Vast Madoff Options Scheme Didn't Add Up

SEC unfurls $50B scam that should have been obvious
By Clay Dillow,  Newser Staff
Posted Dec 16, 2008 8:59 AM CST
The building where Bernard L. Madoff Investment Securities LLC, has its offices is seen in New York, Friday, Dec. 12, 2008. The SEC has been working around the clock to unravel the firm's finances.   (AP Photo/Diane Bondareff)
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(Newser) – For every detail that emerges from the 17th-floor office of Bernard Madoff, two more inconsistencies arise. A federal judge ordered the liquidation of Madoff’s eponymous investment firm and a federal agency has begun to try to compensate clients. Meanwhile, scrutiny of clients'  financial statements shows Madoff's stated strategy of balancing stock trades with options couldn't have worked on the scale he claimed to be doing it, the Wall Street Journal reports.

Madoff’s strategy was a common one, hedging against volatility while taking profits along the way. But had Madoff made the trades he said he did with the $17 billion on his books, he would’ve traded more on certain days than those days’ total recorded trading volumes. The strategy also doesn’t perform well in declining markets, yet Madoff’s firm put up consistent returns even as the market turned sour.