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Madoff and the Media

Posted by: Matthew Goldstein on December 14, 2008

There’s no denying that the scandal surrounding Bernard Madoff’s hedge fund is a big deal. Whether the alleged fraud is $50 billion, or $17 billion or even $10 billion, the damage is immense. And the fact that this alleged Ponzi scheme was carried out by a long-time Wall Street fixture is another blow to investor confidence at a time when confidence is in such short supply.

But as a reporter who recognizes just how big a scandal this is, I still marvel at the level of coverage the Madoff affair has gotten. I think it’s fair to ask how much of the wall-to-wall coverage is driven by the fact that some of Madoff’s main investors were the rich and famous. Or is the coverage driven in part by the fact that the scandal originated in New York, where so much of the business press is located.

Consider how little national coverage a similiar alleged Ponzi scam involving Minnesota businessman Tom Petters has generated. Sure, the alleged damages in the Petters affair are smaller—but a $3.5 billion loss isn’t chump change. Some six-dozen hedge funds and their hundreds of individual investors suffered huge losses when federal prosecutors alleged that Petters was borrowing money for several companies that existed on paper only. At least a few of the victims include wealthly widows in their 90s, living in Florida, who invested in one of the hedge funds.

Just like Madoff, the Petters scandal apparently went on for years. And in Minnesota, Petters was a far better known figure than Madoff was in New York. There are buildings and hospitals with Petters name on them in cities in Minnesota. He’s something of a legendary figure, which is one reason the scandal has been front-page news in Minneapolis for weeks.

Indeed, the daily newspapers in Minnesota have covered this scandal quite thoroughly and should be commended. But national publications haven’t paid enough attention to Petters. Surely, there are as many lessons to be learned from the Petters affair as the one now unfolding with Madoff.

And one lesson is that the rich can be just as easily swindled as less sophisticated investors. Just because the promoter of an investment idea is rich, famous and well-known, that doesn’t guarantee success, or even that everything will be on the up and up.

So it’s important to do background checks on people seeking money—like searching for any lawsuits, tax liens and incorporation records. Also, don’t forget to look into the auditors purportedly reviewing the books of an operation, and the procedures for checking conflicts of interest.

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Reader Comments


December 14, 2008 10:16 PM

there was a 700 billion dollar bailout package, we find out that a former head of nasdaq loses 50 billion over several years. lets see so we take 50/700 and we get 1/14 yes 1/14 of the bailout package was lost and this is not a big deal??? get real. oh and yeah the petters story was big and should have been bigger but 3.2 billion is a lot smaller than 50 stop being stupid (or do you have an ulterior motive for writing this article)

john w

December 15, 2008 05:38 PM

dave, math not your strong suit?


December 15, 2008 10:05 PM

For the past 11 weeks, I have been wondering why there wasn't more coverage of the Petters scam. The investors ran the gamut from local MN individuals to international institutions. Dave, you are an idiot.


December 16, 2008 02:11 PM

John W, I wouldn't be so kurt. 50 * 10 is 500 and 4 * 50 is 200, so 14*50 is 700, making 50 1/14th of 700.


December 19, 2008 12:10 AM

JW thankyou for you support,

Mike Matthew I agree that the Petters incident should have been Much bigger.

John maybe you specifically meant logic is not my strong suit. that the 700 billion was apples to oranges since the 700 would not go to madoff losses. I see this view though my take is that 700 is meant to circulate (loans) while the 50 billion goes out of circulation (smoke and mirrors). maybe im wrong here.

actually I only used the comparison initially just to show the magnitude of the loss. nothing more

Matthew I apologize for my anger. and the ulterior motive is i believed you thought the story would scare investors away from investing crashing the markets. I now realize you are in nyc so you were getting more madoff coverage than I

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