Following the money. Er, what money?

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If you’ve even been the subject of a due diligence inquiry (as I and my colleagues have) then you might be forgiven for thinking that investors are very careful about where they put their money. Well, it looks as though the more money you have the less careful you are. Here’s the NYT reporting today on the Bernard Madoff scam.

The epicenter of what may be the largest Ponzi scheme* in history was the 17th floor of the Lipstick Building, an oval red-granite building rising 34 floors above Third Avenue in Midtown Manhattan.

A busy stock-trading operation occupied the 19th floor, and the computers and paperwork of Bernard L. Madoff Investment Securities filled the 18th floor.

But the 17th floor was Bernie Madoff’s sanctum, occupied by fewer than two dozen staff members and rarely visited by other employees. It was called the “hedge fund” floor, but federal prosecutors now say the work Mr. Madoff did there was actually a fraud scheme whose losses Mr. Madoff himself estimates at $50 billion.

The tally of reported losses climbed through the weekend to nearly $20 billion, with a giant Spanish bank, Banco Santander, reporting on Sunday that clients of one of its Swiss subsidiaries have lost $3 billion. Some of the biggest losers were members of the Palm Beach Country Club, where many of Mr. Madoff’s wealthy clients were recruited.

The list of prominent fraud victims grew as well. According to a person familiar with the business of the real estate and publishing magnate Mort Zuckerman, he is also on a list of victims that already included the owners of the New York Mets, a former owner of the Philadelphia Eagles and the chairman of GMAC.

And the 17th floor is now an occupied zone, as investigators and forensic auditors try to piece together what Mr. Madoff did with the billions entrusted to him by individuals, banks and hedge funds around the world.

Source: NYTimes.com.

As a United States Senator once observed: “A billion here, a billion there and pretty soon you’re talking serious money”.

*Footnote: Ponzi scheme.

LATER: This touching dispatch from the Palm Beach club. Excerpt:

Just days after the collapse of Bernard L. Madoff’s suspected $50 billion Ponzi scheme, two of his emissaries returned to the epicenter of the financial disaster to face some of the hardest-hit investors, many of them old friends whom they had recruited to invest in Mr. Madoff’s firm.

As Carl J. Shapiro and Robert M. Jaffe sat down at the Men’s Grill of the Palm Beach Country Club they scanned an awkwardly quiet room, seemingly looking for friendly faces and reassuring nods.

The moment was a stark reversal for two men whom people used to trip over themselves to meet in hopes of a chance to invest with Mr. Madoff.

“You doing O.K.?” asked one of the several club members who approached the men in a show of support. “We’re here for you.”

While the fallout from Mr. Madoff’s suspected con game shook investors around the world, perhaps nowhere was there a higher concentration of victims than in this room. Investors were said to have paid hundreds of thousands of dollars a year to remain members of this club in hopes of an introduction to Mr. Madoff, usually by Mr. Jaffe or Mr. Shapiro. Mr. Madoff has been a member since 1996.

But more than wealth, these people seemed to have lost a sense of trust and prestige. During a visit to the club on Saturday, many members, asked for their reactions, requested not to be named because they did not want to ruin their standing among friends.

But wait! — there’s more:

Everywhere at the club, it was the topic of conversation.

Upstairs in the women’s dining room, a woman joked that she now knew the proper way to pronounce his name.

“Made off,” she said. “You know, like he made off with all our money.”

Even off the island, many investors said they were impressed with how careful Mr. Madoff had seemed.

“He just didn’t make mistakes,” said Richard Spring, 73, from Boca Raton. “He was just a sound, smart, reasonable guy.”

Mr. Spring recounted meeting Mr. Madoff in the early 1970s when they shared a helicopter each day commuting from Long Island to Wall Street.

He said he vividly recalled one commute when Mr. Madoff “bawled out” one of his traders for sloppy work, not protecting against a downturn.

Impressed, he later invested with Mr. Madoff, over time putting more than $11 million into the firm, virtually every cent of his savings, he said.

“I’m taking care of my sick mother-in-law. My wife has cancer. I just can’t deal with it,” Mr. Spring said, only barely choking back tears. “I’m cooked.”

The sting in the long tail

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This morning’s Observer column.

'Scorpions', says Wikipedia, 'are eight-legged venomous arachnids. They have a long body with an extended tail with a sting.' Staff of the Internet Watch Foundation (IWF), the self-appointed monitor of 'child sexual abuse content hosted worldwide' and of 'criminally obscene and incitement to racial hatred content hosted in the UK', may well find themselves in rueful agreement about the sting. Except that what they've discovered is that Wikipedia also has one.

Pause for a review of recent events…

McCain-Palin: everything must go — including all those private cellphone numbers

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A Fox reporter went to the everything-must-go sale at McCain-Palin campaign HQ. And, guess what?

We saw laptops ranging between $400 and $600 with logins like “WARROOM08.” We couldn’t log on without a password, but staffers assured us the hard drive would be zapped before it was sold, and the computer would probably work.

The hottest item? Blackberry phones at $20 a piece. There were only 10 left. All of the batteries had died. There were no chargers for sale. But people were snatching them up. So, we bought a couple.

And ended up with a lot more than we bargained for.

When we charged them up in the newsroom, we found one of the $20 Blackberry phones contained more than 50 phone numbers for people connected with the McCain-Palin campaign, as well as hundreds of emails from early September until a few days after election night.

We traced the Blackberry back to a staffer who worked for “Citizens for McCain,” a group of democrats who threw their support behind the Republican nominee. The emails contain an insider’s look at how grassroots operations work, full of scheduling questions and rallying cries for support.

But most of the numbers were private cell phones for campaign leaders, politicians, lobbyists and journalists.

We called some of the numbers.

“Somebody made a mistake,” one owner told us. “People’s numbers and addresses were supposed to be erased.”

“They should have wiped that stuff out,” another said. But he added, “Given the way the campaign was run, this is not a surprise.”

We called the McCain-Palin campaign, who says, “it was an unfortunate staff error and procedures are being put in place to ensure all information is secure.”

Source: McCain Campaign Sells Info-Loaded Blackberry to FOX 5 Reporter.

Dyson on anonymity

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From an interview by Internet Evolution:

Internet Evolution: You’ve had a front-row seat for the commercialization, regulation, and funding of the Internet. What’s been the biggest surprise for you about how the Internet has evolved? And what’s been your biggest disappointment?

Esther Dyson: Well, surprise and disappointment are the same… There are two big things: First, I was a much bigger fan of anonymity then than I am now. I thought it was cool. And it is, but it turns out anonymity really encourages bad behavior. I’m not in favor of the government tracking everybody and so forth, [but] at least persistent pseudonyms and communities and stuff like that makes everything a nicer place.

It’s like a lot of things. I’m pro choice, but I think abortion is an unfortunate thing. I think the same thing about anonymity: Everybody should have the right to it, but it’s not something one wants to encourage. And that’s not weasel words, that’s the reality of it.

[Anonymity] should be allowed. People should be able to make that choice, and there are many reasons to make that choice. If you live in an oppressive regime, you may well want people to be able to remain anonymous or have secret communications. But at the same time, it should not be encouraged, and it should be acknowledged that it’s a response to a bad situation.

Source: Internet Evolution – Dialogue – Esther Dyson, Chairman, EDventure Holdings.

Google’s Gatekeepers

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Sobering piece by Jay Jeffrey Rosen exploring the critical role that Google’s corporate gatekeepers play in deciding what can and cannot be shown to audiences.

“Right now, we’re trusting Google because it’s good, but of course, we run the risk that the day will come when Google goes bad,” [Timothy] Wu told me. In his view, that day might come when Google allowed its automated Web crawlers, or search bots, to be used for law-enforcement and national-security purposes. “Under pressure to fight terrorism or to pacify repressive governments, Google could track everything we’ve searched for, everything we’re writing on gmail, everything we’re writing on Google docs, to figure out who we are and what we do,” he said. “It would make the Internet a much scarier place for free expression.” The question of free speech online isn’t just about what a company like Google lets us read or see; it’s also about what it does with what we write, search and view.

Source: NYTimes.com.

Ed Felten adds this:

Rosen worries that too much power to decide what can be seen is being concentrated in the hands of one company. He acknowledges that Google has behaved reasonably so far, but he worries about what might happen in the future.

I understand his point, but it’s hard to see an alternative that would be better in practice. If Google, as the owner of YouTube, is not going to have this power, then the power will have to be given to somebody else. Any nominations? I don’t have any.

What we’re left with, then, is Google making the decisions. But this doesn’t mean all of us are out in the cold, without influence. As consumers of Google’s services, we have a certain amount of leverage. And this is not just hypothetical — Google’s “don’t be evil” reputation contributes greatly to the value of its brand. The moment people think Google is misbehaving is the moment they’ll consider taking their business elsewhere.