Skip to comments.Madoff Chasers Dug for Years, to No Avail
Posted on 01/06/2009 9:16:13 AM PST by Lorianne
Regulators Probed at Least 8 Times Over 16 Years; ___ Bernard L. Madoff Investment Securities LLC was examined at least eight times in 16 years by the Securities and Exchange Commission and other regulators, who often came armed with suspicions.
SEC officials followed up on emails from a New York hedge fund that described Bernard Madoff's business practices as "highly unusual." The Financial Industry Regulatory Authority, the industry-run watchdog for brokerage firms, reported in 2007 that parts of the firm appeared to have no customers.
Mr. Madoff was interviewed at least twice by the SEC. But regulators never came close to uncovering the alleged $50 billion Ponzi scheme that investigators now believe began in the 1970s.
The serial regulatory failures will be on display Monday when Congress holds a hearing to probe why the alleged fraud went undetected. Among the key witnesses is SEC Inspector General David Kotz, who was asked last month by the agency's chairman, Christopher Cox, to investigate the mess.
The situation is even more awkward because SEC examiners seemed to be looking in the right places, yet still were unable to unmask the alleged scheme. For example, investigators were led astray by concerns that Mr. Madoff, now under house arrest, was placing orders for favored clients ahead of others to get a better price, a practice known as "front running." Front running isn't thought to have played a role in the firm's collapse.
Concern that the SEC lacks the expertise to keep up with fraudsters is the latest criticism of the agency, which saw the Wall Street investment banks it oversees get pummeled or vanish altogether in 2008. With Congress likely to take a hard look at how to structure oversight of financial markets, the SEC is struggling to maintain its clout.
(Excerpt) Read more at online.wsj.com ...
If they couldn’t uncover this, then the SEC should be disbanded. Its one thing if the regulatory agency chooses not to regulate because they think regulation is wrong. It’s another thing if they attempt to regulate, but are incompetent. How deeply could they have dug if they didn’t notice the accountant was two guys in a storefront, and the assets simply didn’t exist at all?
Look at the compensation packages of the SEC examiners. Then look at the compensation packages of the managers and CFOs of even medium-size hedge funds. Until the two are at least vaguely comparable, the smart and determined people will be working for the hedge funds, and the dumb and lazy will be working for the SEC, and you’d having be living in a fantasy world to expect employees of the latter to catch employees of the former who engage in fraud.
think maybe he bought a few investigators? ? ?
Or more likely, the SEC investigators could be easily ‘persuaded’ to look the other way, look in the wrong places ... or otherwise foot-drag to eternity.
Follow the money.
Possibly, but really I think what’s much more common is that the examiners are afraid of “looking stupid” in front of these people who are obviously much smarter than they are, and are also afraid that the examinees may report evidence of the examiners’ cluelessness to the examiners’ superiors. I have some personal experience with this, dealing with a Fed examiner. In our case, there was nothing going on except some lapses in filing some required forms that none of us had known about, but once we’d been “examined” it was quite clear to us that anyone actually engaging in illegal shenanigans would have no reason to fear visits by this examiner.
You’d think Hans Blix was head of the SEC.
I'd say that it's darned odd that the SEC couldn't see what Markopolis saw. Or is it that they wouldn't see it?
I suspect the reason was that Madoff’s powerful, wealthy, and influential investors thought that he was making his unusual rate of return through insider trading, and didn’t want him examined too closely, and thus provided behind-the-scenes pressure via their Dem reps
Started in the 1970s? Wow.
Cue theme music from "James Bond."
You think it helped that Madoff’s niece was married to the SEC investigator?
And the reason why the ‘screw up” at the SEC probably won’t be investigated too closely.
Unless an SEC whistleblower comes forward, with documented proof of what was going on between parties, we will probably never know. But they could be being paid off so well that it is not in their best interests to let us peons know what was going on.
It is impossible to believe no wrongdoing was ever found.....in light of cascading news reports about the shady business methods Madoff used.
More likely fraud was staring L/E in the face but was NEVER ACTED UPON due to the status, power and influence Madoff wielded.
Even more disturbing, the very same people he was scamming rushed to Madoff's defense whenever fraud issues were raised. One financier who sounded the alarm a few years back was accused of being anti-Semitic..... by Madoff's investors.
Clearly, Madoff's investors who waved off investigations using the anti-Semite banner have obstructed and delayed US justice and played a huge role in advancing the Madoff scam. Madoff himself might have encouraged the anti-Semite allegation b/c he knew it would forestall examination of his fraudulent operation.
BACKGROUND The now-famous 2005 Markopolis Report to the SEC raised the fraud issues and yet the SEC turned a blind eye....However, it must be noted that the SEC backed-off investigating Madoff NOT because they are incompetent, but because SEC investigators risked losing their jobs if they zeroed in on Madoff.
CAREER KILLER In the ranks of L/E, it is NOT advisable to imply people of Jewish heritage are doing something illegal---even moreso, it is a career killer to suggest it. FBI agents have been lacerated and condemned----even losing their jobs. Madoff's concentrating his efforts on religious-affinity investors certainly validates this---Madoff seemed to know L/E dared not suggest he was doing something illegal.
This no-no applies to all facets of government. Cascading stories of mega-wealthy Madoff investors living lives of luxury inside posh gated communities coast-to-coast, must be especially painful---b/c the US Census Bureau was asked to stop reporting its findings that Jewish-Americans are the nation's wealthiest.
Politicians at these sham hearings are implicitly defending the scam---(not asking the right questions is a cover-up). Pols fear losing big buck campaign donations and voting blocs they assiduously court.
NEEDS TO BE DONE NOW Investigators should demand all records detailing the number of times and places his investors played the anti-Semitic card to wave off investigations of Madoff. Americans need to know how many times Madoff investors caused L/E investigators to lose their jobs for going after Madoff. Madoff investors who colluded to obstruct and delay US justice played a huge role in advancing the Madoff scam.
Law enforcement is looking at the legal parameters of prosecutable crimes including collusion, making false statements to federal officials, obstructing proceedings before federal agencies, conspiracy, and obstructing and delaying US justice.........all felonies.
Keep in in mind that the SEC received complaints ONLY from Madoff's competitors. Not one client ever filed a complaint...........
Now Bernies investors were savvy, astute successful business people, accustomed to constructing, picking apart and analyzing financial statements. One investor who spoke to reporters was a stockbroker (her family invested with Bernie for generations---the family's patriarch founded the wildly successful Stop and Shop supermarket chain). Other inevstors gave Madoff $100-500 millions to "invest" for years and years.
ORGANIZING LEGAL PRINCIPLE The following should foreclose any cockamamie ideas that taxpayers are gonna bailout these mega-millionaires (who most assuredly have money stashed offshore out of sight of the SEC and IRS).
The compelling legal principle of condonation is operating here---implied forgiveness for certain behavior. Meaning investors implicitly condoned Madoffs actions over a period of time--sometimes decades.
His investors willingly acquiesced to Madoff's activities in several ways:
(1) Sending Madoff enormous sums of money, sums that were spread out over time (some families invested for generations), even AFTER they had the opportunity to assess their investments;
(2) Referring other investors to Madoff (if the investment was so bad, why did they bring in other investors?);
(3) Taking profits out of the investment, rolling it over, or putting more money in;
(4) Writing PERSONAL checks to Madoff's subrosa spinoff vehicle that was not listed on the Securities Exchange (tax evasion modus);
(5) Accepting, without question, Madoffs obviously flawed monthly statements.
REFERENCE: by Ronald D. Orol, MarketWatch reporter, based in Washington.
EXCERPT There were several things that alerted some in the hedge-fund industry that an investment with Madoff may not have been as safe as it initially appeared. Aksia LLC, which researches hedge funds and advises institutions about investing in the industry, said that it never recommended that clients put money in some of the "feeder funds" that allocated their capital to Madoff. On the surface, these feeder funds looked like institutional-quality vehicles, but there were "a host of red flags," Aksia Chief Executive Jim Vos and colleague Jake Walthour wrote in a letter to clients after the Madoff scandal erupted last week.
The funds were marketed as using a "split-strike conversion" investment strategy that is "remarkably" simple, but the returns it purportedly generated could not be replicated by Aksia's quantitative analyst, Vos and Walthour wrote.
The Madoff funds supposedly traded in the Standard & Poor's 100 index options market, but that market is relatively small and may not have been able to handle trading by vehicles with roughly $13 billion in assets, they said. The feeder funds had almost all their assets custodied with Madoff Securities, the brokerage unit of Madoff's firm.
Aksia checked into the auditor of Madoff Securities and discovered it was a firm called Friehling & Horowitz, which had three employees -- one of whom was 78 years old and another was a secretary. The firm's office in upstate New York was 13 feet by 18 feet. Madoff's Web site claimed the firm was technologically-advanced, but it sent paper confirmations of trades via US mail at the end of each day, rather than providing electronic access to this important information.
Paper copies provide a hedge-fund manager with the end-of-the-day ability to manufacture trade tickets that confirm the investment results.
THEY HAD TO KNOW THIS WAS A SCAM. Bernies investors were savvy, astute successful business people, accustomed to picking apart and analyzing financial statements. WANT MORE PROOF? Bernie's "investors" were writing PERSONAL checks to Madoff's subrosa separate "investment" vehicle that was not listed on the Securities Exchange. This is clearly a money laundering, tax evasion modus.
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