My friend Bill Burnham (a hedge fund manager who also spent time as an investment banker and venture capitalist) has a great analysis of Bernie Madoff’s fraud on his most recent blog post. Definitely read the whole thing, but here’s the single best paragraph:
What makes this fraud truly genius is that everyone on the street, including I suspect most of his investors, assumed all along that Madoff was a crook, in fact that’s why they invested with him in the first place! The rumor was always that he made his money by front running the order flow from his market making business so if things didn’t add up people must have just figured, “Well of course they don’t add up, wink wink nudge nudge, because we all know this whole split strike strategy is just a lie to cover up the fact he is screwing his order flow customers”.
As usual, the easiest way to con a mark is to convince the mark that they’re in on the con.
P.S. I just Googled “the easiest way to con a mark is to convince the mark that they’re in on the con” and came up with no results. Therefore, I’m claiming this as a new Chris Yeh quote!