Madoff’s "Fantasy" Rate Of Returns

The only way Madoff’s investment, a guaranteed 10%, would have looked attractive than Treasury notes would be if an investor did not pay taxes gains from investments made with Madoff.

[Genesis Of The Financial Meltdown]

How was Bernard Madoff able to cover-up his massive crimes?

The role of the federal government needs to be exposed. Some of the Wall Street professionals, who are largely responsible for the current financial crisis, do not pay taxes.

Tax fraud can be created by a broker-dealer in cooperation with a clearing house that permits tax fraud. It is easily accomplished and the federal government has permitted and continues to permit this tax fraud.

More importantly tax fraud and tax avoidance would explain Madoff’s success in covering up his thefts. Madoff was not only a broker dealer, but also functioned as a clearing house, that is Madoff’s firm cleared (processed) its own trades.

I have direct knowledge of one clearing house permitting tax fraud- and it is in the public record. It is important to note that Spear Leeds and Kellogg was purchased by Goldman Sachs in October 2000-even though Goldman Sachs knew that Spear Leeds and Kellogg had permitted tax fraud- via records involving the 1995 arbitration at the American Stock Exchange between Joseph Roffler, proprietor of the American Stock Exchange trading firm Bullseye Securities, and Spear Leeds and Kellogg and the 1998 conviction of Oakford Corp. in United States District Court of the Southern District of the State of New York.

On September 15, 2000 I wrote a certified letter7099 3400 0020 7841 3911 to Robert Katz, Secretary to the Board of Goldman Sachs. In my letter to Katz I stated that in its arbitration with Roffler Spear Leeds had introduced proof of tax fraud because Spear Leeds had issued checks from Roffler’s corporate trading account to pay for personal expenses.

I also stated in my letter that Spear Leeds and Kellogg had issued checks from the Oakford Corporate Account to pay for personal expenses, such as real estate taxes- and that this was discussed during in court hearings before Judge Rakoff, who presided over the sentencing of the Oakford defendants. (This letter can be found on my personal website,

It was revealed during the deposition of Thomas Bretz, the manager of Roffler’s traders who was later disciplined by the American Stock Exchange for falsifying trades with an American Stock Exchange Market Maker, that Roffler had not filed either W2 forms or 1099 forms with the federal government for money paid to employees of Roffler’s trading firm, Bullseye Securities. Goldman Sachs and its legal staff had copies of Bretz’s deposition because after Roffler won his arbitration, Spear Leeds and Kellogg Goldman Sachs, which had purchased Spear Leeds and Kellogg, sued Roffler in New York State Supreme Court to overturn the arbitration award to Roffler.

I also disclosed in my letter to Katz that Alan Miller, President of Viking Securities, boasted that he owed the federal government $280,000 in federal taxes. Miller bragged that Pat Schettino, a managing director of Spear Leeds and Kellogg, had informed him that everyone who cleared through Spear Leeds and Kellogg cheated on their taxes because they knew that Spear Leeds never reported its clearing members for committing tax fraud. Joseph Roffler, a former managing director of Spear Leeds and Kellogg told me that Spear Leeds and Kellogg always looked the other way when it came to tax fraud, because Spear Leeds supposedly had no obligation to report tax fraud to the government.

It is my belief that Madoff did not report the earnings of his clients to the federal government. Madoff was self-clearing and, therefore, was responsible for reporting the amount of money earned to the federal government. That is why the amount of money, which individuals stated that they have lost, is excessive. Madoff’s “firm” was a trading firm, not a mutual fund and, therefore, the trades were realized gains and were subject to federal taxes.

At a 10% rate of return money, assuming no payment of taxes, doubles in approximately seven years. But if you pay taxes, assuming a 35% federal tax rate and 10% state tax it takes approximately 13 years for the money to double. Thus if Madoff’s clients had paid taxes, the return on their investment would not have been 10%.

Now how do we know this to be true? Simple! In the late 1970s and in the 1980s ten year treasury notes, the safest investment in the world, were yielding 13%. But you had to pay federal taxes on the interest payments. The only way Madoff’s investment, a guaranteed 10%, would have looked attractive than Treasury notes would be if an investor did not pay taxes gains from investments made with Madoff.

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