There are some things you are not going to like in this article — so let me say straight off that I know Bernie Madoff is a dirty, rotten scoundrel. I know how many people and institutions have been harmed by him. I know some well-meaning folks have been irreparably damaged. But there are many facets to this outrageous tale.

Let's start with the easy stuff, the actions of the victims. The old rules of investing have been covered already, possibly more than needed:

1. Don't put your eggs in one basket.

2. If it sounds too good to be true, it probably is not true.

3. In investing, there is an almost certain correlation between risk and reward.

4. Make sure those you invest with provide you with regular and reliable reports.

The point of listing these rules is not to teach them anew; the point is this: Tens of thousands of supposedly sophisticated investors (including many Minnesotans) broke virtually each and every one of them. To that end, they share some culpability with the perpetrator. Without a victim, the schemer could not operate, and these folks put themselves in harm's way.

Which brings us to greed. Yes, greed can be a hypnotic attraction (see rule No. 2 above)  — so if you want rewards that are out of the ordinary, that are consistently above "normal" returns, and you seek wads of income from money invested, you will sooner or later get burned. Madoff, and others who defraud, know how to play the greed card with skill; but again, they cannot win that hand without another player: the victim.

The role of 'friends'
And that raises another issue in the terrible event: the role of "friends" in expanding the scam.  Madoff created a massive network of "friends and associates" to help him grow (Ponzi schemes obviously need a fresh supply of money to sustain themselves).  I cannot think of a worse source of financial advice than "friends"! They not only have little (or usually no) expertise, but they generally get financial information second-, third- or fourth-hand, which renders it feeble or useless. Did these so-called sophisticated investors not understand this? Let's make that rule No. 5.

There may be one set of advisors who do know less than "friends": financial advisers. I confess, this reflects a personal bias. Many (not all) have suspect qualifications and experience, but charge unwarranted fees for underperforming the market. You can do that yourself, or even match the market at modest cost, with some good index funds. My complaint in regard to the Madoff situation is that many investors gave their funds to these "experts" with instructions to invest conservatively and/or with diversification. Turning all the money over to Madoff was an easier way to invest, grab a fee for a single transaction, and presumably show their clients ongoing returns … till it all ended with a thud! But the very worst, unforgiveable part of these financial advisers' and investment managers' actions was the trust placed in them to manage charities and pension funds. Many, including some major hedge-fund managers, had too tight a relationship with Madoff, which clouded their judgment to the detriment of their clients.

I repeat: No one should have their life savings diminished or worse; however, mitigating the victims' situation are these facts. First, many were with Madoff for years — even decades. They garnered returns of 10-11 percent annually, so the early-on investors actually had their money returned, and then some. The regularity of these returns was in itself a warning shot because of its consistency alone. In studies of the stock market, returns such as these — which never go down, even in poor markets — are called "serial correlation" returns, which are statistically impossible.

Victims contributed to loss of credibility and trust
Did the victims actually think there was a money fairy somewhere protecting them from the realities of the market?  Don't ask … don't tell. Just take the money. An even darker fallout of this situation is that the victims' actions damaged us all — and the system — by contributing to a loss of credibility and trust.

Many more savvy investors actually did not place all their eggs in one basket (rule No. 1); and these folks, who are clearly people of means (Madoff required a minimum investment of $1 million), still have assets left. That does not mitigate, excuse or make the pain any less for Madoff's actions, but it may not change lifestyles drastically.

Finally, the government didn't protect its citizens, even though the Securities and Exchange Commission (SEC) had been concisely cautioned about the Madoff method of delivering returns a decade ago.

So what are these other sides of the scandal all about?  Well, first, try to remember rules No. 1-4+5 above so the next Madoff will have trouble finding victims.  Next, beyond the blame Madoff himself deserves, there is plenty of blame left to go around: the "friends" and financial advisers who pushed this fraud forward; the government, which failed to protect the public; and the victims themselves, who put themselves in harm's way and let greed rule their decision-making. Sad as it may be, there is no escaping this conclusion.

Myles Spicer of Minnetonka has spent his business career as a professional writer and owned several successful ad agencies over the past 45 years.