The Madoff documentary on Netflix versus the returns of The Medallion Fund

[newwurldmn]

Yes, I just found out about the IRS case. A little bit depressing that even the number 25 on the Forbes' list cannot understand the tax code.

"In September 2021, it was announced that Simons and his colleagues would pay billions of dollars in back taxes, interest and penalties to resolve the dispute, one of the biggest in IRS history."

they understood the tax code. They only got caught because of an audit.

all tax avoidance is about definitions, classifications, and technicalities.

 

[Maverick2608]

they understood the tax code. They only got caught because of an audit.

all tax avoidance is about definitions, classifications, and technicalities.

I am sure they must have believed what they did was legal. Since nobody was convicted, I believe the IRS must agree that they did not deliberately brake the law. Otherwise I assume they would have been convicted.

 

[TheDawn]

But Madoff had every incentive to keep his "strategy" secret, so even though he did mention using bull spreads, surely he did not rule out using short selling, derivate hedging etc.

I guess the whistle blower must have had access to the fabricated reports of individual trades and those seemed unlikely to achieve in the real world. The employees of Renaissance Technologies of course also have access to the individual trades, because they themselves come up with the strategies and make the algos that do the trading and they know of course that it is real.

Btw what Madoff claimed about the option strategy was a collar or a "split-strike conversion" as how they called it in the book; it's a short call+long put not a bull spread, short call to earn income and long put to protect the long position in the basket of 35 stocks in the S&P.

 

[TheDawn]

Yes -- and given the $ he supposedly managed, being able to do that using options was another red flag, especially given that no one in the options industry had ever acknowledged doing trades with him.

They didn't even know Madoff had an asset management business; all they knew was the brokerage business. And Markopolos, the whistleblower specifically asked the SEC investigators to ask Madoff for the trade tickets for his supposed option trades and then all they had to do is to check them off against OPRA tapes which would have a record of all the prices and then they would've discovered that none of the prices matched because those trade tickets were all made up and they would've uncovered the scheme. Even Bernie Madoff himself was expecting that they would at least ask for his trade tickets and he would've been screwed but they never did. Just shows you the competence of SEC and those regulatory agencies.

 

[schizo]

I am sure they must have believed what they did was legal. Since nobody was convicted, I believe the IRS must agree that they did not deliberately brake the law. Otherwise I assume they would have been convicted.

I'm sure they didn't file their own taxes using TurboTax . Those tax accountants they hired would know what they were doing, legal or otherwise. But taxes are funny beasts. You can find a lot of loopholes that may look legal one way but illegal the other way.

 

[newwurldmn]

I am sure they must have believed what they did was legal. Since nobody was convicted, I believe the IRS must agree that they did not deliberately brake the law. Otherwise I assume they would have been convicted.

that’s how technicalities and interpretations of definitions work.

 

[destriero]

Jim Simons is the person within the financial industry that I respect the most.

In the Madoff documentary it is stated multiple times that the returns Madoff delivered were impossible to achieve in the real world. A whistle blower notified the SEC as early as around 2001 and actively pointed to a ponzi scheme as a plausible explanation because he believed the returns were impossible to achieve.

But isn't the returns of the The Medallion Fund much more impressive both in terms size and stability?

(I of course do not suggest The Medallion Fund is a ponzi. It is only open for employees and their families. That fact alone rules out a ponzi.)

It was known that Madoff was trading "split strike synthetics" which are simply synthetic bull spreads (long call at x, short call at y). Knowing this, it was impossible to produce these monthly positive returns during bear markets as he was doing (SP500 and NDX components).

I read the Fairfield Greenwich FoF pitch in 2003-4 that they had sent to my in laws. I asked him, "why would you invest in a fund that buys call spreads?"

 

[destriero]

RenTech is the biggest institutional-seller of vol on the planet.

 

[Businessman]

Most interesting thing is that no other fund has figured out what Medallion does, or how it does it so well, and then copied them and so reduced the edge.

In terms of comparing the two, Medallion have about 88% winning months.
While Maddoff claimed about 96% winning months.

Maddoff claimed a better sharpe ratio than Medallion has, but probably wasn't pulling as much out the market in absolute dollars terms.

 

[destriero]

Are you r*******?

Pulling as much out of the market? Whatever that means, exactly... Madoff was on the record, in court, stating that (paraphrasing) he never traded a single contract for AUM.