Many have asked of the alleged Madoff victims, particularly of those who entrusted their life savings to the man, “What were they thinking?”

Access International Advisors co-founder Patrick Littaye provides a clue to at least some of the thinking in an interview with Bloomberg’s Alan Katz:

Littaye met Madoff in 1985 when a private banking client asked the Frenchman to check whether a put option the bank had ordered had been secured, and he confirmed the transaction with Madoff. After that, Littaye said, he was impressed with Madoff’s ability to forecast the short-term direction of stocks based on order flows he saw as a market maker.[Emphasis added.]

This is the first explicit acknowledgment that I have seen that investors believed Madoff was using information gathered from his market-making business to generate profits in his investment-advisory business. Such a practice may well be illegal.

The law has an “unclean hands” doctrine. To the extent investors placed funds with Madoff because they believed he was cheating and sought to profit from same, a judge would likely limit their recovery of assets accordigly.

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