Madoff: A Riot of Red Flags

24 Pages Posted: 2 Feb 2009 Last revised: 24 Jan 2012

See all articles by Greg N. Gregoriou

Greg N. Gregoriou

SUNY College at Plattsburgh; McGill University

Francois Lhabitant

Kedge Capital Fund Management; Hong Kong University of Science and Technology

Date Written: January 2009


For more than seventeen years, Bernard Madoff operated what was viewed as one of the most successful investment strategies in the world. This strategy ultimately collapsed in December 2008 in what financial experts are calling one of the most detrimental Ponzi schemes in history. Many large and otherwise sophisticated bankers, hedge funds, and funds of funds have been hit by his alleged fraud. In this paper, we review some of the red flags that any operational due diligence and quantitative analysis should have identified as a concern prior to investing. We highlight some of the salient operational features common to best-of-breed hedge funds, features that were clearly missing from Madoff's operations.

Keywords: hedge funds, fraud case, due diligence

JEL Classification: G11, G23, K22

Suggested Citation

Gregoriou, Greg N. and Lhabitant, Francois-Serge, Madoff: A Riot of Red Flags (January 2009). Available at SSRN: or

Greg N. Gregoriou

SUNY College at Plattsburgh ( email )

Plattsburgh, NY 12903
United States

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5

Francois-Serge Lhabitant (Contact Author)

Kedge Capital Fund Management ( email )

Ensign House
29 Seaton Place
St Helier, JE1 1ZZ


Hong Kong University of Science and Technology ( email )

Hong Kong
Hong Kong

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