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Steven Winters is the founder and managing partner of Gemini Strategies, a boutique Cardiff investment firm. His bio says that from 1994 through 1996, he was an equity and derivatives portfolio manager for Bernard L. Madoff Investment Securities in New York, now being liquidated. Bernard Madoff has admitted to running a $50 billion Ponzi scheme. According to news reports, Madoff was turned in to authorities by his two sons, whom Winters fondly calls "Mark and Andy." Winters worked with Madoff's two sons at the Madoff investment securities firm, which was on the 19th floor of a Manhattan building. It was a trading house -- one of Wall Street's larger ones. Bernard Madoff invested funds for a select group of high-wealth people, and also hedge funds, out of the 17th floor. "The 17th floor was restricted access. It was somewhat cryptic as to what went on there," says Winters. "I do know Bernie; this was a gentleman who was in a suit and there every day meeting with clients, regulators -- this was not a shadowy figure lurking in the background." Says Winters: "I worked with Andy and Mark. I always believed they had a high level of ethics. I hope I am not mistaken in that." In managing billions of dollars for others, Bernie Madoff used a "split strike" strategy, says Winters. "He would buy a stock or a basket of stocks and buy puts and calls (options) around them." Bernie Madoff would tell his investors they were making 10 to 12 percent a year, in good markets and bad markets. "This was a guy who had little volatility -- few to no down months." And that raised questions: "Within the hedge fund community, there were questions. Often, potential investors in my business would ask me what insight I had -- unfortunately, I didn't have much insight." (The Securities and Exchange Commission admitted today, Dec. 17, that it essentially blew the Madoff case, and is investigating what happened.) Winters had been there when he was a young man; he had begun his career in 1991, only three years before joining the Madoff firm. Winters's Gemini firm specializes in Private Investments in Public Equity, known as PIPE. This involves the selling of some form of preferred stock or convertible security in a publicly-held company to private investors. PIPEs have been controversial and their usage has fluctuated, because often, when a small, difficult-to-finance company raises money through a PIPE, the existing shareholders suffer dilution. Also, the private owners may end up controlling the small firm if it goes down. For this and other reasons, PIPE deals can be known as "death spiral" or "toxic convertible" deals. As recently as two years ago, 10 percent of PIPE deals were death spirals, according to TheStreet.com. I asked Winters if Gemini had been involved in death spirals. "We don't discuss our portfolio," he says. "We invest in small cap and microcap stocks. Not all of our companies have succeeded." Gemini doesn't disclose how much it has under management.

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Comments

Ponzi Dec. 18, 2008 @ 11:30 a.m.

How many of these small, one to five person, boutique investment firms in San Diego are ticking timebombs?

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Don Bauder Dec. 18, 2008 @ noon

Response to post #1: The firms, whether boutique or large, that deal in exotic strategies are ticking time bombs, particularly if they are involved in derivatives. Gemini has had some successes in small and micro cap investing, including PIPEs, but has made some bad moves, too. Micro caps aren't doing well in this market. Best, Don Bauder

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Anon92107 Dec. 19, 2008 @ 4:30 a.m.

One of the saddest realities of the Madoff scam is the continuing discovery of how many "people of faith" are ready, willing and able to betray and destroy the lives of other people of their own faith.

Wall Street is proving a new saying, there is a Judas born every minute to .

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Don Bauder Dec. 19, 2008 @ 7:29 a.m.

Response to post #3: Madoff's alleged Ponzi scheme falls into the category of an affinity group scam. This is a swindle that takes advantage of an ethnic, religious or interest group that the cozener belongs to. The crooks are trusted by the victims because of their alliance with the group. San Diego has had a bundle of these; I have been writing about them for years. Madoff's victims were largely Jews. Affinity group scams are a problem among Mormons and fundamentalist Christians, as well as arts lovers, etc. Nobody is immune. Best, Don Bauder

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Fred Williams Dec. 19, 2008 @ 10:41 a.m.

Would devoted atheists be likely to fall for such flim flams?

Seems to me that the essential component is "faith", which we atheists famously lack. Then again, I keep hearing that "faith" is what makes our stock markets work so well...kinda unreliable stuff if you ask me.

Rev. Dr. Fred 1st Church of Evangelical Atheism

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Don Bauder Dec. 19, 2008 @ 7:34 p.m.

Response to post #5: I have never heard of a Humanist organization or its members being taken in an affinity scam. You are correct: most likely victims are people who accept things on faith. Ergo, religious groups are most vulnerable. On the other hand, physicians often get taken in scams. They are trained to look at things analytically. But when it comes to wild moneymaking schemes, they often take things on faith and get skinned. Best, Don Bauder

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Anon92107 Dec. 20, 2008 @ 9:55 a.m.

Response to posts #5 & #6:

Obviously Wall Street worships at the Church of Judas, their cultural role model.

By coincidence, in todays L.A. Times, Business columnist Tom Petruno documents this fact in his column "Betrayal of trust a Wall Street tradition" but then a lot of columnists like you have been warning us and warning us and warning us for far too many decades and we never learn.

Actually it should be called the Bush-Madoff Ponzi Scheme since Bush has always wanted to divert Social Security funds to fund his own Republican Party Ponzi Scheme to screw Americans out of every last dollar.

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Don Bauder Dec. 20, 2008 @ 11:36 a.m.

Response to post #7: It's not simply that betrayal of trust is a Wall Street tradition. It's also a tradition that the SEC, which claims that it is set up to block financial fraud, actually enables it for the superrich. Wall Street is a sea of mendacity. I learned that at the knee of my father, who was a stock and bond salesman on Chicago's LaSalle Street beginning in the early 1920s. My father was a right-winger who was against any regulation of business -- EXCEPT Wall Street. Because greed and dishonesty were ubiquitous, he realized there had to be financial regulation. He would have opposed the repeal of Glass-Steagall and the non-regulation of derivatives. Best, Don Bauder

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