Bernard Madoff is accused of orchestrating a $50 billion fraud and was placed under house arrest as BNP Paribas became the latest European bank to be sideswiped by the scandal.
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or better or worse, our decision to invest was based on our faith in him, not unlike the way one puts trust in any stockbroker or financial adviser, but more so. If Stanley's running things, we'll go with it. This trust, the history of success, made it as good, if not better than any investment out there. Had we—and the many other devastated investors I've talked to over the last week—heard the name Madoff perhaps we would have checked him out, seen some of the red-flags, and maybe made a different decision.
Nancy Silverton, the well-known Los Angeles restaurateur of Pizzeria Mozza and founder and former owner of LaBrea Bakery, was in a Chais sub-group called CMG, LTD. Some of our savings, and 50 others', were in that group, too. She's lost everything, over $5 million. CMG investors lost $80 million total, according to a class action suit filed in United State District Court in California last week. Silverton's family, in another Chais group called Caroline, also lost everything. It's unclear how many sub-groups Chais had going, but there were at least six I know of in the Los Angeles area. Stanley says he's lost everything, too, including his substantial Chais Family Foundation, which has shut down.
"I knew others were doing the trades, but I'm not sure I ever heard of Madoff," Silverton says. "You trust people that are better at investing than you, you go about building your business, doing your work, and you forget about it. You see the statements and you think you've made the best financial move of your life."
The phone call came for Nancy in mid-December when she was in Napa wine country with four friends. They were on their way to have dinner at the famous restaurant the French Laundry. "My father called my cell," she said. "He said, 'We've lost everything.' I went into a kind of surreal shock."
For Silverton, 54, and the many others like her, she'll have to start over. "My entire retirement, my kids' college funds, trust funds, were all invested in this. All I have is my restaurant now. We just can't believe it."
The unlicensed Madoff generals must have had their orders: Mum's the word. Let the investors think what they want about who's placing the buy-and-sell orders. As far as the investors knew, the generals were the geniuses doing the sophisticated, proprietary trading stuff that brought such marvelous returns over the last 40 years. And, in our case, the accounting firm of Halpern & Mantovani, CPA, in Encino, Calif., Chais' chief bean counter, pumped out the quarterly statements as if it were all rock solid.
How can we stop this from happening again? How about some basic oversight and transparency for all private and public funds? How about making private, under-the-radar investment groups illegal unless registered? Is this asking too much of our regulators, when a $50 billion investment fund can be run by a little man with gray hair in baseball cap behind a curtain of secrecy and nobody knows what the trades are or who's making them?