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Bernard Lawrence "Bernie" Madoff, the largest Ponzi scheme in history
Madoff who?
Bernie Madoff ran the largest Ponzi scheme in history, defrauding thousands of investors over at least 17 years, and possibly longer. He pioneered electronic trading and chaired Nasdaq in the 1990s. On April 14, 2021, he died while serving a 150-year sentence for money laundering, securities fraud, and other crimes.
Understanding Madoff
Madoff claimed to generate large, steady returns through a trading strategy called split-strike conversion, but he simply deposited client funds into a single bank account and paid out existing clients. He funded redemptions by attracting new investors and their capital, but the market crashed in late 2008. He confessed to his sons, who worked at his firm, on Dec. 10, 2008. Next day, they turned him in. The fund reported $64.8 billion in client assets.
Madoff pleaded guilty to 11 federal felony counts, including securities fraud, wire fraud, mail fraud, perjury, and money laundering. Ponzi scheme became a symbol of Wall Street's greed and dishonesty before the financial crisis. Madoff was sentenced to 150 years in prison and ordered to forfeit $170 billion, but no other Wall Street figures faced legal ramifications.
Bernie Madoff's Brief Biography
Bernie Madoff was born in Queens, New York, on April 29, 1938. He began dating Ruth (née Alpern) when they were teenagers. Madoff told a journalist by phone from prison that his father's sporting goods store went bankrupt during the Korean War: "You watch your father, who you idolize, build a big business and then lose everything." Madoff was determined to achieve "lasting success" like his father "whatever it took," but his career had ups and downs.
Early Madoff investments
At 22, he started Bernard L. Madoff Investment Securities LLC. First, he traded penny stocks with $5,000 he earned installing sprinklers and as a lifeguard. Family and friends soon invested with him. Madoff's bets soured after the "Kennedy Slide" in 1962, and his father-in-law had to bail him out.
Madoff felt he wasn't part of the Wall Street in-crowd. "We weren't NYSE members," he told Fishman. "It's obvious." According to Madoff, he was a scrappy market maker. "I was happy to take the crumbs," he told Fishman, citing a client who wanted to sell eight bonds; a bigger firm would turn it down.
Recognition
Success came when he and his brother Peter built electronic trading capabilities, or "artificial intelligence," that attracted massive order flow and provided market insights. "I had all these major banks coming down, entertaining me," Madoff told Fishman. "It was mind-bending."
By the late 1980s, he and four other Wall Street mainstays processed half of the NYSE's order flow. Controversially, he paid for much of it, and by the late 1980s, Madoff was making in the vicinity of $100 million a year. He was Nasdaq chairman from 1990 to 1993.
Madoff's Ponzi scheme
It is not certain exactly when Madoff's Ponzi scheme began. He testified in court that it began in 1991, but his account manager, Frank DiPascali, had been at the firm since 1975.
Why Madoff did the scheme is unclear. "I had enough money to support my family's lifestyle. "I don't know why," he told Fishman." Madoff could have won Wall Street's respect as a market maker and electronic trading pioneer.
Madoff told Fishman he wasn't solely responsible for the fraud. "I let myself be talked into something, and that's my fault," he said, without saying who convinced him. "I thought I could escape eventually. I thought it'd be quick, but I couldn't."
Carl Shapiro, Jeffry Picower, Stanley Chais, and Norm Levy have been linked to Bernard L. Madoff Investment Securities LLC for years. Madoff's scheme made these men hundreds of millions of dollars in the 1960s and 1970s.
Madoff told Fishman, "Everyone was greedy, everyone wanted to go on." He says the Big Four and others who pumped client funds to him, outsourcing their asset management, must have suspected his returns or should have. "How can you make 15%-18% when everyone else is making less?" said Madoff.
How Madoff Got Away with It for So Long
Madoff's high returns made clients look the other way. He deposited their money in a Chase Manhattan Bank account, which merged to become JPMorgan Chase & Co. in 2000. The bank may have made $483 million from those deposits, so it didn't investigate.
When clients redeemed their investments, Madoff funded the payouts with new capital he attracted by promising unbelievable returns and earning his victims' trust. Madoff created an image of exclusivity by turning away clients. This model let half of Madoff's investors profit. These investors must pay into a victims' fund for defrauded investors.
Madoff wooed investors with his philanthropy. He defrauded nonprofits, including the Elie Wiesel Foundation for Peace and Hadassah. He approached congregants through his friendship with J. Ezra Merkin, a synagogue officer. Madoff allegedly stole $1 billion to $2 billion from his investors.
Investors believed Madoff for several reasons:
- His public portfolio seemed to be blue-chip stocks.
- His returns were high (10-20%) but consistent and not outlandish. In a 1992 interview with Madoff, the Wall Street Journal reported: "[Madoff] insists the returns were nothing special, given that the S&P 500-stock index returned 16.3% annually from 1982 to 1992. 'I'd be surprised if anyone thought matching the S&P over 10 years was remarkable,' he says.
- "He said he was using a split-strike collar strategy. A collar protects underlying shares by purchasing an out-of-the-money put option.
SEC inquiry
The Securities and Exchange Commission had been investigating Madoff and his securities firm since 1999, which frustrated many after he was prosecuted because they felt the biggest damage could have been prevented if the initial investigations had been rigorous enough.
Harry Markopolos was a whistleblower. In 1999, he figured Madoff must be lying in an afternoon. The SEC ignored his first Madoff complaint in 2000.
Markopolos wrote to the SEC in 2005: "The largest Ponzi scheme is Madoff Securities. This case has no SEC reward, so I'm turning it in because it's the right thing to do."
Many believed the SEC's initial investigations could have prevented Madoff's worst damage.
Markopolos found irregularities using a "Mosaic Method." Madoff's firm claimed to be profitable even when the S&P fell, which made no mathematical sense given what he was investing in. Markopolos said Madoff Securities' "undisclosed commissions" were the biggest red flag (1 percent of the total plus 20 percent of the profits).
Markopolos concluded that "investors don't know Bernie Madoff manages their money." Markopolos learned Madoff was applying for large loans from European banks (seemingly unnecessary if Madoff's returns were high).
The regulator asked Madoff for trading account documentation in 2005, after he nearly went bankrupt due to redemptions. The SEC drafted letters to two of the firms on his six-page list but didn't send them. Diana Henriques, author of "The Wizard of Lies: Bernie Madoff and the Death of Trust," documents the episode.
In 2008, the SEC was criticized for its slow response to Madoff's fraud.
Confession, sentencing of Bernie Madoff
Bernard L. Madoff Investment Securities LLC reported 5.6% year-to-date returns in November 2008; the S&P 500 fell 39%. As the selling continued, Madoff couldn't keep up with redemption requests, and on Dec. 10, he confessed to his sons Mark and Andy, who worked at his firm. "After I told them, they left, went to a lawyer, who told them to turn in their father, and I never saw them again. 2008-12-11: Bernie Madoff arrested.
Madoff insists he acted alone, but several of his colleagues were jailed. Mark Madoff died two years after his father's fraud was exposed. Madoff's investors committed suicide. Andy Madoff died of cancer in 2014.
2009 saw Madoff's 150-year prison sentence and $170 billion forfeiture. Marshals sold his three homes and yacht. Prisoner 61727-054 at Butner Federal Correctional Institution in North Carolina.
Madoff's lawyers requested early release on February 5, 2020, claiming he has a terminal kidney disease that may kill him in 18 months. Ten years have passed since Madoff's sentencing.
Bernie Madoff's Ponzi scheme aftermath
The paper trail of victims' claims shows Madoff's complexity and size. Documents show Madoff's scam began in the 1960s. His final account statements show $47 billion in "profit" from fake trades and shady accounting.
Thousands of investors lost their life savings, and multiple stories detail their harrowing loss.
Irving Picard, a New York lawyer overseeing Madoff's bankruptcy, has helped investors. By December 2018, Picard had recovered $13.3 billion from Ponzi scheme profiteers.
A Madoff Victim Fund (MVF) was created in 2013 to help compensate Madoff's victims, but the DOJ didn't start paying out the $4 billion until late 2017. Richard Breeden, a former SEC chair who oversees the fund, said thousands of claims were from "indirect investors"
Breeden and his team had to reject many claims because they weren't direct victims. Breeden said he based most of his decisions on one simple rule: Did the person invest more than they withdrew? Breeden estimated 11,000 "feeder" investors.
Breeden wrote in a November 2018 update for the Madoff Victim Fund, "We've paid over 27,300 victims 56.65% of their losses, with thousands more to come." In December 2018, 37,011 Madoff victims in the U.S. and around the world received over $2.7 billion. Breeden said the fund expected to make "at least one more significant distribution in 2019"
This post is a summary. Read full article here
More on Economics & Investing
Desiree Peralta
3 years ago
How to Use the 2023 Recession to Grow Your Wealth Exponentially
This season's three best money moves.
“Millionaires are made in recessions.” — Time Capital
We're in a serious downturn, whether or not we're in a recession.
97% of business owners are decreasing costs by more than 10%, and all markets are down 30%.
If you know what you're doing and analyze the markets correctly, this is your chance to become a millionaire.
In any recession, there are always excellent possibilities to seize. Real estate, crypto, stocks, enterprises, etc.
What you do with your money could influence your future riches.
This article analyzes the three key markets, their circumstances for 2023, and how to profit from them.
Ways to make money on the stock market.
If you're conservative like me, you should invest in an index fund. Most of these funds are down 10-30% of ATH:
In earlier recessions, most money index funds lost 20%. After this downturn, they grew and passed the ATH in subsequent months.
Now is the greatest moment to invest in index funds to grow your money in a low-risk approach and make 20%.
If you want to be risky but wise, pick companies that will get better next year but are struggling now.
Even while we can't be 100% confident of a company's future performance, we know some are strong and will have a fantastic year.
Microsoft (down 22%), JPMorgan Chase (15.6%), Amazon (45%), and Disney (33.8%).
These firms give dividends, so you can earn passively while you wait.
So I consider that a good strategy to make wealth in the current stock market is to create two portfolios: one based on index funds to earn 10% to 20% profit when the corrections end, and the other based on individual stocks of popular and strong companies to earn 20%-30% return and dividends while you wait.
How to profit from the downturn in the real estate industry.
With rising mortgage rates, it's the worst moment to buy a home if you don't want to be eaten by banks. In the U.S., interest rates are double what they were three years ago, so buying now looks foolish.
Due to these rates, property prices are falling, but that won't last long since individuals will take advantage.
According to historical data, now is the ideal moment to buy a house for the next five years and perhaps forever.
If you can buy a house, do it. You can refinance the interest at a lower rate with acceptable credit, but not the house price.
Take advantage of the housing market prices now because you won't find a decent deal when rates normalize.
How to profit from the cryptocurrency market.
This is the riskiest market to tackle right now, but it could offer the most opportunities if done appropriately.
The most powerful cryptocurrencies are down more than 60% from last year: $68,990 for BTC and $4,865 for ETH.
If you focus on those two coins, you can make 30%-60% without waiting for them to return to their ATH, and they're low enough to be a solid investment.
I don't encourage trying other altcoins because the crypto market is in crisis and you can lose everything if you're greedy.
Still, the main Cryptos are a good investment provided you store them in an external wallet and follow financial gurus' security advice.
Last thoughts
We can't anticipate a recession until it ends. We can't forecast a market or asset's lowest point, therefore waiting makes little sense.
If you want to develop your wealth, assess the money prospects on all the marketplaces and initiate long-term trades.
Many millionaires are made during recessions because they don't fear negative figures and use them to scale their money.
Wayne Duggan
3 years ago
What An Inverted Yield Curve Means For Investors
The yield spread between 10-year and 2-year US Treasury bonds has fallen below 0.2 percent, its lowest level since March 2020. A flattening or negative yield curve can be a bad sign for the economy.
What Is An Inverted Yield Curve?
In the yield curve, bonds of equal credit quality but different maturities are plotted. The most commonly used yield curve for US investors is a plot of 2-year and 10-year Treasury yields, which have yet to invert.
A typical yield curve has higher interest rates for future maturities. In a flat yield curve, short-term and long-term yields are similar. Inverted yield curves occur when short-term yields exceed long-term yields. Inversions of yield curves have historically occurred during recessions.
Inverted yield curves have preceded each of the past eight US recessions. The good news is they're far leading indicators, meaning a recession is likely not imminent.
Every US recession since 1955 has occurred between six and 24 months after an inversion of the two-year and 10-year Treasury yield curves, according to the San Francisco Fed. So, six months before COVID-19, the yield curve inverted in August 2019.
Looking Ahead
The spread between two-year and 10-year Treasury yields was 0.18 percent on Tuesday, the smallest since before the last US recession. If the graph above continues, a two-year/10-year yield curve inversion could occur within the next few months.
According to Bank of America analyst Stephen Suttmeier, the S&P 500 typically peaks six to seven months after the 2s-10s yield curve inverts, and the US economy enters recession six to seven months later.
Investors appear unconcerned about the flattening yield curve. This is in contrast to the iShares 20+ Year Treasury Bond ETF TLT +2.19% which was down 1% on Tuesday.
Inversion of the yield curve and rising interest rates have historically harmed stocks. Recessions in the US have historically coincided with or followed the end of a Federal Reserve rate hike cycle, not the start.
Chritiaan Hetzner
3 years ago
Mystery of the $1 billion'meme stock' that went to $400 billion in days
Who is AMTD Digital?
An unknown Hong Kong corporation joined the global megacaps worth over $500 billion on Tuesday.
The American Depository Share (ADS) with the ticker code HKD gapped at the open, soaring 25% over the previous closing price as trading began, before hitting an intraday high of $2,555.
At its peak, its market cap was almost $450 billion, more than Facebook parent Meta or Alibaba.
Yahoo Finance reported a daily volume of 350,500 shares, the lowest since the ADS began trading and much below the average of 1.2 million.
Despite losing a fifth of its value on Wednesday, it's still worth more than Toyota, Nike, McDonald's, or Walt Disney.
The company sold 16 million shares at $7.80 each in mid-July, giving it a $1 billion market valuation.
Why the boom?
That market cap seems unjustified.
According to SEC reports, its income-generating assets barely topped $400 million in March. Fortune's emails and calls went unanswered.
Website discloses little about company model. Its one-minute business presentation film uses a Star Wars–like design to sell the company as a "one-stop digital solutions platform in Asia"
The SEC prospectus explains.
AMTD Digital sells a "SpiderNet Ecosystems Solutions" kind of club membership that connects enterprises. This is the bulk of its $25 million annual revenue in April 2021.
Pretax profits have been higher than top line over the past three years due to fair value accounting gains on Appier, DayDayCook, WeDoctor, and five Asian fintechs.
AMTD Group, the company's parent, specializes in investment banking, hotel services, luxury education, and media and entertainment. AMTD IDEA, a $14 billion subsidiary, is also traded on the NYSE.
“Significant volatility”
Why AMTD Digital listed in the U.S. is unknown, as it informed investors in its share offering prospectus that could delist under SEC guidelines.
Beijing's red tape prevents the Sarbanes-Oxley Board from inspecting its Chinese auditor.
This frustrates Chinese stock investors. If the U.S. and China can't achieve a deal, 261 Chinese companies worth $1.3 trillion might be delisted.
Calvin Choi left UBS to become AMTD Group's CEO.
His capitalist background and status as a Young Global Leader with the World Economic Forum don't stop him from praising China's Communist party or celebrating the "glory and dream of the Great Rejuvenation of the Chinese nation" a century after its creation.
Despite having an executive vice chairman with a record of battling corruption and ties to Carrie Lam, Beijing's previous proconsul in Hong Kong, Choi is apparently being targeted for a two-year industry ban by the city's securities regulator after an investor accused Choi of malfeasance.
Some CMIG-funded initiatives produced money, but he didn't give us the proceeds, a corporate official told China's Caixin in October 2020. We don't know if he misappropriated or lost some money.
A seismic anomaly
In fundamental analysis, where companies are valued based on future cash flows, AMTD Digital's mind-boggling market cap is a statistical aberration that should occur once every hundred years.
AMTD Digital doesn't know why it's so valuable. In a thank-you letter to new shareholders, it said it was confused by the stock's performance.
Since its IPO, the company has seen significant ADS price volatility and active trading volume, it said Tuesday. "To our knowledge, there have been no important circumstances, events, or other matters since the IPO date."
Permabears awoke after the jump. Jim Chanos asked if "we're all going to ignore the $400 billion meme stock in the room," while Nate Anderson called AMTD Group "sketchy."
It happened the same day SEC Chair Gary Gensler praised the 20th anniversary of the Sarbanes-Oxley Act, aimed to restore trust in America's financial markets after the Enron and WorldCom accounting fraud scandals.
The run-up revived unpleasant memories of Robinhood's decision to limit retail investors' ability to buy GameStop, regarded as a measure to protect hedge funds invested in the meme company.
Why wasn't HKD's buy button removed? Because retail wasn't behind it?" tweeted Gensler on Tuesday. "Real stock fraud. "You're worthless."
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Recep İnanç
3 years ago
Effective Technical Book Reading Techniques
Technical books aren't like novels. We need a new approach to technical texts. I've spent years looking for a decent reading method. I tried numerous ways before finding one that worked. This post explains how I read technical books efficiently.
What Do I Mean When I Say Effective?
Effectiveness depends on the book. Effective implies I know where to find answers after reading a reference book. Effective implies I learned the book's knowledge after reading it.
I use reference books as tools in my toolkit. I won't carry all my tools; I'll merely need them. Non-reference books teach me techniques. I never have to make an effort to use them since I always have them.
Reference books I like:
Design Patterns: Elements of Reusable Object-Oriented Software
Refactoring: Improving the Design of Existing Code
You can also check My Top Takeaways from Refactoring here.
Non-reference books I like:
The Approach
Technical books might be overwhelming to read in one sitting. Especially when you have no idea what is coming next as you read. When you don't know how deep the rabbit hole goes, you feel lost as you read. This is my years-long method for overcoming this difficulty.
Whether you follow the step-by-step guide or not, remember these:
Understand the terminology. Make sure you get the meaning of any terms you come across more than once. The likelihood that a term will be significant increases as you encounter it more frequently.
Know when to stop. I've always believed that in order to truly comprehend something, I must delve as deeply as possible into it. That, however, is not usually very effective. There are moments when you have to draw the line and start putting theory into practice (if applicable).
Look over your notes. When reading technical books or documents, taking notes is a crucial habit to develop. Additionally, you must regularly examine your notes if you want to get the most out of them. This will assist you in internalizing the lessons you acquired from the book. And you'll see that the urge to review reduces with time.
Let's talk about how I read a technical book step by step.
0. Read the Foreword/Preface
These sections are crucial in technical books. They answer Who should read it, What each chapter discusses, and sometimes How to Read? This is helpful before reading the book. Who could know the ideal way to read the book better than the author, right?
1. Scanning
I scan the chapter. Fast scanning is needed.
I review the headings.
I scan the pictures quickly.
I assess the chapter's length to determine whether I might divide it into more manageable sections.
2. Skimming
Skimming is faster than reading but slower than scanning.
I focus more on the captions and subtitles for the photographs.
I read each paragraph's opening and closing sentences.
I examined the code samples.
I attempt to grasp each section's basic points without getting bogged down in the specifics.
Throughout the entire reading period, I make an effort to make mental notes of what may require additional attention and what may not. Because I don't want to spend time taking physical notes, kindly notice that I am using the term "mental" here. It is much simpler to recall. You may think that this is more significant than typing or writing “Pay attention to X.”
I move on quickly. This is something I considered crucial because, when trying to skim, it is simple to start reading the entire thing.
3. Complete reading
Previous steps pay off.
I finished reading the chapter.
I concentrate on the passages that I mentally underlined when skimming.
I put the book away and make my own notes. It is typically more difficult than it seems for me. But it's important to speak in your own words. You must choose the right words to adequately summarize what you have read. How do those words make you feel? Additionally, you must be able to summarize your notes while you are taking them. Sometimes as I'm writing my notes, I realize I have no words to convey what I'm thinking or, even worse, I start to doubt what I'm writing down. This is a good indication that I haven't internalized that idea thoroughly enough.
I jot my inquiries down. Normally, I read on while compiling my questions in the hopes that I will learn the answers as I read. I'll explore those issues more if I wasn't able to find the answers to my inquiries while reading the book.
Bonus!
Best part: If you take lovely notes like I do, you can publish them as a blog post with a few tweaks.
Conclusion
This is my learning journey. I wanted to show you. This post may help someone with a similar learning style. You can alter the principles above for any technical material.
Nick Nolan
3 years ago
In five years, starting a business won't be hip.
People are slowly recognizing entrepreneurship's downside.
Growing up, entrepreneurship wasn't common. High school class of 2012 had no entrepreneurs.
Businesses were different.
They had staff and a lengthy history of achievement.
I never wanted a business. It felt unattainable. My friends didn't care.
Weird.
People desired degrees to attain good jobs at big companies.
When graduated high school:
9 out of 10 people attend college
Earn minimum wage (7%) working in a restaurant or retail establishment
Or join the military (3%)
Later, entrepreneurship became a thing.
2014-ish
I was in the military and most of my high school friends were in college, so I didn't hear anything.
Entrepreneurship soared in 2015, according to Google Trends.
Then more individuals were interested. Entrepreneurship went from unusual to cool.
In 2015, it was easier than ever to build a website, run Facebook advertisements, and achieve organic social media reach.
There were several online business tools.
You didn't need to spend years or money figuring it out. Most entry barriers were gone.
Everyone wanted a side gig to escape the 95.
Small company applications have increased during the previous 10 years.
2011-2014 trend continues.
2015 adds 150,000 applications. 2016 adds 200,000. Plus 300,000 in 2017.
The graph makes it look little, but that's a considerable annual spike with no indications of stopping.
By 2021, new business apps had doubled.
Entrepreneurship will return to its early 2010s level.
I think we'll go backward in 5 years.
Entrepreneurship is half as popular as it was in 2015.
In the late 2020s and 30s, entrepreneurship will again be obscure.
Entrepreneurship's decade-long splendor is fading. People will cease escaping 9-5 and launch fewer companies.
That’s not a bad thing.
I think people have a rose-colored vision of entrepreneurship. It's fashionable. People feel that they're missing out if they're not entrepreneurial.
Reality is showing up.
People say on social media, "I knew starting a business would be hard, but not this hard."
More negative posts on entrepreneurship:
Luke adds:
Is being an entrepreneur ‘healthy’? I don’t really think so. Many like Gary V, are not role models for a well-balanced life. Despite what feel-good LinkedIn tells you the odds are against you as an entrepreneur. You have to work your face off. It’s a tough but rewarding lifestyle. So maybe let’s stop glorifying it because it takes a lot of (bleepin) work to survive a pandemic, mental health battles, and a competitive market.
Entrepreneurship is no longer a pipe dream.
It’s hard.
I went full-time in March 2020. I was done by April 2021. I had a good-paying job with perks.
When that fell through (on my start date), I had to continue my entrepreneurial path. I needed money by May 1 to pay rent.
Entrepreneurship isn't as great as many think.
Entrepreneurship is a serious business.
If you have a 9-5, the grass isn't greener here. Most people aren't telling the whole story when they post on social media or quote successful entrepreneurs.
People prefer to communicate their victories than their defeats.
Is this a bad thing?
I don’t think so.
Over the previous decade, entrepreneurship went from impossible to the finest thing ever.
It peaked in 2020-21 and is returning to reality.
Startups aren't for everyone.
If you like your job, don't quit.
Entrepreneurship won't amaze people if you quit your job.
It's irrelevant.
You're doomed.
And you'll probably make less money.
If you hate your job, quit. Change jobs and bosses. Changing jobs could net you a greater pay or better perks.
When you go solo, your paycheck and perks vanish. Did I mention you'll fail, sleep less, and stress more?
Nobody will stop you from pursuing entrepreneurship. You'll face several challenges.
Possibly.
Entrepreneurship may be romanticized for years.
Based on what I see from entrepreneurs on social media and trends, entrepreneurship is challenging and few will succeed.
Bob Service
3 years ago
Did volcanic 'glasses' play a role in igniting early life?
Quenched lava may have aided in the formation of long RNA strands required by primitive life.
It took a long time for life to emerge. Microbes were present 3.7 billion years ago, just a few hundred million years after the 4.5-billion-year-old Earth had cooled enough to sustain biochemistry, according to fossils, and many scientists believe RNA was the genetic material for these first species. RNA, while not as complicated as DNA, would be difficult to forge into the lengthy strands required to transmit genetic information, raising the question of how it may have originated spontaneously.
Researchers may now have a solution. They demonstrate how basaltic glasses assist individual RNA letters, also known as nucleoside triphosphates, join into strands up to 200 letters long in lab studies. The glasses are formed when lava is quenched in air or water, or when melted rock generated by asteroid strikes cools rapidly, and they would have been plentiful in the early Earth's fire and brimstone.
The outcome has caused a schism among top origin-of-life scholars. "This appears to be a great story that finally explains how nucleoside triphosphates react with each other to create RNA strands," says Thomas Carell, a scientist at Munich's Ludwig Maximilians University. However, Harvard University's Jack Szostak, an RNA expert, says he won't believe the results until the study team thoroughly describes the RNA strands.
Researchers interested in the origins of life like the idea of a primordial "RNA universe" since the molecule can perform two different functions that are essential for life. It's made up of four chemical letters, just like DNA, and can carry genetic information. RNA, like proteins, can catalyze chemical reactions that are necessary for life.
However, RNA can cause headaches. No one has yet discovered a set of plausible primordial conditions that would cause hundreds of RNA letters—each of which is a complicated molecule—to join together into strands long enough to support the intricate chemistry required to kick-start evolution.
Basaltic glasses may have played a role, according to Stephen Mojzsis, a geologist at the University of Colorado, Boulder. They're high in metals like magnesium and iron, which help to trigger a variety of chemical reactions. "Basaltic glass was omnipresent on Earth at the time," he adds.
He provided the Foundation for Applied Molecular Evolution samples of five different basalt glasses. Each sample was ground into a fine powder, sanitized, and combined with a solution of nucleoside triphosphates by molecular biologist Elisa Biondi and her colleagues. The RNA letters were unable to link up without the presence of glass powder. However, when the molecules were mixed with the glass particles, they formed long strands of hundreds of letters, according to the researchers, who published their findings in Astrobiology this week. There was no need for heat or light. Biondi explains, "All we had to do was wait." After only a day, little RNA strands produced, yet the strands continued to grow for months. Jan Paek, a molecular biologist at Firebird Biomolecular Sciences, says, "The beauty of this approach is its simplicity." "Mix the components together, wait a few days, and look for RNA."
Nonetheless, the findings pose a slew of problems. One of the questions is how nucleoside triphosphates came to be in the first place. Recent study by Biondi's colleague Steven Benner suggests that the same basaltic glasses may have aided in the creation and stabilization of individual RNA letters.
The form of the lengthy RNA strands, according to Szostak, is a significant challenge. Enzymes in modern cells ensure that most RNAs form long linear chains. RNA letters, on the other hand, can bind in complicated branching sequences. Szostak wants the researchers to reveal what kind of RNA was produced by the basaltic glasses. "It irritates me that the authors made an intriguing initial finding but then chose to follow the hype rather than the research," Szostak says.
Biondi acknowledges that her team's experiment almost probably results in some RNA branching. She does acknowledge, however, that some branched RNAs are seen in species today, and that analogous structures may have existed before the origin of life. Other studies carried out by the study also confirmed the presence of lengthy strands with connections, indicating that they are most likely linear. "It's a healthy argument," says Dieter Braun, a Ludwig Maximilian University origin-of-life chemist. "It will set off the next series of tests."