Madoff SEC Report Ready, but Public Must Wait

CNBC ^ | August 31, 2009 | Scott Cohn

[CutePuppy]

Securities and Exchange Commission Inspector General David Kotz has issued his long-awaited report on how the agency missed the Bernard Madoff Ponzi scheme.

In a statement e-mailed to CNBC Monday afternoon, Kotz said the 450-page report is the result of an exhaustive, eight-month investigation.

.....

[CutePuppy]

Finally, a report on the watchers... but...

But it will take a while longer for the public to see it. The report was submitted directly to SEC Chairwoman Mary Schapiro, and under SEC rules, the Commission must vote on whether to release it.

According to sources close to the process, the Justice Department will also likely get a chance to review the report to make certain no information is released that compromises the ongoing criminal investigation of the Madoff fraud. .....

Mary Schapiro, current SEC Chair was a head of FINRA, an organization that "missed" Madoff's schemes to begin with.

Is anything in the report about how and why FINRA "missed" it? And if not, who will watch the watchers?

[fso301]

Kotz said the 450-page report is the result of an exhaustive, eight-month investigation.

When will the meltdown of Sept 18, 2008 be investigated? [Crickets]

[4rcane]

sep 18, 2008 investigation will find that, ppl on wall street watched obama poll numbers plummet. They had to do something to help increase his chances

[CutePuppy]

You mean post-Lehman (September 14-15, 2008) breaking the buck by Reserve Primary Fund money market fund, which triggered massive selloff and electronic withdrawals from / "run on" other money market funds before it was shut down by the Fed and the Treasury?

They have actually criminally (and wrongly) charged the founder of Reserve Primary Fund ("the father of the money market mutual funds") Bruce Bent and his son, who, by all accounts, saved the "depositors" / investors in the fund a lot of money by shutting down the "run" instead of succumming to panic and liquidating positions at a loss in the middle of the "run". Of course, the man is not a lib, like Madoff's clientele, he and his family are conservative / libertarian sponsors of Club For Growth - see posts
http://www.freerepublic.com/focus/f-news/2244939/posts?page=10#10 - Father of money market funds charged with fraud
and
http://www.freerepublic.com/focus/f-news/2244939/posts?page=11#11 - Father of money market funds charged with fraud

Recent article has important information for MM funds investors and good details on time line of what happened a year ago, there was no fraud on part of RPF :
It’s Time to Admit it: Money Funds Involve Risk - CNBC / NYT, 2009 August 29.

In all the inevitable hoopla surrounding the coming anniversary of “Lehman weekend” — those fateful days in mid-September 2008, when the financial world seemed on the brink of collapse — here’s an important event that will almost surely be overlooked:

On Sept. 18, just a few days after the anniversary, the Treasury Department will end a program that essentially gave the same kind of protection to money market investors that the Federal Deposit Insurance Corporation gives to bank depositors. The government guaranteed that investors wouldn’t lose a penny.

When the program was instituted a year ago, you’ll recall, the Reserve Primary Fund, a $62.5 billion money market fund, had “broken the buck.” With $785 million in defaulted Lehman bonds in its portfolio, it had been unable to maintain the $1 share price that has long been a priority for money market funds, falling to 97 cents. Investors, who had long viewed money market funds as the equivalent of a bank savings account, raced for the exits.

Henry M. Paulson Jr., the Treasury secretary at the time, rammed through the guarantee in part because he wanted to quell investor panic, which he feared would spread like a contagion to other money market funds. And since money funds are big buyers of commercial paper, he also wanted to prevent the commercial paper market from freezing up, with devastating consequences. With $3.5 trillion in assets, money market funds had become a critical component of the shadow banking system.

Here we are a year later, and the money market fund business seems back to normal. No other money funds have broken the buck. The amount of money in money funds today is not at all different from what it was before Lehman weekend. Investors have, once again, come to think of them as a supersafe, yet turbocharged, bank account.

Even the Reserve Fund, which is liquidating, reported a few days ago that, if all goes well, it expected to be able to return to investors 99 cents on the dollar. (Even if all doesn’t go well, the fund expects to return 98.75 to its investors.) Not bad for a fund that supposedly “collapsed.” .....

On the other hand, George Soros and some of his buddies cashed in very well on the "September surprise" - Soros Fund Soared as Rivals Lost in Crisis: Report - Reuters, 2009 September 1.

Billionaire investor George Soro, long celebrated for his shrewd market picks, proved his acumen anew in the last year when his firm's assets surged 41% while most rivals' assets tumbled.

According to data compiled by AR, a hedge fund magazine born out of the consolidation of the former Absolute Return and Alpha publications, Soros Fund Management oversaw $24 billion in assets on July 1, 41.18% more than the New York-based firm managed 12 months earlier. .....

[Liz]

FYI: Madoff’s pal J Ezra Merkin made zillions feeding funds to Bernie. Now Merkin’s business parrner Fineburg is going down. Merkin (as GMAC chair) and Fineburg (as GM owner) both got billions dollar tax bailouts. Where's the money?

The two co-own an Israeli bank which could have been used in scams since Israel is the only place in the world where a person can debark, enter an Israel bank with a suitcase full of cash, and nobody asks where they got it, or whether taxes were paid on it.

SEPT 31, 2009----Clients Flee Cerberus, Fallen Fund Titan
BY PETER LATTMAN AND JENNY STRASBURG, WSJ

Investors in hedge funds run by Cerberus Capital Management LP, whose audacious multi-billion dollar bet on the US auto industry went bust, are bolting for the door, clinching one of the highest-profile falls from grace of a superstar in the investment world. Clients are withdrawing more than $5.5B or nearly 71% of the hedge fund assets, in response to big investment losses and their own need for cash, according to people familiar with the matter. "We have been surprised by this response," Cerberus chief Stephen Feinberg and co-founder William Richter wrote in a letter delivered to clients late Thursday…….rest at http://online.wsj.com/article/SB125148681701267563.html?mod=rss_whats_news_us

[Liz]

LEHMAN LEFTOVERS LIFT ON WAVE OF SPECULATION
By MARK DeCAMBRE, NY POST, Sept 2, 2009

First there was the dead-cat bounce -- and now there's the Dick Fuld bounce. Nearly a year after its spectacular collapse, trading activity in the now-defunct Lehman Brothers has begun spiking, with volume surging to 50 times its normal levels the past few days.

On Monday, some 125 million shares in Lehman Holdings, as the bankrupt company is now called, changed hands, compared with a meager 2.5 million shares that traded last Thursday.

Meanwhile, the OTC stock, has priced as high as 32 cents. It bounced between 3-5 cents in the month leading up to the surge. It closed yesterday at 15.5 cents. Traders speculate that the run-up is fueled by a belief that the bank, which still houses billions in soured mortgage assets and esoteric derivatives, may have enough juice left in it to return at least some money to shareholders.

Indeed, bolstering that view is a recent sale of $423M worth of claims on Lehman's assets that were sold by hedge fund Citadel Investment Group to Credit Suisse last week. And, according to Lehman Holding's Web site, the company has accumulated $6B cash from its derivative contracts. While some investors appear to have hope, many Wall Street observers think the notion that Lehman will have any dough left after paying off an estimated $100B in claims is little more than a pipe dream.

"I think the driver for the buying is more than just the dash for trash," said Jon Najarian co-founder of OptionMonster.com. Lehman isn't alone. The bankrupt holding company of Washington Mutual also is experiencing a similar surge in trading volume from an average of roughly 4 million shares to nearly 90 million between Thursday and Monday. The stock price has likewise jumped to $18 from $10. The moves follow a similar pattern of heavy trading momentum in GM, which saw trading volume balloon despite filing for bankruptcy in June.

SOURCE http://www.nypost.com/seven/09022009/business/lehman_leftovers_lift_on_wave_of_specula_187727.htm

[CutePuppy]

Yeah, Cerberus is fast going to the dogs (pun intended).

Cerberus Clients Overwhelmingly Want Out: Report - Reuters, 2009 August 28.

The latest in the Irving Picard vs SIPC vs "victims" saga (Picower, Chais, but more seems to be on the way):
Madoff Liquidator May ‘Claw Back’ Charities’ Profits - BL, 2009 September 1.

Irving Picard, the liquidator for Bernard Madoff’s investment business, said he might sue charities that took out more money than they invested with the imprisoned con man to force them to return the difference.

The law requires him to file so-called clawback suits against investors that profited from the fraud at Bernard L. Madoff Investment Securities LLC, even if they weren’t aware of his $65 billion Ponzi scheme, Picard said yesterday. Charities aren’t exempt from such “avoidance actions,” he said.

“Picard has an obligation to the bankruptcy estate to collect all the assets he can find and in theory he has to treat everyone the same way,” said William Josephson of Fried Frank Harris Shriver & Jacobson LLP, who previously helped to run the New York State Law Department’s Charities Bureau. “The bankruptcy code doesn’t differentiate” between charities and other institutions, he said. .....

Under Picard’s formula, $90 million of Hadassah’s fake profit may now technically be a clawback target. The charity’s spokesman, Steve Rabinowitz, said he couldn’t comment on how much was withdrawn during the past six years.

A total of about $12 billion was withdrawn by clients from Madoff’s firm in 2008, including about $6 billion in the 90 days before the Madoff bankruptcy, David Sheehan, a lawyer representing Picard, said in May. That money is a potential source for Madoff victims to recover some of their investments. .....

BTW, do Merkin and Feiberg own only Sinagogue and Bank Leumi, or anything else on Fifth Avenue?

[CutePuppy]

I've heard that there are / were several such activities recently in the dead stocks (like old GM stock) that have no tangible value, but some new, fresh out of "trading schools", traders are taught to trade anything that moves on spiked volume, especially penny stocks. So the sharks are moving these remnants of former (real) stocks, to get the new traders in, then drop them, for an expensive education. Just like Boiler Room (2000) but without any expensive setup, and entirely legal.

[Liz]

.... do Merkin and Feinberg own only Sinagogue and Bank Leumi, or anything else on Fifth Avenue?.....

Americans have not yet learned the full extent of official corruption, thievery, schemes and scams involving $TRILLIONS of tax dollars aided and abetted by the dupes on Capitol Hill. Here’s Bernanke, Paulson, Merkin---salivating to divvy up the taxpayers' billions.

THE WHIFF OF MADOFF J, Ezra Merkin---ousted head of GMAC---got a $6 Billion taxpayer bailout---and was also feeding funds to Madoff from four investment vehicles he ran.

JUDGE MAY UNSEAL FILES Details of J. Ezra Merkin’s lies to investors could be laid bare in five crucial documents that detail what Merkin told investors, how much in fees he earned for "managing" investments via his $1.8B Ariel hedge fund invested with Madoff. Merkin’s lawyers claim details might put Merkin's so-called "sub managers and advisors" at risk.

The documents include Merkin and his cohorts that show Merkin promised to do due diligence and invest in a broad array of stocks. Despite such promises, Merkin simply handed the money over to his pal Bernie Madoff. Documents also include personal details that reveal how much Merkin's close advisors -- such as fund manager Victor Teicher got paid helping Merkin.....and details of the ongoing investigation into Merkin's affairs being conducted by NY AG Andrew Cuomo.

IS THIS A CLUE? The explosive probe of NY state's pension fund finds kickbacks by an Israeli company to indicted political guru Democrat Hank Morris. Israel-based "Giza Venture Capital" paid DAV-Wetherly Financial, LA, a substantial finder's fee after it got to manage $20M in state pension funds in 2005......DAV-Wetherly, in turn, secretly gave part of the fee to Searle & Co, Conn......

NY AG Andrew Cuomo, has charged that Morris used Searle to illegally get $15M in kickbacks. Giza was given the contract as part of ousted Democrat Comptroller Alan Hevesi's efforts to pursue "investment opportunities" with Israeli-based companies. But the Israeli deal was finalized only after Giza agreed to hire DAV-Wetherly (named in Cuomo's 123-count indictment of Democrat Morris).

Cuomo wants to interview Giza execs.......Giza's web site says it manages about $600 million.......irs executives in Israel did not respond to reporters' requests for comment. A spokesman for DAV-Wetherly, headed by prominent Democratic contributor Daniel Weinstein, had no comment.

NOTE If prominent Democratic contributor Daniel Weinstein worshipped at the Fifth Avenue Synagogue with the rest of Bernie’s (cough) “investors, he could be in really deep doo-doo.

[Liz]

A total of about $12B was withdrawn by clients from Madoff’s firm in 2008, including about $6B in the 90 days before the Madoff bankruptcy. That money is a potential source for Madoff victims to recover some of their investments. ..... “Picard has an obligation to the bankruptcy estate to collect all the assets he can find and in theory he has to treat everyone the same way.” Under Picard’s formula, $90 million of Hadassah’s fake profit may now technically be a clawback target.

That is proper under the legal concept of "fraudulent conveyance"---meaning one cannot profit from a fraud.

You heard, of course, the the feds are going after the Madoff sons and his bro, Peter (Madoff's Chief Compliance Officer). Not that they did anything wrong (/snicker).

Madoff's top lieutenant admitted in court he helped Madoff "and other people" carry out the $65B Ponzi scheme, shattering Madoff's claim that he had acted alone. "I knew I was participating in a fraudulent scheme," confessed Frank DiPascali, CFO of Madoff's investment firm.

"It was wrong, and I knew it was wrong at the time. I accept complete responsibility for what I did," continued DiPascali, who is cooperating with the feds. "I apologize to every victim and to my family and the government. I am very, very, very sorry. It was all fake. It was all fictitious," DiPascali said. "I knew no trades were happening. "I'm standing here today to tell you that from the early 1990s to 2008, I helped Madoff “and other people” carry out a fraud."

DiPascali blamed his crimes in part on his loyalty to Madoff. "I was loyal to him. I ended up being loyal to a terrible, terrible fault." DiPascali admitted he once lied to the SEC, "at Bernie Madoff's direction," in an effort to thwart investigations.

[CutePuppy]

Just out: SEC INSPECTOR GENERAL: AGENCY NEVER DUG INTO MADOFF OPERATION - NYP / AP, 2009 September 2.

The watchdog of the Securities and Exchange Commission has found that three agency exams and two investigations of Bernard Madoff's business were incompetent, despite ample warnings of the multibillion-dollar fraud.

But SEC inspector general David Kotz's report found no evidence of any improper ties between agency officials and Madoff.

Despite speculation that senior SEC officials may have tried to influence the probes, a summary of Kotz's report released Wednesday also found no evidence of that.

The SEC enforcement staff, conducting investigations of Madoff's business, "almost immediately caught (him) in lies and misrepresentations, but failed to follow up on inconsistencies" and rejected whistleblowers' offers to provide additional evidence, the report says.

Revelations in December of the agency's failure to uncover Madoff's massive Ponzi scheme over a decade touched off one of the most painful scandals in the agency's 75-year history.

Between June 1992 and last December, when Madoff confessed, the SEC received six "substantive complaints that raised significant red flags" regarding Madoff's operations. But "a thorough and competent investigation or examination was never performed," the report says.

Many of the SEC staff who conducted the investigations were "inexperienced," according to the report. .....

OK, case closed, nothing to see here, move along... And no FINRA investigation in progress, they can investigate themselves, they are a self-regulatory agency, after all.

That's what is more interesting than Madoff's scheme itself - the ties, and particularly political ones. But, apparently, there was none... It's official now!

[Liz]

It's official ----- SEC inspector general David Kotz's report found no evidence of any improper ties between agency officials and Madoff.

(Snort) I knew that (/snicker).

[CutePuppy]

I am glad that it was nothing more serious than just “inexperience” and “incompetence”.

It’s also gratifying that, unlike people or enterprises in the private sector, the government cannot be sued for “inexperience” and “incompetence” by injured or affected parties, or we, as a country, would find ourselves broke in no time...

[Liz]

SEC failing to get Madoff is.....nothing more serious than “inexperience” and “incompetence.” So gratifying that, unlike the private sector, govt cannot be sued, or we, as a country, would find ourselves broke in no time.......

Yeah----“inexperience” and “incompetence” is a handy excuse.

JUST WONDERING What would happen if word got out that the SEC had to ease-up on Madoff b/c, among L/E agencies, it is a career-killer to suggest someone of jewish heritage is doing something illegal?

[CutePuppy]

What would happen if word got out that the SEC had to ease-up on Madoff...

Who would get out the word? Wasn't the result of IG "investigation" (cover-up would be more appropriate word) pretty much a foregone conclusion, preordained?

... it is a career-killer to suggest someone of jewish heritage is doing something illegal?

I am not sure, didn't seem to have helped Abramoff and few others. I think the difference in treatment may lie not in who he/she "is" but in "who is he with" i.e., Republican or liberal Democrat. But, I did wonder sometimes if that's one of the reasons for American Jews voting overwhelmingly for Democrats - after all, Democratic mafia is essentially in the "minorities and victims protection" racket.

BTW, see the article and comments here : http://www.freerepublic.com/focus/f-news/2331052/posts - Obama Fund-Raiser Faces New US Fraud Allegation (Hassan Nemazee) - FR / Reuters, 2009 September 02.

[Liz]

... a career-killer for L/E to suggest someone of jewish heritage is doing something illegal?.......didn't help Abramoff and a few others. Difference in treatment may lie in being a Republican or liberal Democrat. .....one of the reasons American Jews vote for and donate to Democrats ---- the Democratic mafia is essentially in the "minorities and victims protection" racket.

Heh--- "Dem protection racket" for donors.....

Beautiful.