Beware what you don’t know and those who wish to keep you from knowing it – that about sums up the latest words of wisdom from Bernie Madoff. 

The convicted Wall Street felon wrote me Christmas eve from his prison home at the Butner Correctional Facility in North Carolina. Madoff and I have exchanged several emails regarding the ongoing investigation of his Ponzi scheme, his brother Peter’s sentencing and lack of SEC oversight which Madoff believes exists today and continues to pose a threat to millions of ignorant investors.

It’s that lack of oversight and accountability that worries Madoff about the sale of the NYSE and dark pools. 

Madoff writes:

“The issue of electronic trading has recently been focusing on the lack of transparency of the markets with the emergence of DARK POOLS. This has now spread to the recent acquisition of the NYSE. While I have always been an advocate of electronic trading due to the efficiency the lower costs they bring to the markets, I am not a fan of the lack of transparency the DARK POOLS create. It is important to examine why there has been this growing interest in the use of dark pools. Markets have always focused on the speed with which information becomes available. Of course this information can be composed of various types. It could be corporate developments like earnings or mergers or it can be information regarding the placements of buy and sell orders and who is placing these orders. It is the latter information that has created the interest in the dark pools. Institutions have always attempted to guard this buy and sell information from exposure to the market for fear of being FRONT RUN. Certainly they are entitled to have this right of confidentiality. This being said, the more secret this information the more valuable this information is to those that can obtain it. Therein lies the problem. It is naive to think that there will be no leakage of this information. Although one would be lead to believe that with the recent spate of Insider trading prosecutions, that insider trading is a new development. This is false. It has been present in the market forever, but rarely been prosecuted. The same can be said for front running of orders.”

You may scoff at Madoff’s warning considering his record, but as children like to point out, it takes one to know one.  Recall, too, that Madoff was thought to be front running when investors invited to join his now failed investment advisory fund tried and failed to recreate its spectacular yet fraudulent returns. 

Madoff’s email also touches on the role feeder funds play in the current confusion simple investors face when trying to determine where their money is placed by the men and women they trust to invest it. 

Feeder funds fueled Madoff’s billion-dollar scam. Today thousands of investors in those feeder funds lack the ability to claim money from the Securities Investor Protection Corporation [SIPC] because they were not among Madoff’s direct investors.  That issue is still being fought over in court, but it’s an issue too for Madoff who warns feeder funds create the need for more risk which in turn fuels the likelihood of potential criminal behavior. 

“The other area of discussion involves the growth of hedge funds, particularly feeder funds. In spite of the early held belief, of which I was of this opinion, that the extra layer of costs related to commissions and profit sharing that went along with feeder funds. They have continued to grow. It has been this additional layer of costs that have created the need for more risk to be taken to earn worthwhile returns. This has created a minefield of regulatory problems involving the very reasons that the desire for a lack of transparency has grown. Both of these areas are going to be the greatest challenge that both the industry and the regulators are going to face.”

It is easy to dismiss Bernie Madoff by calling him a crook or some other name, which accurately describes him.  But in his emails to me, I have found Madoff to be direct and at times candid about the immense pain and damage he inflicted on thousands of people who still wait for him to come clean about the role others played in the fraud. 

Madoff may or may not be telling me the truth when he writes about his past and it is easy to ignore some of his statements. But can any of us afford to ignore the warnings he is currently sounding?

Adam Shapiro joined FOX Business Network (FBN) in September 2007 as a New York based reporter.