Are Walter Noel and Andres Piedrahita of Fairfield Victims of Bernard Madoff?

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As the main supplier of capital to Bernard Madoff with $7bn raised for him and now evaporated it is a fair question to ask if Andres Piedrahita of Fairfield and his father in law (and boss) at Fairfield Walter Noel were victims of Madoff or part of the scam. I have known Andres Piedrahita and his wife for 8 years now. Andres Piedrahita invested with me in some of my tech start ups through our mutual friend Adam Horne. So I have had enough dealings with him to at least have an opinion on this financial disaster that I would like to share with my readers. I think that it is much more likely that Andres Piedrahita and Walter Noel were victims of Madoff than his partners in crime. Indeed it seems to be the case that even Madoff children were not part of the swindle. That they themselves lost money in his "fund." After a telephone conversation with Andres this morning I heard that he and many family members including his father-in-law Walter Noel lost enormous amounts of their personal net worth in Madoff´s Ponzi Scheme. Tragically it seems that Andres and his family took money out from many other hedge funds and recently put it with Madoff as he was one of the only hedge fund managers "doing well" this year. Now why did not Fairfield Greenwich do more due diligence and find out that Madoff was a crook? Were they happy with all the commissions they were making and did not feel like investigating? Andres answer to this question was that they did have 2 PhDs assigned to checking Madoff out and that they were simply given fraudulent data. This is probably true because even the SEC examined Madoff's operation twice and could not find anything wrong with it. I think that Madoff´s scandal is another proof that the global financial regulatory system is broken and needs serious rebuilding. Having said all this I hope that Fairfield takes the initiative and returns to their investors all their commissions they ever made selling Madoff products. They may not be able to return the funds invested but at least they should be able to return the money they made selling fraudulent products.

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Comments

[ABCVoter]

Es interesante usted escribe sobre él aquí pero no en su propio blog.

Aquí están algunos acoplamientos recientes:

* http://www.semana.com/noticias-print-edition/the-colombian-in-the-madoff-scandal/119101.aspx

* http://businesssheet.alleyinsider.com/2008/12/colombian-site-gives-noel-son-in-law-backstory

* http://businesssheet.alleyinsider.com/2008/12/walter-noel-son-in-laws-christmas-plea-stop-attacking-us

Yes, avoid proprietary products. One bank dived headlong into building up its proprietary business and decided (rather foolishly) to specialize in mortgage CDOs --- all transactions being booked off-the-balance sheet==> BIG LOSSES.

What's astounding about the Madoff case as the mortgages CDo fiasco etc. is that investment banking and the hedge fund sectors tend to attract some of the smartest people: often armed with Ph.Ds in mathematics for the Risk Engineering departments, MBAs to become divisional business managers and other professional qualifications like M.Sc. Finance from LBS etc.

Yet they lack......­..........­.......SIM­PLE COMMON SENSE OF A SIX-YEAR-OLD.

* http://uk.youtube.com/watch?v=mzJmTCYmo9g

As for the Madoff fraud, heads should roll at the SEC, investors should be suitably compensated for their losses by the investment managers who broke their trust and failed in their fiduciary duty to conduct proper due diligence, and financial regulatory systems need to get with the 21st century in how they harness technologies to stay informed about potential risk companies / individuals.

[bondgal]

From what i have seen of the shameless self-promotion of the Noel clan, especially in the glossy self-indulgence exhibited in the T&C articles on their fabulous homes in Connecticut and Mustique, and the Fairfield website which incorrectly conveys the essence of stability and due diligence, i can only ask if you are serious with your article. You seem to imply that the Noels are the victims and owe no investor anything. I believe that Fairfield took an entry fee to gain access to Madoff's scam, and an annual percentage of the profits ,as well. ----Newsflash--- there were no profits, ---which means that Fairfield was "earning" its "due diligence" by sharing in the scam, fictious profits which were actually other investors' principle. The earnings taken from the ficticious profits not only "should" be "must " be returned as scam proceeds, no doubt about it. Your suggestion of "should be returned" , as in optional, seems odd. Return the principle also, Walter, you facilitated the fleecing.
Furthermore, the percentage of the profits deal by Fairfield seems oddly telling, since there were hardly ever any losses reported by Madoff. Was Fairfield prepared to share in the losses as well? Because that would be the implied equity, and the losses look to be 100%.

[baffy]

The big question here appears to be were Noel and co (and of course the families) part of the Ponzi scheme? The partners at Fairfield were apparently sharing $40 million a year for letting Madoff "manage" the money.

[drstu]

Forgot to add-- Walter Noel and Fairfield Greenwich Group made $250 million in fees (from their clients, and not including 'commissions' paid to them by Madoff) in the last five years alone. Go back another five years, and add in another $200 mil or so.

They're claiming that their principals, including Charles Murphy and Charles Tucker, an option industry veteran 'lost' about $5 million each, a rounding point in terms of what they made. Sort of odd that their exposure was so miniscule. Or maybe that was part of the pitch "we have our own money in the fund too"
If they had money 'in' for the past 10 years, then the original principal they actually "lost" was closer to $2 million each. No more than 5% of their assets.

Sort of odd when their investors were putting in 20%-50% of their assets. In some cases, it represented even more. If that's not a classic sign of participating in a scheme, nothing is.

[drstu]

It would seem that you have absolutely no idea as to what transpired, and no idea that the SEC barely opened a filing cabinet when 'reviewing' Madoff's books and records

Fairfield Greenwich's website is ironically rich in content when describing their 'due diligence' and what they do to continuously 'audit' funds they are invested in. If you didn't read it, here's the link: https://www.fggus.com/guest/due_diligence.html

If they actually reviewed client trading confirmations and simply looked at the volumes of listed option contracts purportedly transacted, and then looked at the exchange-reported volume for the same day, it would have been obvious to anyone this was a sham.

Let's face it, Walter Noel was an unaccomplished banker before he met Madoff, and in the course of the last five years alone, he and his son-in-laws and a few select others, including Charles Murphy, charged their clients $250 million in fees for placing money with Madoff entities. And do we want to know what Madoff kicked back to Walter Noel and his associates?? Gotta love Murphy's 2007 townhouse purchase on 67th and Madison for $33 million.
Everyone in the hedge fund industry that actually evaluated the option trading strategy that Madoff promoted literally ran away whenever Madoff's name came up.

I know this has a direct fact. Oh, I guess we gotta love the fact that Madoff is already blogging away...www.bernard-madoff-scam.blogspot.com

[blickenstaff]

Oh c'mon. These guys are hardly victims. They are guilty guilty guilty....they had a duty to the clients they so willingly steered to Madoff to ensure that their clients money was safe. Apparently they not only charged a fee to 'manage' the money, but also a got a percentage of any profits. They were raking it in - if they 'didn't know' then it was only because they did not want to know. They were making too much money to want to look too closely. 'Not knowing' is not an excuse. Not when people were paying them to know. They should pay back every penny of their clients money.

Both Madoff and his middlemen should have every asset they own liquidated. All proceeds should go to the folks that were conned out of their life savings and to the foundations that helped so many of the poor and needy. Noel and his family? Jaffee? Victims? Yeah, right.

[jun]

one does not really need two Phd's to carry out basic hedge fund due diligence such as checking out financial statements, external auditor opinion, assess past fund performance,... this is no rocket science! The use of the argument that even phd's did not uncover suspicious elements also indicates how alienated the fund marketing guys were from elementary due diligence when handling client money (not to mention their "own"). An associate level credit analyst could flag issues as insufficient disclosure, funny external auditors, etc.
Fairfield Greenwich and others who have fed Madoff funds would sound more credible in their defense if they would publish details on the due diligence caried out on Madoff funds and their internal investment management decision-making process. In the worst cases fund analysts are not expected to raise problems but to provide paper arguments to justify the decisions of the investment manager / fund sales bosses.

[nycrichie]

They knew, please...they will be wiped out because they will be sued out of business. Oh how the mighty fall..greedy, greedy. Happy holidays to the scammers, good luck paying your bills in 2009 as the rest of us "little people" have to. Making money off of lying paper statements, nothing you can hold in your hands and rub...the financial systems is now broken, wall street is wrecked because of creed. Now these greedy dogs will come up with a new scam to creat wealth for themsevles selling juck to rich fools who are greedy.....

[baffy]

Your contention is complete nonsense. If Fairfield had done even the simplest diligence they would have found that 1) Madoff used a 2 man shop to audit the books 2) Madoff did not clear trades through a 3rd party 3) Madoff did not use a 3rd party to confirm investment returns. One of these deficiencies would suggest lax management. All three suggest criminal activity.
The big question then is, what exactly was the relationship between Fairfield and Madoff?

[doubt]

Martin,

Noel & Piedrahita, arrogant and greedy, due dilligence? yes how to spend the almost a billion in comissions.......of course they should return to investors all the fees they ever made with Madoff.

[Tremaste]

Martin: I respect your judgement as an entrepreneur tremendously but in this case you are being either too kind or too naive.
Please read Fairfield's latest brochure and the representations they make:
https://www.fggus.com/pdf/FGG_Capabilities_Brochure_Nov2008.pdf
These people are charging fees upon fees and the value they are supposed to add is rigorous due diligence and proper manager diversification. In this case they provided neither. In this brochure they claim to have knowledge of the individual funds down to the level of "individual securities". Obviously they didn't. Hiding behind adulterated data that two PhD's received is not enough. They obviously didn't do the basic systems and process due diligence (i.e. interviewing a chief compliance officer, testing the funds risk management systems, backtesting the investment strategy etc.) that did lead other fund of funds not to invest with Madoff. They invested 50% of their funds with one manager!!!! I think at best their own greed and the desire to keep on pumping out fees lead them to ignore any red flags. This is inexcusable for a team that is selling themselves the way they are and charging the fees that they are charging. They have made many fortunes over the last 10 years so no tears.

[Martin Varsavsky - Huffpost Blogger]

Tremaste I agree that they had very poor judgement. Indeed two weeks ago I had Andres Piedrahita in my office and he offered me Sentry and I rejected investing in Sentry because I do not invest in "propietary trading" structures I don´t understand. But i also believe that Andres Piedrahita, the Botin family and many, many others were fooled by Madoff and not part of the scam. I also believe however that they should return to investors all the fees they ever made with Madoff.

[bondgal]

and Andres Piedrahita pitched "Sentry" to you on 12/03/08? hmmmm..........

[Madinvestor]

Has anyone had a chance to checkout the FGG due diligence claims on their website?https://www.fggus.com/guest/due_diligence.html If they had done what they advertise I am sure they would've noticed something was wrong. It makes you wonder how liable are they for false advertising and negligence????

[Martin Varsavsky - Huffpost Blogger]

One thing should be clear. While I think they were victims of Madoff I believe that Walter Noel and Andres Piedrahita should take the initiative and return to their investors, not the funds because they evaporated but the commissions they made selling Madoff´s products. And Santander, HSBC and all others should do the same.

[[e-mail]]

Either they knew or they should have known. Which means they are crooks or incompetent. I find it hard to feel sorry for Noel or his son-in-law.

[[e-mail]]

Besides, didn't Noel hire all (or almost all) his sons-in-law? Maybe if he'd been concerned with hiring the best people, instead of hiring whoever married each of his five daughters, this wouldn't have happened -- assuming Noel himself didn't know, which I find VERY hard to believe. The red flags were all over the place (selling all your portfolio so you don't have to show the SEC what you own, right before each filing -- COME ON!!). If he's truly a "victim," as the article portrays him, it means the guy is mind-blowingly stupid. I don't think so.

Noel was a gatekeeper to Madoff. Gatekeepers tend to have the keys. And the knowledge of what's inside the gate.

[JBS]

They *THOUGHT* they were on the inside of the scam; they were going to enrich themselves at the expense of others ...

Bottom line, "You can't cheat an honest man."