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.