Bernie Madoff SEC Documents Exhibit 0026

Page 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION In the Matter of: File GIG-509 No. GIG-509 WITNESS: Number 28 PAGES: 1 through 42 PLACE: Securities 100 F Street, and Exchange Northeast Commission Washington, DATE: Tuesday, April n.C. 21, 20549 2009 The above-entitled pursuant to notice, at 12:45 matter p.m. came on for hearing, Diversi~ied Reporting (202) 467-9200 Services, Inc. MADOFF EXHIBITS-00702 Page 1 APPEARANCES: 2 3 On behalf of the Securities and Exchange Commission: 5 APPEARANCES: 7 8 9 10 On behalf H. of the Securities Inspector Investigator and Exchange Commission: DAVID KOTZ, STEIBER, WITHERSPOON General HEIDI DAVID 11 12 13 14 15 Securities 100 F Street, and Exchange N.E. Commission Washington, (202) 551-6037 D.C. 20549 16 DAVID FIELDER, ESQ. 17 18 19 20 21 22 Office Securities 100 "F" of the and Inspector Exchange N.E. D.C. 20549 General Commission Street, Washington, (203) 551-5401 23 On behalf of the Witness: 24 25 STEWART MAYHEW, PRO SE MADOFF EXHIBITS-00703 Page 1 PROCEEDINGS 4 2 3 4 5 6 7 MR. is April 21, KOTZ: 2009 at We are the Office to on the record at Securities General. 12:45 p.m. and It United of swear States Inspector you in. Exchange Commission I am going Whereupon, STEWART MAYHEW 8 9 10 11 was sworn, called was as a witness and and, testified having as been previously duly examined follows: EXAMINATION BY MR. KOTZ: 12 13 record? O Can you state and spell your full name for the 14 15 16 17 18 19 20 21 22 23 24 A Q for have the my Stewart My name United colleagues and of I am Mayhew. is David S-t-e-w-a-r-t, Kotz. I and me: am the M-a-y-h-e-w. Inspector General States here Heidi Securities with Steiber. General, to ask you under Exchange Fielder, is an Commission. David by David This case certain oath. everything Wjtherspoon, the Office investigation OIG-509. and you Inspector going number questions The court that is will will Please head have record to provide and later verbal non-verbal answer transcribe answers reporter said. of be provide or other to the will questions. not be A nod able to the responses 25 picked up by the court reporter. So the record will be MADOFF EXHIBITS-00704 Page 7 i 2 A Q January Until 2000. when? 3 4 the A last I came to time I had visit lived the at SEC in August Georgia. 2002 and ties that with was I severed 5 6 the years University working in, at the I believe, Commission August 2004. For my first academic two I was a visiting i 8 scholar Georgia. and I stl-ll retained a position at the University of 9 10 O A What Visiting was your academic first position scholar, at which the is SEC in a 2002? contractor 11 12 13 position. officially on-site The an contractor nature employee of of the the position University was I was and still as an worked 14 Q li~hich division did you worlc. for as a contractor? 15 16 17 18 A function Q A Offce as And Yes. of financial that Econcmic Annlysis but per~orming a different the same title. a economists, was until %004? 19 Q What happened in 2004? 20 %1 22 23 A at was the In 2004 I resigned SEC with a permanent c'i~ief from Georgia contract. economist in At the and took that O~fice same a position time I narnedd assistant oJ~ Economic Analysis. 24 25 time'! C) Was that an employee or contractor position at that MADOFF EXHIBITS-00705 Page 8 1 A That was an employee position. 2 3 Q A Is No. that still the position chief you hold economist. today? I am now deputy 4 5 6 7 Q economist A When did to I BY your position change from assistant chief deputy? believe MS. in STEIBER: July 2008. 8 9 articles Q Have you written about options? any books about options or 10 11 A published. I have I have not written written any many books academic that have been that are articles 12 published in academic journals on options. Some of them are 13 I? 15 6 option pricing, would j, market some include the structure, of four them are some of on them are on empirical option That which in volatility j.n the in estimation. journal the field. articles of Finance, Also prohably premiere journal 17 lt3 19 various published other articles I3Y journals. Approximately 10 or 11 public: MR. KOTZ: 20 21 Q A Who is The chief your currerit economist, supervisor? Jim Overdahl. Q And who was your supervisor in the 2006 and 2007 23 24 2i~ time~rame A time. before Personal Privacy you became who the was deputy? the chief economist at that MADOFF EXHIBITS-00706 Page 1 () This was for an enforcement case? 14 2 A He did not tell me that it was an enforcement case. 3 4 5 He said Q expertise? it was So he questions came to from you the enforcement of your division. particular because 6 7 8 9 A Q expertise? A Because So you of were my expertise the person on in options. that office who had that Yes. 10 i? You agreed and then what happened after that? 11 12 13 14 15 A I believe to that that He asked the me if I was available to go to a meeting. referred meeting I told to was on May 3rd. Bill, make to the the best The meeting on this. of my recollection, and I did not go to I was unable meeting. meeting 16 Q Do you know who that meeting was with? 17 18 that A were At the cc'd on time this I assumed email. that it was with the people 19 20 21 22 New Q a personal A York With the folks in New York? Was it a phone call or meeting? I do staff. not remember that Bill told me whether D.C. or 23 24 25 went on A So you could without Yes, you. to the not make the meeting and the meeting best of my recollection. MADOFF EXHIBITS-00707 Page 1 Q Then what happened? 15 2 3 4 5 6 7 A To the minutes answering would of a Then best of I got this email seen Ispent in Exhibit 3 on May 4th. 20 the goal of my recollection, at these from earn approximately with this returns looking attached Bill significantly documents as to whether high a question likely return. strategy in excess be market to 8 9 10 11 12 13 14 Q A whether strike Based strategy Q And that strategy it was. described was Bernard asked the Madoff's to opine strategy? as the the that I presume the forward on what that And I I was in to split strategy conversion read attachment, could beat strategy, in was the email, I market. was the presumed Madoff what did following. you conclude after your review? 15 16 expected A I concluded to earn that was not a strategy in excess that of would the be significant returns market. 17 18 Q A And Yes. that Prior took to you 20 minutes to the to figure out? I had been coming Commission 19 20 21 retained who not as a consultant in to, this by an investment a strategy forward advisor in Georgia to, I was interested implementing split strike similar conversion. but identical spent 23 24 25 quite a magic bit of quite a bit pill work a bit of time of time trying analyzirig to beat type convince the of that strategy him that I had prior for this done to him was quite this and not a that on this would basic market. strategy MADOFF EXHIBITS-00708 Page 1 time. 16 2 Q Is it fair to say that you concluded that the 3 4 strategy the strategy that Madoff that he was purporting was using? to use was not actually A 6 7 I was not I did not know not asked anything even to give about an opinion on At that. the time with At the time I did Madoff. he was I was approached know that involved 8 9 asset management. Q So all you I knew were his asked reputation to do was as a broker-dealer. at the look 10 11 12 13 attachments 12:38 described market? to and in this email from whether Simona the could Suh strategy actually dated May 4, that beat was the 2006 p.m. determine these attachments 14 15 questions A Yes. from I the did know that some division of the details from Madoff the and enforcement involved 16 17 that I did the claim the was that Madoff's of the returns question were was extremely was high. know context Madoff 18 19 20 21 22 23 claiming (Z have been A to earn high returns with that this this those strategy? strategy. high returns could not So you determined accomplished Basically, You then with yes. informed Mr. Dale of that? A Yes. 24 25 Q A And then what best of happened? my recollection I continued to talk To the MADOFF EXHIBITS-00709 Page 1 with Bill Dale about Madoff in general and described some of 17 2 3 4 5 6 the innovations forwarded clever, Why I that flow very would he had as done earlier with I how respect described markets to because to him worked. Mr. I Dale? payment as very O A a broker-dealer. about that knowledgeable you that provide information to him provided information 7 8 thought extremely that high there was a chance that that if it Madoff was due was to earning some other returns, perhaps 9 10 type of clever activity business. he may Perhaps be doing illegal, involving but I did his not have broker-dealer 11 12 13 14 any he specific may be doing ideas about what illegal brokerage Madoff or may be doing that other would than something away from abusive to channel clients. money clients investment 15 16 17 Q allegation A Were that No. you ever made was aware o~ the in a possibility Ponzi scheme? or the Madoff engaged 18 BY MS. STEIBER: 19 20 21 22 2008. Q complaint? A Did anyone provide you with the Harry Markolopos Not until after the Madoff scandal had broken in 23 24 25 Q complaint? A So then at that point you read the Harry Markolopos I scanned it quickly when I first received it and MADOFF EXHIBITS-00710 Page 1 2 18 then subsequently read it. (SEC Exhibit No. 4 was marked for 3 4 BY MR. KOTZ: identification.) 5 6 mark Q this Let as me show Exhibit you 4. another This is document. an email from We are Simona going Suh to to 7 Anthony Vance and you on 5/9/06 at 2:43 p.m. This is five 8 9 10 days after the from I do previous Peter not recall email. Lamoore? this Do you remember receiving a spreadsheet A email. 11 12 13 the Q one that Do you you the recall described May 4, doing in 2006 any your additional review of work the other documents than attached to email? 14 i5 16 17 that. A additional O What work? I was the I do to question? not give Do I recall doing a ~ew doing additional to any work. look at recall you any minutes am going 18 19 20 A recollection 1 must have Now that from not I am looking three years this in at ago my it of I have seeing a very this. vague I believe saved saved documents folder. I 21 22 23 did not Q notice But this you when think I was reviewing you might have for actually this meeting. received this document? 24 25 here. A I probably did because I see my name as listed MADOFF EXHIBITS-00711 Page 19 1 2 analysis Q Rut you are pretty of the spreadsheet? sure ~hat you did not do any 3 4 5 6 A compute -- I am pretty sure that I did not attempt to I do do any more than there maybe a cursory analysis. that not believe able to gain would be any new insights an analysis of this I would be from doing spreadsheet. 7 8 Q of your Do you know i~ there office from enforcement were any further related to the requests Madoff made matter? 9 A I am not aware of any other requests. io 11 Q followed L-,, provided up giving some in~ormation insight about to Mr. Dale and you Mr. Madoff's other him some 12 13 operations. Dale about Did you have that? any further communications with Mr. 14 15 16 17 F, hallway I believe asking what feedback that. I had one follow happened. to them. He said up conversation that not he met tell in the with them and provided detail beyond He did me much 18 19 O feedback, When Mr. Dale said he was referring to you that he provided of the fact that to your analysis 20 21 22 the split attachment generated strike forward conversion strategy as described could in to Simona Suh's those returns? May 4, 2006 email not have 23 24 25 A Q subsequently? I assume that he passed on that opinion. But he did not indica~e to you what happened MADOFF EXHIBITS-00712 Page 1 A No. 20 2 3 4 5 6 ($ what was it Could you go back in your to Exhibit of 3? these Can you tell us the exactly of split 2006 to review conversion documents, as description to made the May you strike email from forward, Suh -what attached it that 4, Simona was come that conclusion? 7 8 9 A could strongly This is it. a very There trained easy are strategy certain to implement. principals economists Anybody that we it is implement believe as financial that 10 11 12 13 not easy to In beat order beat the for the market. a persori market, It is to not generate need easy to generate that access high returns. consistently to superior returns to have some they information. 14 15 16 17 Simply involving matter the following that it a mechanistic anybody cannot could trading trade, to strategy just as a beat securities of priricipal, be used consistently market. 18 Q And the specific strategy that was described in 19 20 this was document not as the split you strike forward -- conversion strategy a strategy determined 21 H The document here provides only a limited 22 23 24 25 description It does of the not provide split strike forward description to infer for someone conversion of the what the in option strategy. strategy. strategy pricing a complete strategy obvious I use the because it name of the is fairly was MADOFF EXHIBITS-00713 Page 21 1 2 3 what it buying buying would be. a stock a protected Forward an index, put at conversion writing the same strategy a covered time. is basically call, and or 4 5 the put Generally, option having that the would same be done strike with call option and of price. The effect 6 7 8 writing to long taking a call the option short or and buying side of a put option contract. at the is equivalent If you are time, the a forward and short on a forward a stock same 9 10 risk no risk. completely cancels out and that is a strategy that has 11 If the call and put option prices are incorrect or 12 13 14 15 16 17 not efficient, strategy then and out you, lock relative in trying very to the stock profit. that price, could There are of do this an arbitrage to do this and the so many people these from there the prices contracts doing that the adjust strategy, strategy. quickly beyond eliminate any pro~its costs of transaction implementiny 18 g Is it fair to say that after you reviewed the 19 20 21 22 documents determined one this attached that achieve to Simona there the had to Suh's May 4, 2006 email explanation described, you as other to how than be another that were could returns strategy? 23 24 There A are The answer certain to that is that a little have the bit complicated. characteristic strategies 25 that I would describe as extreme negative skewness. These MADOFF EXHIBITS-00714 Page I 2 3 ? are strategies a catastrophe. that can go for a long time generating but every period running tne risk of is one th~t sometimes that has This ty~e of strategy apparent excess returns, hedg~ funds follow. When they ~ollow a strategy 5 6 this type of return patlern they can go for a fairly long time appearing to beat the market. 7 From an economic perspective, it is similar to a 8 9 strategy of writing insur3nce policies. after year writing insurance policies You can go year and keeping the 10 premiums and making a profit, claims and you will have a big bu~ every period you run the loss 11 12 risk that here will he an earthquake and you will have huge Hedge ~unds and ot~:cr investors type of strategy that will appear can follow ~hic 13 14 to beat the market I~ 1~ Exposed after the ~act iC does heat ~he market for a certain An example of this amount of time, but ther: it crashes. 17 18 19 20 might be some o~ the strategies followed by long term capital financial crisis m~nagement,which were ~ble to beat the market for a long time, but then when there was a national they lost everything. 21 all, To get back to answering your question. I did not see any data on Madoff's returns Firs; of so I did not 23 23 25 know for sure that there were excess returns. told there were excess returns, are one of two possibilities. Having been i~~re I would conclude that there Eitl-ier the excess return~ MADOFF EXHIBITS-00715 Page 23 1 2 3 riot ~enerated by this strategy and must have been yenera;ed by some other strateg~, excess returns. or perhaps that they were not true 4 There could have been what appeared to be excess 5 6 7 8 9 returns, but were actually Ijust analogous Lo collectino insursnce pr-emiums. Eairiiriy excess retur-ns every period, but taking on huge risk. substantial returns BY MR. I~ you lever up then you can generate that way. FIELDER: 10 Q Do you recall characteristics or the excess retu-ns 11 12 13 where Madotf was reportedly to you? Do you recall cheating as they were represented how if they told you the duration, excess returns? many years, he had been achieving 14 15 16 A the excess No one told me any details returns BY MR. about the magnitude o~ or KOTZ: the duration. 17 18 Q A Anything about the consistency it is possible of the returns? that Rill could I do not recall. 19 20 21 have mentioned to me that the returns This is a commonattribute was describing of this were highly consistent. that I type of strategy high, a moment ago. You can generate corlsistent returns i~ you bear this extreme crash risk every 23 period. 24 25 time Q period. Let's say there was a market correction during that When the tech bubble burst how would that MADOFF EXHIBITS-00716 Page 24 1 affect that strategy? 2 3 A potentially Therf are many different strz~egies out there that Scme of the could have this extrene necative skewness. are not depend~nt on the direztion of these stra~egics 5 6 7 narket. cor cxdmple,iony term capital managfment. Many or of the market, but bets between the That is the difference their bets were not on the direction on the crediC spread. 8 9 yiel~ of high credit quality bond and a low credit quality bond. In 11 Theywere betting that those yie3ds would converge. For a long time they were basically right, but then the 12 13 13 15 yields suddenly diverged dramatically market. I do not recal.l and t~iey lost a lot of of the to which I had money. Tt is not simply a question of the direct;on -oday t~ie extent ~hese thoughts three years ago, hut this is my general way of thirlking about these types of problems 16 17 18 O Markolopos's Yousaid that you did have a chance to read Harry complaint. 19 A Kecently, yes. 20 Q What were your observations on that? ~1 23 24 25 A I do not have any formal analysis cf his complaint. was I do think some of the language in the report era ggerated. I think that for the !nost part the red flags that he raises in there were ones that ~ould justify investigation. MADOFF EXHIBITS-00717 Page 1 BY MS. STEIBER: 25 2 3 4 Madoff? ii Wouldit have been helpful for ya~~ your analysis ill more about some o~ the issues related to to understand 5 A Yes 6 7 8 BY MR. KOTZ: (SEC Exhibit identification.) No. 5 was marked for 9 Q Lei me show you a copy of the complaint. We are 10 11 going to mar-kit as Exhibit 5. hedge funcl is a fraud. It says, "The world's largest to the November 1, 2005 submission 12 SEC. Madoff Investment Securities, "Some lime ago during di~rerent LLC." ~~ you turn to conditions I ran a 13 14 page 9 of this comp~ainl you will see the first paragraph. market 15 stud~ using the Blaci-Scholns market opti~n pricirig mode! to 16 17 18 analyre the value cf ~ront runnine with the goal of puttiny ~ monetary customer's value order on =ront running where the insider of it." knew the and traded ahead 19 20 He talks a little the end o~ that paragraph, bit about that study. "The SEC should He says at be able to 21 22 23 duplicate these results." these results? A ~es. Co~ld the SEChave duplicated kind of study have been done? when he was chief Personal Privacy Could this In fact, 24 25 economist, ran a similar type of study in his preparation commen~iny on Regulation MNS. It was not in enforcement for MADOFF EXHIBITS-00718 Page 26 1 2 3 4 5 context front easy, people at all. running. but in It was not specifically aspect I could in the of this do, or context is of not The technical is something do. analysis several it that other OEA could BY MS. STEIBER: 6 7 8 Q or run A Did anyone the analysis? No. ever ask you to duplicate these results 9 10 11 (Z duplicate that red Do youknow these flag? of anyone or run else this in OEA ever analysis trying to in results discussed 12 A I do not believe anyone has. This is a comment 13 14 that that he is making about a hypothetical he imagines Madoff might have been front doing. running 'rhis strategy is an 15 16 17 analysis of abuse, Q of how profitable which But it could be to do some o~her type doing. turned you were out he was not of -- capable 18 19 of A study. I would have been capable It seems very simple, in o~ replicating fact. It looks this like type he 20 21 22 is is just the using value BY the Black-Scholes with pricing one minute model to compute what of an option MR. KOTZ: to expiration. 23 24 25 (Z that scheme. In reviewing that Harry Bernard Markolopos's Madoff is complaint, running you see he alleges a Ponzi MADOFF EXHIBITS-00719 Page 1 A Yes. 27 2 3 (Z complaint Is to there anything you could the have done is with this determine whether allegation correct? 4 5 6 A that this T do not allegation As an think is I could correct. I have definitively That am not determined required would have involved in inspection. economist 7 8 inspections. I would have If I had been given on it for this at the time, The I suspect most commented enforcement. 9 important fact, I think, is I did not know how big his 10 11 12 operation assets. was. I did not know that he was rr~anaging so many BY MS. STEIBER: 13 14 (Z A Why would 7~f I had that known have that made tlieri a difference? ? would not have believed 15 16 ,7 it base possible to generate assets that it high away returns from the on such a large asset by pilfering brokerage small customers. portfolio. If I had presumed was a relatively 18 19 20 21 you have your your a really and large pilfer broker-dealer money away operation from your them and you abuse to benefit customers asset clients, If you are you could doing it enhance with returns. base of billions a huge and billions 23 24 impact that on your way. o~ dollars returns have that so you also would have an insignificant could simply not generate real to returns I would recommended 25 enforcement or OC or whoever asked me, thatthey should MADOFF EXHIBITS-00720 Page 28 1 2 investigate would not be this carefully of because earning this type returns. of strategy capable extreme 3 4 5 1 think of of that I was turned off a little in think bit report. be by some Many or the the tone basic and self-grandizing red flags are ones language that I the would 6 7 8 concern. could scheme. I do not do that would think there is a lot that o~ analysis it is that I ultimaCely prove a Ponzi 9 BY MR. KOTZ: 10 11 do? But there are things that OC: and en~orcement could B2 A Yes. 13 14 ii Q investigation right! So you or did about not hearMadoff anything until further December about 2008; i~ this that 16 A 711at ris ri.aht, to the best of my recollecti.on. 17 18 Q in~ormation. Eili Dale Did he said give to you that indication he had that relayed he was the any 19 20 frustrated involved in or unhappy the matter? that he was not going to be more 21 of that, 24 25 Zi No. I do not going general. to leave think on and approach so. There are so many hundreds to support sllpport provide cases investigations that our so few economists in out OEA i.s to opportiinties about provide to when we are support. Rut asked to and the seek main tlecisi.ons whj.ch MADOFF EXHIBITS-00721 Page 36 1 100 index and options on those equities, there would be some 2 3 strategy such a that correlation legitimately with the was generating S~P 100? returns that were 4 A Yes. There are strategies that one could follow 5 6 that were would be uncorrelated doing insider trading with the S&P 500. and had advance If somebody about information 7 8 mergers strategies and hedged that are all the market risk, with the they could have and earn uncorrelated market 9 31 11 these kinds of returns. in the mix, could If then you are I think ttiis i~cluding there illegal ways strategies that somebody ar-e possible achieve 12 13 34 1 1J 16 Q identified. coilld of sj,e what So one strategy Wo~~ld frorlt these cypes I,ointed he was would be insider running trading that that you be a strategy you think you the generaie o~ returrls? (?u~: jri rnanagjrlg.. t_hjs 1 want to remind dociiment aboct L'ou ;Ireadg Ihat o~ assel~s 17 18 19 ii abuse an asset i do not of broker-dealer base this think that ~ront running could or other types of on information large. genera%e returns 20 21 %2 23 %4 MK. KOTZ: ~he only thing is if you could please, integrity today with of the else I wanted to ask you of protecting what for the purpose not the investigation, discuss we discussed anybody. THE WITNESS: Okav 25 T4K. KOT7,: Thank you very much. MADOFF EXHIBITS-00722 Page 37 1 2 3 BY MS. STEIRER: (SEC Exhibit identification.) No. 6 was marked for 4 Q I want to show you a November 21, 2003 email from Investment Adviser #1 Risk Manager 5 6 ro Investment Adviser #1 Portfolio Manager Investment Adviser #1 of trading. analysis going analyzing Madoif's options what your impression MR. KOTZ: of the We are Can you just t~ll is? to mark that us 8 as Exhibit 6. 9 10 i3 THEWTTNI~SS:This rmail describes and the That trading volume S&~ 100 options. to It says OEX options are traded transactions on the CBOE refers S~F 100 options, which 1% 13 14 15 IG This document is indicating m~rket ;i market strateg~ q~st of that the trading volume in that with a claim that is not high narticlpan-t enough is to be consistent a sp:.i.t followiny sirjke conversion il'hat :is the u~jI~Y S61-` 100 op~ions thi.s email. oil a huye sca_le. 17 BY MS. STEIRER: 1~ 19 Q A Were you provided No. this email? 20 BY MR. K03' Z: 21 C! R numbers. ayree it ~o you ag~ee with the analysis I have no way right in there? checking the now of double T do not know i~ the numbers are right, is something that makes sense to look at. but I do F %5 '.om~bodyy sa~iir:g tn~~ are c:oina a cer-rajl, strategy Is ii wcJld MADOFF EXHIBITS-00723 Page 38 1 make sense to go out and look at the trading volume. 2 3 4 5 6 I~ the scale o~ the strategy they are claiming to follow is signi~icantly or volume in that market, they were not telling the larger than the available truth. liquidity then that would be a red tlag that BY MS. STEIBER: 7 8 an () especially rn'ere you capab~e ci doing this difficult analysis to run? analysis? Was this 9 10 A looking No. It looks to me like all they are doing l.s volurnes on certain days. If I had at trading II 12 13 speci~le in~ormatiori about whair Madoff'.c, purported ~trategy to do was, then I could have easily this similar type of analysis. looked up the vol.urne data 14 i'? 16 3 counter, A Tt someone i_zd cl;!imfd tc? ioe trai~iny ~~ioulld _vou expect Documentaticn' ov~r rlir docurnentatjon Iro ei~ist? 17 (2 OF options trading over ihe counter 18 i"i Most over the counter volunle is done witii ~arge 19 20 21 22 Sroker-dc~lers whe provide t~;e other side. investment side too. I wo~la ce*tainly T would expect dncumeriiation to exist ~xpect ~ny reputa~ie documenta~ion on their at tne counter-party. adviso~ should keep 23 would C) i?, ;;;ven FC ihe brokerdcal=r t~ey would keep happened to ]r;ein Cclronee you expect documentation? 'i'es, I would expect theni to keep document~tior-1. MADOFF EXHIBITS-00724 Page 39 1 2 This is not my area of expertise. BY MR. FIELDER: 3 Do you have an opinion as to whether or not, if 4 5 there Madoff had been over the counter with counter parties options trades placed that this by email and had a volume 6 5 8 discussed continue bets with would have Seen placed, to trade them? would thoce ccurter parties placed with Mado~~ ii he had consistently 9 10 the A ~act That is kind of a strange pattern that I do not think would the yufstion. is likely thaC If It presupposes to be he was or think strategy possible. 12 following I do not actually he said make money. somehow Madoff 13 14 15 some other extrernel~ then trader pro~itable was able to stumble stratcyy would upon some really r~r-idexecru~e ovell tile couiller,, happeri a;i r-esult~. F:iCher the one of two things 16 17 counter-party have to be would hedging. :lose money or the counter--par;.y ~?iould 18 If the counter-party was not ~iedging, then I would 19 20 21 suspect want enough to that they would be losing doing t~iose types money and they would not of of trades. these to I do not know continue about t~ie specific business know how much risk 23 24 they are willing prefer to to bear. My intuition and not is they would bear the risk prohably themselves hedge i~ possible L% MP,. ~OTZ: Thank you. MADOFF EXHIBITS-00725