Two inexplicable frauds---two observations

This past weeks two shocking frauds, perpetrated by Bernard Madoff and Marc Dreier, have one thing in common. Apparently both men were the absolute leaders of their firms, the chief rainmakers, the chief financial officer, and the sole executive decision maker. They have been much discussed in the media, such that no detailing of these events is necessary here. Two observations here, or really just guesses, have not yet surfaced in any broad commentary to date.

With Madoff, he absolutely must be taking a bullet for his sons and others in the firm. Despite his dominance, it is impossible that he, on his own, could pull off a ponzi scheme of this magnitude that was supported by fraudulent brokerage reports, phony cleared trades, and false accounting statements. It all fell apart and he has decided to take the fall.

Dreier had been described as an elegantly dressed man who was every bit the well put together and dapper New York lawyer. Harvard and Yale educated, with his own 250 lawyer firm, he looked the part. The news photograph of Dreier being released from detention in Canada was not at all flattering. In fact, his face was pale and distorted, his eyes blank and his hair a mess. One could guess that he was going through an unplanned detox without medical attention, alcohol, cocaine or both , who knows. That would help to explain the insanity of his sales of fraudulent securities that, without question, would be discovered in the short term.

Madoff's fraud, to the contrary, could have been perpetuated for a much longer time period it seems had there not been the huge market sell-off this fall, and the accompanying need for significant redemptions. He had trust, a willing herd of investors, more waiting at the door, and the record keeping scam down pat. The SEC had no questions.