Title: Reverse-Engineering Madoff: Tools and Techniques in Detecting Leverage and Fraud
Speaker: Michael Markov, Markov Processes International LLC (MPI)
Date: Monday, January 26, 2009 12:00 - 1:00 pm
Location: DyDAn Center, CoRE Bldg, Room 431, Rutgers University, Busch Campus, Piscataway, NJ
Abstract:
The subject of this talk is the application of dynamic analysis of financial time series data to fraud detection and other suspicious and de-stabilizing activity of financial institutions. The methodology - Dynamic Style Analysis (DSA) helps to detect hidden risks, leverage and even alert to possible fraud using only financial performance data.
The hedge fund industry has grown rapidly over the past decade to over $1 trillion in assets and over 8,000 funds. At the same time, the amount of information on hedge funds available to investors is negligible as compared to traditional investment products such as mutual funds. In most cases, the only available information on a hedge fund is a time series of monthly performance numbers and a vague description of the strategy. The hedge fund industry for the most part remains unregulated. Hedge funds amassed significant amounts of assets and their risky investments through leverage could lead to destabilization of world markets. In addition, some hedge funds frequently manipulate their performance data and unsuspected investors become victims of outright fraud.
The focus of this presentation will be on the Bernard Madoff's Ponzi scheme where investors are believed to be defrauded of $50B. Back in 2006, Mr. Markov performed a quantitative analysis of the Madoff's returns and came to the conclusion that, most likely, the returns were not real. This presentation will follow the footsteps of the 2006 analysis. A number of additional case studies will be presented including cases of fraud such as Bayou Fund and The Manhattan Fund where investors were defrauded of hundreds of millions of dollars, and also cases of extremely high leverage which caused disruption of world financial markets - The Soros' Quantum Fund and Long Term Capital (LCTM).
Bio
Michael Markov,CEO
Markov Processes International LLC (MPI)
Michael Markov is co-founder and the CEO of Markov Processes International, LLC (MPI) - an industry leader in financial quantitative tools and technologies with more than 400 client organizations worldwide. In 1992 he led the development of the industry first returns-based style analysis application based on William Sharpe's groundbreaking methodology. Most recently, Mr. Markov spearheaded the development of Dynamic Style Analysis (DSA), an advanced returns-based analysis methodology designed to analyze and replicate highly dynamic and leveraged investments such as hedge funds.
Being an industry expert in financial forensics, Mr. Markov is a frequent speaker at hedge fund forums around the globe on due diligence, performance and risk analysis and attribution. He is frequently quoted in the financial press including The Wall Street Journal, The New York Times, Financial Times, The Economist, CNNMoney and others. Mr. Markov is a Mathematician by training and has published papers on investment style and performance analysis, data and signal processing and hedge fund analysis.
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