Bernie Madoff's Programmers Arrested 280
ZipK writes "With their former boss cooling his heels on a 150-year sentence, programmers Jerome O'Hara and George Perez are now in the US Attorney's crosshairs. They've been arrested and charged with criminal conspiracy, and 'accused of producing false documents and trading records at Bernard L. Madoff Investment Securities LLC in New York.' Apparently Madoff's fraud was too large and too complex to be foisted entirely by hand."
Well, of course. (Score:5, Informative)
If you've followed the details of the Madoff scandal, it was obvious that it required substantial computer support.
Each month, Madoff's investors got statements which showed fictitious trades and fictitious profits. The phony trades were for real stocks, with prices which were (almost) real. But the trades were chosen retrospectively, which is like betting on a race after it's run. So superficially reasonable statements came out. This was all generated on an AS-400 that had been in use for this for several decades.
The software wasn't very good. If they'd been better at it, they could have generated statements which showed trades which exactly matched real trades of others (from the "tape"; trades are public but traders are anonymous), delivered trade confirmations every day, and still shown phony profits just by picking trades randomly distributed around the 75% of each day's trades. That would survive external examination, but not a real audit. Close looks at Madoff statements show trades which could not possibly have occurred; the price is outside the day's trading range. Sloppy.
Re:What's the motivation? (Score:4, Informative)
Madoff told DiPascali to pay the programmers "whatever they wanted in order to keep them happy," the investigators said, and the programmers received pay increases of about 25 percent and net bonuses of about $60,000.
Pay increase of 25% above what was probably already a good salary and a bonus that alone matches or exceeds what a lot of programmers make in a year.
Re:But (Score:4, Informative)
THIS
The SEC had been tipped off on this scam at least three years before it "surfaced."
Re:But (Score:5, Informative)
perhaps some programmers were in on the fact that it was a scam
FTFA:
[according to the prosecutor] The computer codes and random algorithms they allegedly designed served to deceive investors and regulators and concealed Madoff's crimes
At one point they tried to cover their tracks by erasing files, but did an incomplete job.
After that, the SEC said DiPascali convinced the programmers to modify programs so that he and other employees could create [fake] reports themselves.
... which indicates that although they might have been bothered by what they were doing, they weren't bothered enough to quit,or call in the Feds themselves, or take any other redeeming action.
Granted, they're innocent until proven guilty, etc., but it appears they were in this up to their ears.
Re:What's the motivation? (Score:2, Informative)
What do you mean? So a good software guy makes some low 6-figure salary, Madoff's guys made close to 7-figures, if not more. Even the secretary there made over 200k..
A good software guy can buy a house in the suburbs, not too far from the office and maybe drive a Lexus. These guys lived in Manhattan and drove $100k+ cars, probably had a couple. You might have a babysitter or day care, they have au pairs. You have some 401k matching up to a few percent, they get maxed out and then they get to invest in the hedge fund that was doing consistent over 12% returns, as a perk.. Of course there are opportunities... your wife might work while theirs can stay home with the kids (when they aren't at the gym) and they still bring home more money. Your kid turns 16 and you might buy an old beater car to work on and get them around, they can get their kids brand new Mercedes with all the safety features you can imagine. We're talking about lifestyle altering amounts of money here. The kinds of money that alters you kids' lifestyles.
What's funny to me, so the engineers take the drop, they take notes, they knew what was up, they probably helped cover it up. Damn near everyone in the office knew what was going on and probably the managers of most of the feeder funds did. At least a couple did some due diligence, they had to, competitors suspected it was a scam. If they were remotely intelligent about it, they hid some cash away somewhere so their families will be taken care of. You'll see very few bankers go down for this though.
Re:Right after the revolution (Score:5, Informative)
> That's 10% 10% barely covers overhead, and employee salaries.
Put simply, Profit = Revenue - Costs.
All overheads, salaries etc ARE costs. So Dell's $1.5b profit on sales of $14b isn't at all bad at all. It's very good.
What you're talking about is margin - the difference between the cost price of something and the sale price. The figure of "30%" is a generally accepted minimum margin for a business. I think it's based on a reseller. If you buy a box of paper in at $10, then you should have to sell it for $15 (plus tax if applicable) in order to survive. That $5 should cover all of your costs, with a little left over for profit.
Re:Alan Johnson is a twat (Score:5, Informative)
Very far from true.
The list of countries with no extradition treaties with the US is, more or less:
Afghanistan, Algeria, Andorra, Angola, Armenia, Bahrain, Bangladesh, Bosnia and Herzegovina, Brunei, Burkina Faso, Burundi, Cambodia, Cameroon, Cape Verde, the Central African Republic, Chad, China (People's Republic of China), the Union of the Comoros, Democratic Republic of the Congo, Cote d' Ivoire, Djibouti, Equatorial Guinea, Ethiopia, Gabon, Guinea, Guinea-Bissau, Indonesia, Jordan, Kosovo, Kuwait, Laos, Lebanon, Libya, Madagascar, the Maldives, Mali, the Marshall Islands, Mauritania, the Federated States of Micronesia, Moldova, Mongolia, Montenegro, Mozambique, Myanmar, Namibia, Nepal, Niger, Oman, Qatar, the Russian Federation, Rwanda, Samoa, São Tomé & Príncipe, Saudi Arabia, Senegal, Serbia, Somalia, Sudan, Syria, Togo, Tunisia, Uganda, United Arab Emirates, Vanuatu, Vietnam, Yemen, Zimbabwe, Bhutan, Iran, Taiwan, Korea (North).
Re:Right after the revolution (Score:2, Informative)
I have been a reseller of many things. A profit margin of 10% is amazing in the computer business, Dell being no exception. I sold a lot of Dell stuff (*shudder*). And I am not talking about net, but gross profit. Sometimes 4% was considered worth it. It all comes down to volume, ease of delivery, and credit. Everything else is just a guideline at best. If you worked at a company that only made a 1% net profit, but invested in its people, its infrastructure and its goals, would that be worth it? Supermarkets operate at low margin, but have high volume.
-A
Re:interesting (Score:3, Informative)
Most real engineers aren't either--- only a small fraction of engineers who work for large corporations have P.E. certification.
Re:The REAL lesson of this. (Score:4, Informative)
When you are a little fish . . . run to your lawyer, then together make yourselves the very best friends that the FBI ever had.
Yes, run. It is official Justice Department policy that only the first conspirator [justice.gov] to report a criminal conspiracy gets off:. "(the) Division frequently encounters situations where a company approaches the government within days, and in some cases less than one business day, after one of its co-conspirators has secured its position as first in line for amnesty. Of course, only the first company to qualify receives amnesty. "
Re:Alan Johnson is a twat (Score:3, Informative)
"i.e., the ass cracks of the world..."
You don't know Andorra, do you? Imagine Switzerland, only shorter and more friendly.
Re:Right after the revolution (Score:2, Informative)
If anything, I support true liberalism, in which there is less government restriction period, and personal liberties are protected as much as possible).
I hate to break it to you, but what you are describing is Libertarianism, not "true liberalism". My condolences.
What about his banker, Chase? (Score:4, Informative)
Incorrect. (Score:1, Informative)
Hi. I teach comparative politics for a living. Your attempt to place a single definition on the word liberal(ism) is just as incorrect as the parent's.
Liberalism was in fact once (17th through 19th centuries) used almost exclusively to describe exactly the situation the GP was referring to ( Liberal => libre => freedom ). In revolutionary America, the two major political philosophies were Liberalism thus defined versus Conservatism (ie, those who wished to conserve the monarchy). This led to a change in the popular use of the term Liberal in America to mean those who support change, whereas conservatism retained its, well, conservative meaning.
This change in meaning is by no means universal. In the political systems I am familiar with outside of the United States (UK, Belgium, Germany, France, Spain), the word retains its earlier meaning. The English Liberal Party is, by modern standards, a conservative, pro-business party and this is by no means a misnomer. In fact, in France many people use Liberal as a insult meaning roughly "right wing capitalist pig".
So, you see that words can legitimately have many meanings and political philosophy is by no means subject to the pedantry that serves computer science so well. You knew what the GP meant, as did everybody who modded you up, but you chose to be asses instead. Congratulations.
Re:But (Score:3, Informative)
The thing with Goldman Sachs is completely different than Madoff. Madoff duped investors in thinking he was making trades when it really was a large Ponzi scheme. Someone had to generate the fictitious paperwork for the investors and these programmers were allegedly behind it.
Goldman Sachs made huge bets in the housing market. When the housing market fell, Goldman (who had placed a lot of money into this market) lost big.
Hate to break it to you, but Goldman never "lost big" -- that's what the outrage is about. They made big bets with AIG betting against the housing market, and bet against AIG in the CDS market to hedge the risk of AIG collapsing.
So (1) they won big when the subprime market fell, (2) they won big when AIG didn't fail as expected but was bailed out could repay $17bn worth of bet winnings, (3) they won big when all their competitors who actually believed in the housing market collapsed or suffered, and Goldman was one in maybe three kids left on the block. That's why now they can pay bigger bonuses than ever, in a time where unemployment is worse than at anytime in the last 80 years...