Maddening Madoff

As if the 2008 stock market itself did not bring enough challenges to us as asset managers, along comes Bernie Madoff to make life more difficult. Many investors now ask: are my accounts safe from fraud and embezzlement? I will spend considerable time at January and February’s Fireside Chats explaining in greater detail what I will summarize below. Please attend if you are concerned about account safety. Briefly, here is what happened:

A. Clients invested with this manager purely based on his “name” from Wall Street. Many were drawn in because of “country club friends” who had a “way into the closed club” that Madoff offered. They invested based on vanity rather than common sense. They were embarrassed to confront their manager for fear they would be tossed as a client.

B. Madoff cleared his own trades (his was the 14th largest clearing firm registered with the NASDAQ) and, as such, had no third-party clearing oversight. He and his three-person accounting firm were the “oversight,” if you can imagine that.

C. His clients received no regular statements, and had no internet access to their accounts. In short, there was no transparency for customers to verify that they were invested in legitimate stocks, bonds, annuities, ETFs, etc.

Response to A)

We have no country-club salesmen for our investment programs. At CB3 Financial Group, we believe that mouth-to-mouth referrals should be earned not bought. You are either investing with us because a friend/family member referred you…or you met us at one of our educational classes or Fireside Chats. We do not advertise our programs as “elite clubs” by any definition.

Response to B)

We have never, nor will we ever, clear our own trades. We are audited by FINRA and the NFA regularly, who review the accounts we trade as to the clarity of our records. This is the valuable part of the transparency of our business model.

Response to C)

All client accounts, whether you are trading equities, commodities, or FOREX with us, are always, always, housed in segregated, fully-transparent accounts. You have 24/7 online access to your investment accounts, plus hard-copy statements mailed monthly.

There are more issues, but again, I will spend considerable time at January and February’s Fireside Chats explaining the Madoff travesty in greater detail. In addition, we will review how the market has begun (and is developing) in 2009, ongoing housing market concerns and other investment perspectives. To register, please call Lory at 630-845-8880 if you will attend our Illinois Chats or 772.464.1369 if you will attend out Florida Chat. You can also register online at www.cb3.com.

In 2009, I will continue my “market condition updates” via e-mail. If you are not receiving those e-mails, please call our office to be added to our distribution list. Or, e-mail Lory Harris at lory [at] cb3 [dot] com. I assure you, Chris and I are closely monitoring your accounts as we continually evaluate how to best serve each of our client’s investment objectives. Please feel free to call or write (cbrown [at] weg1 [dot] com) with any questions.

Until next time,