Madoff Brother, at Arm's Length?

Wall Street Journal (subscription) ^ | January 10, 2009 | Tom Lauricella and Aaron Lucchetti

[CutePuppy]

As the No. 2 executive at Bernard L. Madoff Investment Securities LLC, Peter Madoff worked side by side with his older brother Bernard for nearly 40 years.

Outside the office they skied together, including on one 2004 trip with a broker working at the firm's office who recruited investors for Bernard Madoff's advisory business. With Peter long viewed as an heir apparent, the brothers tried to avoid flying together.

Now, they are keeping their distance. Bernard Madoff has told prosecutors he acted alone in bilking investors out of $50 billion over several decades. Peter Madoff has stopped coming into the office and isn't talking publicly about his role at the securities firm, where he headed trading operations.

In a firm defined by family ties, Bernard, 70 years old, and Peter, 63, were especially close. With an office a few feet from his brother, Peter helped create innovative electronic-trading systems on which much of Madoff Securities' success and reputation was built. For the past two decades, Peter ran the day-to-day trading operations of what the firm described as its core business.

.....

In the late 1990s, Bernard's sons, Mark and Andrew, took over direct responsibility for the trading operation but continued to report to Peter, who increasingly began taking on the role of "Mr. Outside," managing client relationships and handling regulatory issues.

.....

Amid the scandal, Peter is expected to leave National exchange's board in coming weeks, according to people familiar with the matter. The exchange and Madoff Securities' trustee are also expected to discuss how to handle the firm's 11% stake in the exchange.

.....

Peter's daughter, who also attended Fordham Law, went on to join the family business. She worked primarily as a compliance lawyer at Madoff Securities' market-making arm at the time of her uncle's arrest.

.....

[CutePuppy]

The Peter Madoff File

He was himself a director of several securities associations and exchanges. Among other things, here's one that's interesting - Peter Madoff, who was a Chief Compliance Officer at the firm, and his daughter Shana, who was the firm's compliance lawyer, both attended Fordham Law School. So did Meaghan Cheung, who was one of the SEC investigators of November 2005 Harry Markopolos' complaint - THE SEC WATCHDOG WHO MISSED MADOFF. Cheung and her superior Doria Bachenheimer who signed off on the case, both have left SEC for personal reasons since September of last year, just few months before Bernard Madoff confessed to Ponzi scheme and was arrested.

[DieHard the Hunter]

Connect-the-dots PING. Interesting stuff...

[DieHard the Hunter]

Fleshing out the Rogue’s Gallery..

A fascinating collection of unhanged villains if I’ve ever seen one.

Interesting article — thanks for posting!

[CutePuppy]

Having recently posted an article about Cheung and her CV, Fordham Law School just stood out.

[Liz]

As the No. 2 executive at Bernard L. Madoff Investment Securities LLC, Peter Madoff worked side by side with his older brother Bernard for nearly 40 years.......Peter was viewed as Bernie's heir apparent so the brothers tried to avoid flying together when they went on skiing trips together. Now, they are keeping their distance. Peter has stopped coming into the office and isn't talking publicly about his role at the securities firm, where he headed trading operations.

(Scoff)... this is an unmitigated attack on Peter---he wasn't doing anything illegal as "trading operations mananger." Heck, all Peter was doing was picking pecks of pickled peppers. Here's where Peter the pickled pepper picker lives.

Hmmmmm.....unemployed working class Americans should consider getting retrained as pickled pepper pickers.

[Liz]

Peter's daughter like her father also attended Fordham Law, and went on
to join the family business. She worked primarily as a compliance lawyer
at Madoff Securities' market-making arm at the time of her uncle's arrest.

.

Former SEC exec Meaghan Cheung and Fordham Law School grad, oversaw
a 2006 probe of swindler Bernard Madoff's firm........ and somehow "missed"
seeing a $50B fraud.

[John Galt's cousin]

a competent investigation will reveal that madoff’s family and close friends are as guilty as he is. madoff knew his scheme was collapsing and had his sons implement the story that they just learned of the fraud and reported it. “Bravo Sierra”.

it is an obvious attempt to protect as much of the remaining money for his family and close friends as possible after discovery became imminent. The sons, the brother,their children as well as the employees were ALL aware of what was going on. They should be closely investigated, charged, tried, convicted, and caused to forfiet all their assets

[Boiling Pots]

There is NO WAY that Madoff acted alone.

First, they need to check his family, and second, they need to go after those people whom he had written checks to and was about to send when the whole thing came crashing down.

[DieHard the Hunter]

> a competent investigationwaterboard will reveal that madoff’s family and close friends are as guilty as he is.

There. (sigh!) Wishful thinking...

[Sherman Logan]

Yup. Madoff could not possibly have administered a $50B operation single-handedly. The operation was keeping some kind of books to show its actual operation, or it could not have been kept running as long as it did, although they no doubt were submitting a second set to the regulators. No way Madoff did this all himself.

[Vn_survivor_67-68]

This guy’s site will interest some - not exclusively about Madoff, a financial writer PO’d about the whole sorry big picture:

http://market-ticker.denninger.net/authors/2-Karl-Denninger

Calling Out The Excuse-Makers

Let’s start with Bill Gross:

“Still, while such a transformation is, to put it mildly, undesirable, the policies are necessary. As outlined in these pages, the U.S. and many of its G-7 counterparts over the past 25 years have become more and more dependent on asset appreciation. Under the policy-endorsed cover of technology and somewhat faux increases in financial productivity, we became a nation that specialized in the making of paper instead of things, and it fell to Wall Street to invent ever more clever ways to securitize assets, and the job of Main Street to “equitize” or, in reality, to borrow more and more money off of them. What was not well recognized was that these policies were hollowing, self-destructive, and ultimately destined to be exposed for what they always were: Ponzi schemes, whose ultimate payoffs were dependent on the inclusion of more and more players and the production of more and more paper. Bernie Madoff?

...

But Madoff’s scheme has a host of culpable look-alikes and one has only to begin with the mortgage market to understand the similarities. Option ARMs or Pick-A-Pay home loans allowed homeowners to make monthly payments that were so small they did not even cover their interest charges. Two million mortgagees either chose or were sold this Ponzi/Madoff form of skullduggery, believing that home prices never go down and that shoppers never drop. One can add to this the trillions in home equity/second mortgage loans that extracted “savings” in order to promote current instead of future consumption, and one begins to realize that Bernie Madoff and our cartoon’s Wimpy had company all these years.”

....

What about the shabby performance of the rating agencies? Were they not equally at fault for perpetrating a giant charade that was bound to end in tears? Of course: Aaa subprimes structured like a house of straw; Aaa monoline insurers built like a house of sticks; Aaa credits like AIG, FNMA, and FHLMC where only a huff and a puff could expose them for what they were – levered structures dependent upon asset price appreciation for their survival. Ponzi finance.

I will go on. Municipalities with begging bowls now extended for over a trillion of Federal taxpayer dollars, based their budgets and their own handouts on the perpetual rise in home prices, the inevitable upward slope of sales taxes, and the never-ending increase in employment and personal income taxes. To add injury to insult, they conveniently “balanced” their books with a host of accounting tricks that Bernie Madoff could never have come up with in his wildest imagination. Now, with cash flow insufficient to meet current outflows, they are proving my point that we have met Mr. Ponzi and he is us – all of us: auto companies that siphoned sales dollars to make labor peace instead of research and design expenditures; hedge funds that preposterously billed investors for 2% and 20% of nothing; a President and politicians who thought they could fight a phony war for free and distract the nation’s attention from $40 trillion of future social security and health care liabilities. Ponzi, Ponzi, Ponzi.

Ah. Someone’s been reading The Ticker, specifically “We’re all Madoff”.

But this begs the question - what does Bill Gross think we should do? What, pray tell, should he do?

He answers that question:

“Still, future policymakers must confront the reality that is, not the one that should have been. And investors must do likewise, casting aside personal philosophies for a clear-headed view of the future horizon. PIMCO’s view is simple: shake hands with the government; make them your partner by acknowledging that their checkbook represents the largest and most potent source of buying power in 2009 and beyond. Anticipate, then buy what they buy, only do it first”

Find a way to cheat -n- bleat, then get in front and reap the profits of inside baseball?

Perhaps the point of “We’re All Madoff” wasn’t quite clear to Mr. Gross - or perhaps, he just doesn’t give a damn.

But Bill, unlike many of the people on the street who are starting to make noise about this in public, really does get it.

Read the full text. Or just the highlighted sections.

Ponzi.

But what is “Ponzi” Mr. Gross? It’s a felony isn’t it? Indeed, such schemes are illegal. And the indictments you level are wide-reaching, and, in my opinion, spot-on - if a bit late.

Nor is Mr. Gross alone today; we also have this from Comstock funds:

“By now it must be clear to everyone that the U.S. economy is dependent upon DEBT, and we believe we have reached the debt limit!! It took the resurgence of the stock market bubble in 2003, just a few years after the late 1990s bubble, coupled with the housing bubble to get the private sector to feel wealthy or comfortable enough to generate the enormous debt relative to GDP that finally froze up the credit markets. As soon as the credit markets froze up earlier this year the economy came to a screeching halt as the consumer “hit the wall” and even solid businesses could no longer borrow money. “

Sure they can - if they don’t have too much debt. The problem is that most of them are up to their eyeballs.

At least Comstock gets the “how to get out” part - they say let the market force the defaults and the cleaning - in house prices, in assets generally.

They’re right.

Now, for those of you who I know are reading this, and are managing money but haven’t been part of pushing “The Great Ponzi”, I call upon you to do the right thing.

Let us all agree on the following facts:

Ponzi schemes are illegal. They are in fact felonies, and the people who engage in and profit from them are felons. Not-yet-prosecuted, perhaps, but the fact remains that none of these schemes are legal. None.

The law is clear in this regard. 18 USC 1341, for example, says:

“Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, or to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anythin

[BunnySlippers]

Thanks, was reading about Cheung this morning.

[BallyBill]

Bernie was the oldest, so he “drew the short straw”. He goes down and the rest of his crew plays dumb and keeps the leftover cash.

[Just mythoughts]

What was the straw that broke the camel’s back? Housing hedges or oil speculators?

[2harddrive]

I guess one could say the Bernard Made-off with the money!

[CutePuppy]

For Madoff, none of the above, they didn’t “play” these markets. It was redemptions, pure and simple. Ponzi / pyramid schemes cannot go on when redemptions start to exceed contributions. Large investors (funds) in Madoff, particularly European, faced with potential of “run on the bank” withdrawals from their customers, needed the cash to shore up their own liquidity and asked for some of their money.

[CutePuppy]

Interesting commentary, thanks for posting.

Let's start at the end of it: "Ponzi schemes are illegal." - yes, for any entity that isn't government. Government calls their pyramid schemes, like Social Security or pension plans, "pay as you go". Government usually tries to "grow out of" old obligations through inflation, which of course, only makes it more expensive later - same pyramid, just bigger in size. But that's a whole other subject.

"phony war" tells me where his head is at on that subject.

"As soon as the credit markets froze up earlier this year the economy came to a screeching halt as the consumer “hit the wall” and even solid businesses could no longer borrow money." - unfortunately, too many people still don't understand that.

Re Bill Gross (PIMCO), with over $1T (trillion) in bonds under management he and few others can pretty dictate the Fed interest rates. The longer the Fed resists, the worse it would get, as stock and bond markets just go on "buyers strike", and after a short period of time artificial panic starts to propagate from Wall Street to Main Street. Then Fed starts saying "How low do you want these rates?" and skipping quarter points in a hurry, creating more panic and more market freeze as everyone waits for rates to stop falling before taking in debt. Fed is not really in charge of even short term interest rates, no matter how much most people think Fed omnipotent, and Fed themselves would like to think they are. But that's whole other subject, too.

“We’re All Madoff” - not really, most of us are not. But those who are, control or own most money and most politicians to affect all of us, so most of us are that part of the bottom of pyramid, whether we know it or not and whether we are willing to be or not. It doesn't make all of us "Madoff", it does make some like Bill Gross and others who are part of the financial pyramid because of what they do. And if one wants to get PO'd even more at Bill Gross, here's one of his missives: Bill Gross | July 2008 | Dear President Obama:

[Pharmboy]

[Ethrane]

They ought to make Madoff the head of the Social Security Administration....

After all, he has a lot of experience running Ponzi schemes.

LOL

[Vn_survivor_67-68]

I don’t hold anything more than it takes to scalp it. Lately all I do is turn the scanner on during premkt to find what the hordes are excited about and do a bit of DD before the bell and if there is some sort of news I watch for an afterbell yankdown and take it at the turn and sit here with a sell ticket on the screen. More like blackjack than investing, LOL.