Bernie Madoff, the convicted Ponzi schemer, recommends index fund as the best option for the average investor, due to lower commission and better professional management.
Madoff, who founded Bernard L. Madoff Investment Securities LLC in 1960, is currently serving 150 years imprisonment for committing one of the largest financial frauds in the U.S. history. He escaped scrutiny from regulators and gullible customers.
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In his interview given to Market Watch, the convicted felon said securities regulators are grossly underequipped to police financial markets and hedge funds need to be registered and brokerage firms should have independent custodians.
Madoff has shared in the interview on how markets can be made more fair to retail investors.
Madoff who is serving his sentence in Butner Federal Correctional Complex for the past five years feels individual investors are the least informed and suggest index fund as the best chance for the average investor to reap the benefit of lower commission coupled with professional management. For risk averse investors, Madoff suggests them to have exposure in municipal or government bonds, besides parking funds in savings account, though they may not provide inflation-beating returns.
Stick with public firms: Madoff
The Ponzi schemer suggests investors to redeem their funds periodically from hedge funds or investment firms besides redeeming all the money about every two years to ensure that their schemes are legitimate. He also asked investors to not invest in schemes which they don’t understand. Madoff suggested investors to stick with major public firms as they adopt proper compliance procedures.
Hedge Funds Danger To The Market: Madoff
Madoff also considered hedge funds as a danger to the market as hedge funds having less than $100 million are exempted from registration with the SEC. Drawing parallel with his own firm, Madoff disclosed that his firm did not register with the SEC till 2006 as an investment advisor and hence escaped inspection from the SEC.
The Ponzi schemer also wants the brokerages and advisors to have independent custodians. This would have helped his own firm getting caught earlier as the inspectors from the SEC would have found that his books did not match the funds in the accounts.
Madoff also suggested peer level audit among the accounting firms to uncover existence of any frauds.
Madoff also disclosed that he was able to garner more funds for his Ponzi schemes as he promised reasonable return of 11 and 12 percent.