Full Text: Madoff Speaks Out on Insider Trading, Dark Pools
Bernie Madoff, who was convicted of perpetrating one of the biggest frauds in U.S. history, sent the following emails to FOX Business from prison. These notes have been reprinted in their original form.
On insider trading...
“As most of you have heard me say. Insider trading is nothing new. The reason I chose to begin doing convertible arbitrage also known as riskless arb. as opposed to Merger Arbitrage, was because Merger Arbitrage could only be executed successfully by having the INSIDE Information as to whether there was going to be board of director approval of the pending merger. As well as having access to the gov't anti trust rulings. Most of the firms practicing merger arb. were the major banking firms that sat on the boards of the target companies. Firms such as Goldman Sachs and Merrill lynch and Morgan Stanley. What has changed recently has been the decision of the SEC to prosecute one of Wall Streets worst kept secrets. Of course the growth of hedge funds who have little of the political clout of the WALL STREET Establishment, have become fair game.”
On dark pools...
"I was nice to see that the FINRA is getting around to dealing with the issue of Wall street signing bonuses.A subject that I have been saying is a major problem for the four years that we have been coresponding. The problem is that it is not ONLY the transfer of client accounts that is the problem.The real problem with the signing bonuses is that pressure that the new firms put on their bonus babies to generat large commissions by promoting special products of the new firm to pay off those bonus costs. This problem dates back some thirty years and lead to the demise of Bache & Co. selling their oil and gas ltd.partnerships.As hard as the SIA federal regulation committee ,on which I served tried to stop this practice,we never could.
On the subject of Dark Pools and High Frequency trading systems . Although I have the utmost respect for Knight's Tom Joyce. I find some fault with his letter in the WSJ supporting Dark pools. While Both Madoff and Knight both provided liquidity and lower trading costs to retail investors. This was due to their strict obligations as registered market makers and their willingness to provide deep quotes. This is very different than the FLICKERING quotes that are provided by the High frequency Trading firms.
You are free to quote me at your risk of being abused for giving me a voice"
Click here to read Knight Capital CEO Tom Joyce's letter on high-frequency trading.