Saxena and Madoff: fleecing us all the way to the brink

Rakesh Saxena, by one account, is described as "one of the most intelligent minds one can ever come across". His life story has been colourful - some things factual, some fictional - and definitely unusual.

After an initial humble start after he set foot in Thailand, he seems to have attracted a core influential following in business as well as political circles. In him, these followers saw a pass to self-enrichment and political power. In them, Saxena saw a gateway to acceptance and the seventh heaven of personal financial gratification and wealth creation. Their symbiosis fit like a glove.

Between 1994-95 Saxena was doing this double duty with exceptional skill and pizzazz. As a principal adviser to the Bangkok Bank of Commerce (BBC), Saxena allegedly used his position to concoct and execute complex, shady and outright fraudulent financial transactions in the form of questionable loans, assets appraisals, foreign exchange, futures and derivatives, arbitrage, leveraged buyouts and outright embezzlement - all at full throttle. He seemed to acquire a surreal sense of invincibility, as the trust and blessing of the BBC seemed incontestable.

At the same time, Thailand's regulatory agencies and officials appeared to be turning a blind eye to all these dealings, either because there was some unsavoury collusion going on among all parties, or because Saxena was light years ahead of them in skill and agility. When the BBC collapsed in 1996 under the horrific weight of non-performing loans and worthless collateral assets, the BBC's depositors were looted of their hard-earned savings. The sum was between US$88 million (Bt2.94 billion) and $2.2 billion.

The government took over BBC, but by that time the financial maelstrom had begun. The so-called "Asian Contagion" was triggered, and in 1997 Thailand's real estate market collapsed, as did Thailand's balance sheet. Numerous finance companies and banks went bust, one after another. Countless investors, local and foreign, lost their shirts. Our reserve was depleted. Thailand had to call in the lender of last resort - the International Monetary Fund (IMF) - for a bail-out. The government went down with it.

It is not fair to blame Saxena for all the financial woes that befell Thailand in 1997 and the ensuing years. There was definitely a black hole and lots of loopholes in our financial system and regulations that allowed the calamity to happen. Regulators who were supposed to provide protective measures for depositors against wholesale fraud were not doing their job, and many Thais would deem their failings unforgivable. The big bad wolf loves feeble prey, that is a natural law. But the regulators were supposed to prevent it from rampaging at will.

Bernard Madoff - the former chairman of Nasdaq (the US over-the-counter trading board) - scammed his way along with his Ponzi scheme from either the 1970s or 1990s (depending on who you speak to) until his arrest in December 2008. The scam involved the whopping and almost unimaginable sum of $50 billion. It was the largest investor fraud in history ever committed by one individual. At the time of his arrest, Madoff was running the world's largest unregistered hedge fund (which never existed), and over the years he paid investors with money that wasn't there.

Madoff was a man who even the most suspicious of wealthy individuals trusted completely. So trustworthy that even financial institutions and investment funds - whose stringent due diligence and vetting processes are a fiduciary duty - were taken in without proviso. Among institutional clients who invested between $100 million and $1 billion with Madoff were Banco Santander, HSBC, Bank Medici, Fortis, Fairfield Greenwich Group, the Royal Bank of Scotland Group, Nomura Holdings, BNP and Paribas to name only a few. Private high-net-worth individuals, philanthropists and foundations also invested billions with Madoff.

Madoff is a charismatic, pleasant, charming, well-connected man, and he exuded trust and confidence from others at a level almost unheard of. One of his investors and former partners - Michael Bienes - said this about Madoff: "Doubt Bernie Madoff? Doubt Bernie? No. You doubt God. You can doubt God, but you can't doubt Bernie. He had that aura about him."

Unlike Saxena, who stole from innocent depositors, Madoff took money from people who knew how to make money, and his own people - the wealthy Jewish community. Some would call it a scam of almost biblical proportions, descended like an evil cloud and spread like wildfire. It was called the "affinity theft", in which the con man preys on the idea that you can trust your own people.

"He came into this community, came to the country club, smiled at everybody, shook our hands, greeted us while he knew he was stealing our money," said one investor who lost everything with Madoff.

The extent of the fraud and damage he inflicted upon the Jewish community to which he belongs prompted one Palm Beach Jewish doyenne who lost her double-digit millions in the Madoff scam, to say that what Adolf Hitler didn't finish, Madoff did. One rabbi said that there must be a new word invented to describe and define betrayal. Many would also say that Madoff must possess some kind of psychopathic mind.

During the week of December 8, three days before his arrest, which he knew was impending, Madoff hosted a lavish annual Christmas party for employees in his New York office. "Happy holidays to everyone," he said. "We 're going to have a great year!"

Madoff, when asked by federal investigators if there was an innocent explanation, replied, "There is no innocent explanation." He was broke, he added. "It could not go on," and he said he fully expected to go to jail.

Saxena and Madoff are not the first scam artists to have fleeced their way to the brink. NJR Nabisco, Enron, Lou Pearlman, Raj Rajaratnam and Marc Dreier are some of their peers. Nor will they be the last. No regulatory system will be able to keep up with, and harness effectively and seamlessly, unrestrained human greed, which, when combined with extraordinary brainpower, can leave unspeakable peril in its trail. And greed never has enough.