Before the Madoff story broke, a research and portfolio advisory firm called Aksia issued a statement warning clients to avoid doing business with his investment fund, citing several red flags which it uncovered during an investigation. A review of these indicators offers insight into due diligence as well as warning signs to look out for prior to doing business with a firm. Aksia picked up on the following patterns and inconsistencies, and the fund’s concerns were quickly validated:

1. The firm utilized an especially volatile investment strategy, but was still able to garner stable returns of 8-10% over an entire decade.
2. A financial advisor who claimed to have studied the firm’s operations issued a letter to the Securities and Exchange Commission in 2005 stating that Madoff was running a Ponzi scheme.
3. The firm was run by family members, and the strategy was erratic and undocumented.
4. The firm’s comptroller wasn’t based in the United States, but in Bermuda. The “feeder funds” were audited by reliable auditors, while the primary investments were not.
5. Accounting statements were sent via mail, as opposed to email, as is commonly practiced in the industry.
6. The firm had been looked into previously.