Follow up on the Madoff Fraud

Madoff investors burned by SEC, too
Regulators reviewed the fund and found nothing wrong. Hell-oo?! Plus, five ways to crook-proof your portfolio.

Money manager at center of scandal once advised government on protecting investors from scams

Alleged victims include the family charitable foundation for Sen. Frank Lautenberg, D-N.J.; a trust tied to real estate magnate Mortimer Zuckerman; and a charity of movie director Steven Spielberg. The Wall Street Journal reported that the foundation of Nobel laureate Elie Wiesel also took a hit.

{The name Madoff: (May-doff), as in (made off), with a long a not a short a like in mad.}

The Madoff case is expanding. Here is some sound advice about investing in 'exotic' and not easy to understand funds from a CNN Money and Fortune Magazine editor.

1. Don't invest in something you don't understand. The attraction of Madoff's investing philosophy was that he employed what is known as a "split-conversion" strategy.

OK. Stop right there. I would guess 99 percent of you reading this have no idea what that means. I didn't. I had to call a hedge fund manager who runs a very sophisticated computer-based derivative operation to explain it to me.

"It's not a magic bullet or a secret sauce," he told me. "It's no big deal, but there's no way to get the returns he did doing this strategy." After talking with him for a few minutes I can tell you this stuff is serious gobbledygook. Greek to us mere mortals. You want nothing to do with it. Avoid it like the toxic waste that it is.

2. There is no such thing as a free lunch. The beauty of Madoff funds is that they supposedly returned 1 percent a month, every month. Like clockwork. They consistently provided above-market returns with no volatility. They were just as safe as comparable funds, only with higher returns. Puh-leeze! That is a financial "push-me pull-you." An animal that doesn't exist.

3. Diversify. I know I know; that's Investing 101. Yet my poor neighbor had all of her retirement money in a Madoff fund. All of it. You just can't do that.

4. Don't stand for no or low disclosure. I was looking at my neighbor's "statements" from Madoff and they were ridiculous. Nothing in them. Just "balance at the beginning of period," "balance at the end" kind of stuff. Why bother with all the other numbers? What's the matter, you don't trust us? I did note the fund would only let her take money out twice a year. Nice.

5. Be wary of no-name operations. I'm not saying you couldn't lose your dough in a Fidelity or Vanguard fund or a Merrill brokerage account through fraud. But I will say it is much less likely. By many orders of magnitude. And if your money is in a bank under the FDIC minimum, well then, of course it carries a government guarantee. In the case of Madoff, folks would whisper, "I know this guy who does great. You've never heard of him, but he's better than everyone else." Yeah, right.

So there you have it. Yes, some of this is familiar stuff, but in these times, it bears repeating.