Kass: Madoff Playing Russian Roulette

This blog post originally appeared on RealMoney Silver on Jan. 7 at 7:42 a.m. EST.

"It's no wonder that truth is stranger than fiction. Fiction has to make sense."

-- Mark Twain

I spend the most time every year preparing just one column, my annual surprise list. As you may well know, the most recent surprise list was our sixth yearly compilation. These surprises are not intended to be predictions but rather events that have a reasonable chance of occurring despite the general perception that the odds are very long. I call these "possible improbable" events.

What follows is my most unusual surprise (No. 1).

The Russian mafia and Russian oligarchs are found to be large investors with Madoff. During the next few weeks, a well-known CNBC investigative reporter documents that the Russian oligarchs, certain members of the Russian mafia and several Colombian drug cartel families have invested and laundered more than $2 billion in Madoff's strategy through offshore master feeders and through several fund of funds. There are several unsuccessful attempts made on Madoff and/or his family's lives. With the large Russian investments in Madoff having gone sour and in light of the subsequent acts of violence against his family, U.S./Russian relations, which already were at a low point, are threatened. Madoff's lawyers disclose that he has cancer, and his trial is delayed indefinitely as he undergoes chemotherapy.

-- Doug Kass, The Edge, "20 Surprises for 2009"

As you will see, surprise No. 1 already appears to have been proven prescient. According to an article in this morning's edtion of The New York Times, Russian oligarchs constituted one of Sonja Kohn's/Bank Medici's largest investors in the Madoff Ponzi scheme.

Embarrassment from investing heavily with Mr. Madoff could explain wanting to disappear from public view. But another theory widely repeated by those who know Mrs. Kohn is that she may be afraid of some particularly displeased investors: Russian oligarchs whose money made up a chunk of the $2.1 billion that Bank Medici invested with Mr. Madoff.

"With Russian oligarchs as clients," said a Viennese banker who knew Mrs. Kohn and her husband socially, "she might have reason to be afraid."

It was a view shared in interviews with Mrs. Kohn's fellow bankers, former employees and other associates -- from Vienna to London to Geneva to Monsey, N.Y.

Few of those who know her were willing to be quoted by name because they feared being linked to the scandal surrounding Mr. Madoff as well as the investigations into his alleged fraud. But several people with knowledge of her personal and professional dealings say she became concerned about retribution by Russian investors after Mr. Madoff's arrest last month. (Russia's richest men have been especially strapped as commodity prices and their stock market have collapsed.)

-- Nelson D. Schwartz and Julia Werdigier, The New York Times, "Austria's 'Woman on Wall St.' Now Out of Sight"

Doug Kass writes daily for RealMoney Silver, a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass's daily trading diary, please click here.

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