BERNIE MADOFF PONZI SCHEME: Victim List Grows

Somehow, I find this quite satisfying since most of the people who got screwed were ultra rich and so called SMART.

That they got duped by one of their own is somehow refreshing. Too bad the Palm Beach Country Club may have to go public.

Bernie Madoff is my hero. I mean, if you're going to scam somebody, might as well go to the top. Latest I've heard on this is that several European banks were duped along with the zillionaire civilians. This boy thought BIG. And it's an indication of one reason our economy is in the toilet, ready to be flushed. The people who handle our money are sometimes even dumber than us.

SEC Didn't Act on Madoff Tips
Regulator Was Warned About Possible Fraud as Early as 1999
By Binyamin Appelbaum and David S. Hilzenrath
Washington Post Staff Writers
Tuesday, December 16, 2008; D01

The Securities and Exchange Commission learned about what it describes as one of the largest securities frauds in history when Bernard L. Madoff volunteered his confession, raising questions about the agency's ability to police the financial marketplace.

The SEC had the authority to investigate Madoff's investment business, which managed billions of dollars for wealthy investors and philanthropies. Financial analysts raised concerns about Madoff's practices repeatedly over the past decade, including a 1999 letter to the SEC that accused Madoff of running a Ponzi scheme. But the agency did not conduct even a routine examination of the investment business until last week.

On Thursday, Madoff was charged with securities fraud after telling his sons that he had taken $50 billion from investors. The list of victims ranges from some of the world's largest banks to small charities. The Securities Investor Protection Corp., which offers limited protection to brokerage customers in cases of fraud, said yesterday that it would liquidate the company, Bernard L. Madoff Investment Securities.

Multiple investigations are just beginning. Investigators have not said when they believe Madoff began the fraudulent practice of using new investments to pay existing investors. It is not clear how much money was lost or how many people were involved.

But there is the beginning of an explanation as to how so many people failed to spot the alleged fraud.

Madoff may have avoided scrutiny, regulatory experts said, in part because he simultaneously operated a legitimate, regulated and high-profile business as one of the largest middlemen between the buyers and sellers of stock. In that role, he helped to create Nasdaq, the first electronic stock exchange, and advised the SEC on electronic trading issues. He was a large campaign contributor and a familiar of senior regulators.

"Bernie had a good reputation at the SEC with a lot of highly placed people as an innovator as somebody who speaks his mind and knows what's going on in the industry. I think he was seen as a valuable resource to the commission in its deliberations on things like market data," said Donald C. Langevoort, a Georgetown University law professor who specializes in securities regulation and served with Madoff on an SEC advisory committee.

At the same time, Madoff's separate investment business operated on the outskirts of regulation, during a period when the government has intentionally allowed private, unregulated transactions. Private investment pools, such as hedge funds, are subject to limited oversight, and Madoff constructed his investment business to avoid most of it. The SEC said Madoff did not register with it as an investment adviser until September 2006.

Finally, experts say the Madoff case may simply point to the inherent limits of regulation.

"The SEC going back to its formation, and the Justice Department going back to its formation, are never adequate to crime at its time. It's simplistic to look back and say that this was the SEC's fault," said former SEC chairman Arthur Levitt, who knew Madoff when both worked on Wall Street and consulted with him while at the SEC. "A very skillful criminal can almost always outfox the regulator or the overseer."

Ira Lee Sorkin, an attorney for Madoff, has said Madoff's firm is cooperating fully with the government in its investigation. Madoff has been released on bail.

Madoff's business as a middleman, or broker-dealer, was subject to regular scrutiny by the SEC, including a routine examination in 2005 that identified some problems and a 2007 investigation that was closed without any further action.

But Madoff's investment advisory business was never the primary subject of an SEC examination, according to people familiar with the case.

Regulators now suspect that he may have run a second investment advisory business that was never registered with regulators, according to people familiar with the investigation.

The SEC does not have the resources to examine investment advisers on a regular schedule. Instead, the agency prioritizes examinations of companies based on their risk profile, which is basically a process of judging books by their covers. People familiar with the process said the SEC tends to focus on high-risk investment strategies, such as trading in derivatives.

Lori A. Richards, director of the SEC's Office of Compliance Inspections and Examinations, said that only 10 percent of the 11,300 investment advisers registered with the SEC are examined on a regular basis -- those with high-risk characteristics. They are examined every three years. Others might be examined randomly or where there is cause, Richards said.

From 1998 to 2002, the SEC aimed to examine every adviser at least once every five years and to examine newly registered advisers during their first year, but a 50 percent increase in the number of advisers since 2002 ended that practice, Richards said.

Richards declined to comment on Madoff's firm.

Some experts said that the SEC's criteria made sense and that the fraud Madoff allegedly constructed was successful in part because it avoided the appearance of risk. It avoided the scrutiny of investors and regulators by claiming to engage in vanilla trading and reporting steady but unspectacular returns.

"I think the SEC is going to have a PR issue to deal with, but I'm not sure you'd find that the SEC staff did anything wrong," said Barry Barbash, a partner at Willkie Farr & Gallagher and a director of the SEC's Division of Investment Management during the Clinton administration. "They've had to make judgments, and they decided to look at derivatives, short sales, insider trading, all the things that Madoff never had."

Others said that the SEC should have flagged Madoff for examination no later than the moment he registered as an investment adviser, in 2006, because of the history of complaints against his firm and because of its unusual characteristics. These included Madoff's history of smooth earnings -- above 10 percent a year, every year -- and his company's reliance on a small auditing firm that had no other large Wall Street clients.

Aksia, a New York-based consulting firm that advises institutional investors about hedge funds, found that Madoff's auditor worked out of a 13-foot-by-18-foot office in Rockland County, N.Y., with only three employees. The employees of the firm, which had only Madoff as a client, included a 78-year-old living in Florida and a secretary, Aksia said it discovered. The auditor, Friehling and Horowitz, did not respond to a request for comment.

"If it's true that the SEC had begun receiving warnings in 1999, then even if they did nothing before then, surely when he registered with them in 2006, he should have gone to the top of their list," said Barbara Roper of the Consumer Federation of America.

Madoff avoided scrutiny despite the dogged bell-ringing of a Boston accountant, employed by another investment firm, who repeatedly accused Madoff of breaking the law in a series of letters to the SEC that began in 1999. The accountant, Harry Markopolos, said he sent his most recent letter in April.

A former SEC enforcement official said the letters should have raised red flags for regulators.

"It is not common to get complaints about somebody who's running a large amount of money that it's a Ponzi scheme," said the former official, speaking on condition of anonymity.

He said that investigating a Ponzi scheme is not difficult: The agency can simply demand proof that the investment adviser holds the amount of money he claims to hold. And he added that regulators also should have noticed that Madoff was audited by a tiny company with no reputation. He said there are only a few accounting firms with the sophistication to audit an investment adviser that, at the time of registration with the SEC, reported $17 billion on assets.

Regulators should have noticed instantly, he said, that Madoff's auditor was not on the list.
---------------------------------

Staff researcher Meg Smith contributed to this story.

Not so, Andrew - investors with Mr Madoff were WITHOUT EXCEPTION "sophisticated investors" (that's a legal definition) and it was THEIR job to conduct a due diligence prior to sending monies to any of his hedge funds.

The SEC is to blame for a great deal, but not that one.

unfortunately some charities were wiped out too .
i think madoff didn't care much whose money it was , he just wanted it ALL .
somewhat like a kleptomaniac - they'll steal from an old friend , the sally ann or someone they don't know .

http://www.canada.com/topics/news/world/story.html?id=1079390

Charities have TRUSTEES, and trustees are "sophisticated investors" under the law. They can be sued if they were negligent in exercising due diligence prior to investing funds entrusted to them, whether by a charity or by anyone else.

high seas :

i'm sure you know how long it takes for these cases "to reach the courts" and how much longer it'll take for the cases to be resolved .
in the meantime the charities will have gone under - kaput !
the lawyers will likely take their "fair" share of any settlement .
hbg

That's completely irrelevant to the matter of Madoff: all his investors HAD to qualify as "sophisticated investors" in order to invest with him. Perhaps you'd better read up on the legal definition of the term:



http://www.sec.gov/info/smallbus/qasbsec.htm

If the trustees of those charities, or the investment advisers of other Madoff clients, were incompetent or delinquent in their duties then they're the ones to blame, not the SEC.

According to the WJS

SEC's Cox: "Gravely Concerned" About "Multiple Failurses" in Madof Case

Walter - please read carefully before posting. The SEC is supposed to look PREVENTIVELY after PUBLIC offerings (that means offerings of securities subject to blue-sky laws). Sophisticated investors are EXEMPT from those laws. After FRAUD has occurred the SEC has the RIGHT to investigate anybody, whether sophisticated investor or not.

Truly you're being tiresome in attempting to argue US securities laws, on which you don't appear to be an expert

And oh yeah, lose the bold type, you're getting to be worse than Icann, who at least doesn't argue what he's clueless about!

That's the headline ... of the linked SEC statement.

Yes, Walter, I can actually read, even text in lower-case, black-on-white letters, and I can even click on links, though I don't do that if I've had the info before it was published, not to mention read the WSJ article after their journalist called me to ask on mathematical valuation models ........ Danke

...tiptoeing in, head down, cap in hand: "ummm, Walter, do you, by any chance, still have the English translation of a passage from Vom Kriege you had helped me with some years ago? Still have the German original, but not the translation.... Thanks....and you know I have a vile disposition but am otherwise a nice person....."

No, sorry, HS, didn't store it.

SEC Report: Employees Browsed Porn, Ran Private Businesses
by Jake Bernstein, ProPublica - December 19, 2008

The Securities and Exchange Commission is taking a drubbing these days for its abject failure―despite detailed tips―to catch Bernie Madoff in what appears to be the biggest Ponzi scheme in our nation’s history.

Now, thanks to little-noticed report from the agency’s inspector general, we have a detailed glimpse into other bad behavior by some SEC employees.

The report, released the day after Thanksgiving, reveals that some employees at the agency were clearly preoccupied with matters other than their mission of "protecting investors and maintaining fair, orderly, and efficient markets." The semi-annual report to Congress, which covers the period from this past April to September, details among other things a handful of employees circumventing internal controls to download porn. Let’s pause for some detail:

[Investigators] uncovered evidence that an employee who was still in his probationary period had used his SEC laptop computer to attempt to access Internet websites classified as containing pornography, resulting in hundreds of access denials. The OIG investigation also disclosed that this employee successfully bypassed the Commission’s Internet filter by using a flash drive.

Presumably, that’s not the kind of initiative the SEC is looking for.

There were also more serious misdeeds raised by the report. For example, there is the case of the senior-level commission employee who "clearly and purposefully identified herself as a Commission employee when dealing with brokers about a family member’s account," making the broker in question feel like she was trying to "intimidate and bully him." The OIG referred the matter to management for "disciplinary action, up to and including dismissal." By the end of the period covered in the report, management "had not proposed or taken action."

There are other examples where the punishment was less than fulsome.

Investigators found employees in separate offices operated private photography businesses out of the commission:

An employee repeatedly and flagrantly used Commission resources, including Commission Internet access, e-mail, telephone and printer, in support of his private photography business for several years.

The IG’s office recommended "disciplinary action up to and including dismissal." In turn, the report notes, "management suspended the employee from duty and pay for nine calendar days."

When asked about the report, Deputy Director for Public Affairs John Heine said, "In each of these [cases] there is some sort of response from the Commission. We don’t have anything to say beyond that."

The report reveals also that two commission staffers employed as attorneys didn’t have active bar memberships. One attorney let his bar license lapse in 1994. The report said one of the lapsed lawyers "submitted a declaration in Federal court, in which he stated that he was an attorney employed by the SEC. We referred the potential false statement or perjury to the applicable United States Attorney’s office." (The office declined to prosecute.)

The IG also found that the commission did not have a sufficient system in place to "prevent and detect insider trading on the part of Commission employees or violations of the Commission’s rules."

The agency’s information management also comes in for criticism. An employee survey conducted by the inspector general revealed that employees failed to enter data into a computer system used to manage investigations. The system known as the HUB was launched in August 2007 after the Government Accountability Office had highlighted major problems with the SEC’s previous case management and tracking system. The IG semi-annual report also reveals that the commission lacks "an inventory of its laptops and was unable to trace ownership of laptops to specific individuals."

Please stop posting random articles whose sole connection to the topic is the inclusion of a single word - that's what search engines used to do before algorithms introduced by Google. That was 15 years ago, see if you can learn from it.

Thanks all the same - will have to bother you with attempts of a new translation again, if you don't mind.

Doing it will fill my heart with the joy of the season ...