Six Degrees of Madoff

Bernie Madoff had an amazing network of money-gatherers. That's evident just looking at my old stamping grounds of Fairfield County, CT.

The other day Tom Gerrity mentioned in an email that the late Rene-Thierry Magon de la Villehuchet's membership in the Milford Yacht Club apparently led to a number of local investors losing wealth to Madoff.

Walter Noel's Fairfield Greenwich Group was one of the more prominent Madoff feeders, but it had plenty of company. Fairfield County's namesake town suffered losses in an employee pension fund through a feeder fund offered by MAXAM Capital Management LLC of Darien. (Now Maxam is suing auditors who supposedly vetted Madoff.) The town of Fairfield would like to haul Madoff to Connecticut and arrest him for fraud.

Former Merrill Lynch CEO's Daniel Tully and David Komansky reportedly got Madoffed through a fund run by former Merrill brokerage chief John "Launny" Steffens. J. Ezra Merkin, who ran three feeder funds, was Steffens' partner. Tully and Komansky are among the founders of Fieldpoint Private Bank in Greenwich. Fieldpoint's distinctive marketing pitch is, "members only."

The moral of the story? That could take years to sort out. What's already clear is how time and networking worked to Madoff's advantage. The longer Madoff operated, the larger his network of feeders, subfeeders and dupes, the more "authentic" he seemed to become.

Many investors are likely to be taking David Swensen's warning seriously: If you can't pick a good hedge fund manager, you sure can't pick a funds of hedge funds manager.