Stick a Spork in Him, He's Done

Bernie Madoff: one of the biggest crooks of all time, but a boring name. If only he was called something straight out of a comic book. Something like Otto Spork.

He's a real person: a man who invested substantially his entire hedge fund in a pair of Icelandic glaciers (you really can't make this shit up) which were listed on the Luxembourg stock exchange under the ticker symbols IGP and IGW.

Neither IGP or IGW have earned any revenue and there are no indications that they will do so in the in the immediate future. Neither is currently operating ... Despite having earned no revenue and having no immediate prospect of doing so, IGP's shares have purportedly increased in value by 984 per cent since the initial investment by Mr. Spork's hedge fund started in 2006.

This is mark-to-myth taken to the point of outright fraud. If you're investing in illiquid securities, you can mark them at pretty much whatever you like; if you keep on marking them higher and higher, you can report stellar returns.

But as Floyd Norris notes, there's one thing which is guaranteed to reveal all such deceptions: large redemptions. Madoff and Spork both kept on going until the markets turned and increasingly risk-averse investors started asking for their money back. Absent the stock market crash, they'd probably both be happily frauding away today.

As a result, more frauds are likely to appear in coming months. Ponzi schemes can never survive an economic crisis.

(Via Kedrosky)