment losses 5 billion
Withdrawals 6 billion
Madoff take 1 billion
Found by Trustee 1 billion

These number are submitted for illustrative purposes only. I made them all up without a shred of evidence. Let me know what you think.

Cheers, Mike