Edo the Reliable

Bernard Madoff’s Black-Hat Design

In Billing on October 23, 2009 at 2:09 pm

What design elements lent Madoff’s trading statements the respectability of a conservative investment house?

Functionality-wise, any customer report or invoice must include some factual details. it also must follow certain legal and accounting rules and conventions. In addition, from the product point of view, each statement is also a contact point between customer and brand. This can be used to communicate ideas and emotions beyond the mundane details. Not just the “collaterals” (the envelope stuffers, the logo, etc.) – the core document itself offers branding opportunities.

Take, for example, the statements sent by major telcoms. They project their brand image: they are modern, efficient, and doing their best to be clear. Customers can’t comprehend the bill, but the statement’s design projects good faith. Yes, to a certain degree, we’re dealing with a black art here, and the trading statements of Bernard L. Madoff Investment Securities LLC are a case in question.

The trading statement below (click on image for 7-page trading statement) was produced by Bernard L. Madoff Investment Securities LLC. They list many lines of transactions; we are told Mr. Madoff later admitted, “it was all just one big lie”. With over 50 billion dollars of investments, Madoff’s was the largest Ponzi scheme ever. Let’s examine what makes the trading statement appear valid.

Madoff’s trading statement caught my attention because, compared to contemporary styles, it projects an overly traditional look: an old dot matrix printer on a traditional ledger-design background (that doesn’t even match the line height, either because it was intended for a different printer and/or was  used as an illustration only).

It reminded me of an invoice I once designed for a small creative studio. It intentionally had a “corporate/mainframe” look, with rigid spacing of character to simulate dot-matrix printing, column structure that hints at large orders, with truncated name and address lines, with stern-sounding interest accrual warnings.

Moreover, this template was used in conjunction with a specially purchased, expensive accounting software made for large corporations. I recommended buying it just because the software’s logo, appearing on each invoice, was  well known to many corporate accountants and was an indication of the issuer’s size.

Upon implementation, the design has instantly improved collections. Partly, because rigid corporate look was more accessible to corporate accounting departments, and created affinity; partly, its rude, impersonal vibe quickly discouraged thoughts of delaying payment.

In Madoff’s case, and to Madoff’s clientele demographics, an 80’s corporate mainframe printout appears as solid as technology gets. Bad print, crippled text, too-short data fields, incomprehensible layout) unfortunately seem to indicate immensity and strength of the alpha corporate entity sending the statement.

Madoff’s old-school-computing statement design reminded me of the origins of Madoff’s legacy and his meteoric rise to fame:

In order to compete with firms that were members of the New York Stock Exchange trading on the stock exchange’s floor, his firm began using innovative computer information technology to disseminate its quotes. After a trial run, the technology that the firm helped develop became the NASDAQ.

Linking itself to NASDAQ legacy, “an earlier era in the financial world”, is a recurring pattern in Madoff’s branding (this is from Madoff’s old website):

From Madoffs website: Name is on the Door

From Badoff's website: Name is on the Door

However, there are other layers to Madoff’s story.In his case, too much reporting served to conceal the fact that there was no reporting to SEC. The firm’s SEC reporting practices were actually quite nontraditional, no irony intended. As the Washington Post observes :

The company made its own trades and held the shares it bought, unusual practices that kept its activities hidden from view. Madoff also avoided filing disclosures of its holdings with the SEC; the firm said that at the end of every reporting period it sold its holdings and held only cash. Such a tactic is highly unusual (…)

But there was more to the old-fashion attitude than just design, of course. CNN lists the use of old computer systems as one of the tell-tale signs of fraud:

In retrospect, of course, there were clues, as a Fortune investigation has discovered. The IBM server, for instance, an AS/400 that dated from the 1980s, was so old that some data had to be keyed in by hand, yet Madoff refused to replace it. The ­machine — which has been autopsied by the government — was the nerve center of the fraud. The thousands of pages of statements printed out from it showed trades that were never made.

And the UK Inquirer discusses further aspects of the technology used by this “pioneer of Wall Street trading technology“.

According to a new book, “Too Good to Be True: The Rise and Fall of Bernie Madoff”, author Erin Arvedlund claims that Madoff could not have managed his elaborate fraud without his old clunker of a mid-range computer system.

The IBM AS/400 was used by him and select other employees to print out fake account statements. What they would do was punch in fake trades on the IBM AS/400 and enter share prices that would square with his consistent but imaginary returns on the billions that customers entrusted to his firm.

Central to the scam was that “no one touched” the computer but Madoff. But that would have been a safe bet as no one would want to get their paws on an ancient AS/400 unless they were a real enthusiast.

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