Barney Madoff operated his own brokerage house, Bernard L. Madoff Investment Securities, LLC.  Madoff has been arrested and charged with securities fraud in what federal prosecutors called a Ponzi scheme that could involve losses of more than $50 billion.  He formerly had been a Nasdaq Stock Market chairman, a fact that may say more about the industry in which he worked than about him as a person.   "We are alleging a massive fraud, both in terms of scope and duration," said SEC Enforcement Bureau director Linda Thomsen in a statement.  It is very likely that investors who dealt directly with Madoff's firm will receive little, if any, of their money back, since reports say that Madoff has little or none of the money left.  However, investors who placed their money into third party funds controlled by fund managers that invested in Madoff's operation may be in a better position.  That is because the law requires fund managers to conduct Due Diligence prior to investing.   Part of Due Diligence is looking for red flags.  Already one rather glaring red flag has been noted to have scared off some fund managers, namely, that Madoff's firm paid steady investment returns without regard to the usual fluctuations experienced by the market at large.   The old saying therefore applies, "If it seems too good to be true, it probably is."  Fund managers who were negligent in failing to see red flags flying over Madoff's firm may therefore be liable for investor losses, but then only if investors take prompt legal action to recover their losses.

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