We Knew He Was Crooked, We Just Thought He Was Stealing From Someone Else.

Bernie Madoff, former NASDAQ chair and investment fund manager, was arrested on Thursday for admitting to being in charge of the largest Ponzi scheme ever created. According to Bloomberg, Madoff told his employees it was "all just one big lie" and that the firm was "basically, a giant Ponzi scheme."

Some on Wall St. were suspicious of his methods, since he reported only 5 down months from 1993-2007. But from Henry Blodget comes the following observation:

Another potential explanation for the performance, which also involved cheating. This is important. As we noted yesterday, many sophisticated Wall Streeters have long suspected that Bernie was crooked. But they invested with him anyway because they assumed that what he was doing was "front running"--an illegal but simple and effective practice in which traders take advantage of the knowledge of impending order flows. The possibility that Bernie was front-running explained performance that no one could replicate and that some experts thought was impossible. This stopped a handful of folks who knew enough to know that Bernie was full of it from crying "foul."

We invested in him BECAUSE we thought he was crooked! Nice.