$50B. $64.8B. $170B. $10B. $17B.
What’s the real Madoff number?
Posted Friday, March 13, 2009
What is the real Bernie Madoff number?
And what does that number actually mean?
If you've read a sampling of news articles on the case, chances are you have no idea.
Neither do the news agencies doing the reporting. Or Wikipedia.
But that doesn't stop them from publishing the numbers anyway.
The story started at "$50 billion," though $50 billion "what" — theft, losses, missing money, restitution — isn't clear.
This from AP, Dec. 12, 2008, the day after Madoff's arrest: "Confessed to a massive fraud scheme that will cost investors at least $50 billion, federal authorities say."
Except later in the story, it is clear the $50 billion came strictly from an agent's notes about Madoff's statement and doesn't appear to be the official government position.
From the same article: "The criminal complaint signed by FBI Agent Theodore Cacioppi said Madoff told at least three senior employees ... that the investment adviser business was a fraud and had been insolvent for years, losing at least $50 billion."
Then there was this phrasing in a Bloomberg article the same day: "cost clients $50 billion," "Many questions remain unanswered in this family drama, including whether his customers lost $50 billion," and "Madoff ... estimated losses at more than $50 billion."
CNBC thought highly of the $50 billion concept, titling one of its programs that continues to air "Scam of the Century: Bernie Madoff & the $50 Billion Heist."
Then there was confusion over who's doing the alleging:
USA Today used this terminology on Dec. 17: "Furor grew over how the disgraced money manager was able to build an alleged $50 billion Ponzi scheme without being caught."
Financial Times, as recently as March 11, seconded that notion: "Clients of the Safra Group have been offered compensation for money they lost in the alleged $50bn Ponzi scheme run by Bernard Madoff Investment Securities."
Who, exactly, has "alleged" $50 billion other than (supposedly) Madoff himself, who according to Bloomberg alleged even more than that?
This is a journalistic reach — evaluating the crime at the level suggested by the crook.
Meanwhile, according to prosecutors, Madoff's own alleged $50 billion number was just the start. AP on March 10 said "In court documents filed Tuesday, prosecutors raised the size of the fraud to $64.8 billion, an amount recounted in apparently false statements from November 2008."
The $64.8 billion comes from an 11-count charging document filed by prosecutors. (Note: PDF file takes a moment to open.) This document makes one reference to that number: "On or about December 1, 2008, BLMIS issued account statements for the calendar month of November 2008 reporting that those client accounts held a total balance of approximately $64.8 billion. In fact, BLMIS held only a small fraction of that balance on behalf of its clients."
March 13, Bloomberg cranked up Madoff's own admission, suggesting Bernie found $15 billion of more fraud on his own in three months: "Dozens of investors who came to federal court in New York to hear Bernard Madoff¹s admission that he ran a $65 billion Ponzi scheme in which he lied and stole for decades applauded his jailing." In fact, Madoff did no such thing in terms of the number: (Read the AP transcript of his statement here.)
Wikipedia reports this: "On March 12, 2009 Madoff pleaded guilty to 11 felonies and admitted to operating the largest investor fraud ever committed by a single person." This terminology is not in Madoff's statement.
March 13, Bloomberg reported prosecutors' most jaw-dropping number, but notice does not pair the term "fraud" with "$170 billion": "The feds claim Madoff has to come up with $170 billion, which is apparently the amount that went through the entire Madoff operation."
The New York Times March 13 took a different kind of liberty with the number: Saving it until the penultimate paragraph of a very long story, attributing it indirectly to customers when it is essentially the prosecutors' number, and not suggesting the entire amount was "stolen" (though of course, the question then is what happened to it): "The fraud’s collapse erased as much as $65 billion that his customers thought they had. It remains unclear how much victims will recover," said the NYT article, not mentioning the fresh new $170 billion angle.
To its credit, the Associated Press tackled the "$50 billion" claim in a story March 6. Not to its credit, writers Tom Hays and Larry Neumeister — in an otherwise good article — never once questioned the judgment of their news organization regularly reporting such a potentially bogus $50 billion number to the point it becomes etched in mainstream folklore as the "biggest" fraud scheme in history.
From the third paragraph to the fourth paragraph, they attach the $50 billion (or lower) number to two different concepts: On the one hand, it is the amount "stolen" by Madoff; on the other hand it is the amount of "loss to investors:"
Investigators claim Madoff himself told them that he stole $50 billion, but it is becoming increasingly clear that the number may be as fictitious as the sprawling fraud that he allegedly ran.
A growing number of people involved in the case and outside observers are saying that the actual loss to investors could be far less than the mind-boggling total often treated as fact. The actual number is not known at this point, but some believe it's less than $20 billion.
Given other articles suggesting early Madoff investors were given profits and now might face litigation, then not all of the investor losses would've been pocketed by Madoff himself — making the "stolen" and "losses" two different numbers.
Evidently relying on its March 6 story, Associated Press on March 12 suggested we all maybe should set our sights lower: "Investigators say the true amount lost by investors may be between $10 billion and $17 billion."
Handed the $50 billion number from federal authorities at the beginning, it is unfathomable that news organizations would not use it. But with the investigation obviously just starting, a number like that should've triggered alarm bells — as in, what does this number mean, and whatever it means, is it actually true? And it is fairly clear from the initial stories despite AP's occasional summarization: The $50 billion (or more) came from Madoff's statements, not from the authorities.
One legitimate criticism of news media is the careless reporting of numbers. Crowd estimates are notorious, so are these kinds of local news pieces.
So we have two numbers issued by the feds, $64.8 billion and $170 billion, a "stole $50 billion" claim purportedly from Madoff himself, a "$50 billion heist" according to CNBC, and former SEC chief Harvey Pitt estimating "the actual loss would fall below $17 billion."
AP's Hays and Neumeister quote SIPC President Stephen Harbeck: "I think it's somewhat misleading to say this was a $50 billion scheme."
To say the least.