Another way to predict — lie about your success rate.
Mathematical analysis in 1999 showed Madoff’s returns were impossible and repeated warnings went unheeded. Competitor Markopolos complained to the SEC’s Boston office in May 1999, saying it was impossible for the kind of profit Madoff was reporting to have been gained legally. Markopolos reached his conclusion with the help of mathematicians like Dan diBartolomeo, whose analysis of the Madoff’s methods in 1999 helped fuel Markopolos’ suspicions.
“As the market goes up and down, this strategy should have done a little better or a little worse, just like everybody else,” he said. “Instead, it appeared to be indifferent as to whether the market went up or down. They made money all the time.”
In 2005, he submitted a report to the SEC saying it was “highly likely” that “Madoff Securities is the world’s largest Ponzi scheme.” The report highlights 29 “red flags” about Madoff’s business, among them the returns of a third-party hedge fund managed by Madoff’s firm which had negative returns in just seven on the 174 months Markopolos analyzed. His warnings were heard too late, and he’s becoming a symbol of a botched oversight of fraudulent dealings by governmental authorities.
Rich Koppel, founder and managing director of technology provider said Fund-of-hedge fund managers (FOHFs) that lost big in the alleged Madoff $50 billion securities fraud could have avoided the debacle if they had deployed technology to gather information and monitor the trading strategies and results from hedge funds they were invested in.
“Lack of technology is a factor, or failure to use technology effectively is a factor,” said Rich Koppel, founder and managing director of technology provider youDevise Limited in an interview yesterday. Koppel maintains that using technology would have enabled FOHFs to avoid the huge losses that resulted from investments in Madoff funds.
Another parallel to make of this form of prediction with global warming, nobody listens to whistle-blowers, until its too late. Numerous well-credentialed physicists have shown using mathematics that sensitivity of climate to CO2 doubling can be no greater than 1C, and that the high rates of warming shown by the IPCC projections are only possible with unrealistic models. Even though the empirical data confirm low sensitivity, it falls on deaf ears.
For an example of this strategy, see the Met Office getting it wrong but claiming the opposite!