What are the chances an ETF will go Madoff on you?

[Daal]

WisdomTree now uses StateStreet Corporation as custodian according to fillings. They were named a systemically important institution by the G-20 and have $28T in custody. Guess they are as good as gold, the government would stand behind it if there was massive fraud

 

[Martinghoul]

Anything is possible... In theory, it's possible for the ETF manager to conspire with the custodian to defraud the investor and conceal the true value of the underlying pool of assets. However, the odds of this occurring are very low.

Still, like that wisest of pundits, Justin Bieber, says: "Never say never!"

 

[Crispy]

Something like that. I don't see anything that prevents an ETF issuer to take the money to do other things, create fake reports, fool the auditor, etc. Its a low chance for sure, but I don't see this listed as a risk factor for ETFs.

One thing to consider is this - ETF managers are often deep in bed with option market makers in that name. Fraud not being sniffed out by feds I get. But the MM`s would know in a NY minute the moment the price action or volume in the ETF was out of line with the ETF`s underlying assets.

Anything can happen I suppose, but an ETF going Madoff is so far outside the scope of happening I wouldnt think about it again. Far more likely is the manager is incompetent, thats why I stay away from managed ETF`s.

 

[Martinghoul]

For a bit of related shenanigans:
http://www.bloomberg.com/news/2014-...urn-etf-drawing-sec-scrutiny-wsj-reports.html

 

[murray t turtle]

WisdomTree now uses StateStreet Corporation as custodian according to fillings. They were named a systemically important institution by the G-20 and have $28T in custody. Guess they are as good as gold, the government would stand behind it if there was massive fraud

WisdomTree now uses StateStreet Corporation as custodian according to fillings. They were named a systemically important institution by the G-20 and have $28T in custody. Guess they are as good as gold, the government would stand behind it if there was massive fraud

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I agree with your bottom line, Daal;
small risk., not enough to worry about But no ,not good as gold;Bear Stearns [BSC, + LEH, ]Lehman just ''knew '' they were too big to fail So while i agree with you on a practical bottom line; never confuse a hi probability with an infallibility; nor paper assets with gold.

As far as original poster risk question,;
much, much , much more risk of a trader failing than an ETF failing/fraud.
Its also much more likely to be hit with lightning than any ETF fraud or failure[google ''lightning '' stats if you doubt this last lightning statement.] Thanks for coments

 

[Daal]

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I agree with your bottom line, Daal;
small risk., not enough to worry about But no ,not good as gold;Bear Stearns [BSC, + LEH, ]Lehman just ''knew '' they were too big to fail So while i agree with you on a practical bottom line; never confuse a hi probability with an infallibility; nor paper assets with gold.

As far as original poster risk question,;
much, much , much more risk of a trader failing than an ETF failing/fraud.
Its also much more likely to be hit with lightning than any ETF fraud or failure[google ''lightning '' stats if you doubt this last lightning statement.] Thanks for coments

I said that about gold as a figure of speech. I do think that the custodian would back any fraud with its capital (they are probably legally required to) and a shortfall of capital would be backed by the US government (like in 2008)

 

[murray t turtle]

I said that about gold as a figure of speech. I do think that the custodian would back any fraud with its capital (they are probably legally required to) and a shortfall of capital would be backed by the US government (like in 2008)

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Good points about good as gold + a figure of speech All these comments are in a context of older leaders with good volume.IBD[OCT 13] had a good read, in a context of common sense. Their example mentioned a low volume, new one '' IBLN''.It may turn out fine, but i hate that ,when all i can get is a 20day+/ chart, with low volume .LOL They mentioned some may want more data than IBLN has as of OCT,2014

 

[Swan Noir]

Do you lose any sleep over being eaten by giant mutant ants? If not put this in the out bet category and forget it as a risk factor. State Street is watching the till and they are as good as anyone in the world at till watching.

If you hold on to these thoughts see a doctor!!