Top SEC Officials Were Unaware of Madoff Probes: Report

Reuters via CNBC ^ | September 05, 2009 | Reuters

[CutePuppy]

Former U.S. Securities and Exchange Commission chairmen and directors were generally unaware that staff were probing Bernard Madoff until the former financier was arrested in December 2008 for running a $65 billion Ponzi scheme, a federal watchdog said in a report released on Friday.

The report underscores the disconnection between senior officials and their employees, who often lacked the experience necessary to follow up on leads and understand the magnitude of their investigation.

Former Chairmen Christopher Cox, William Donaldson and Arthur Levitt, former director of enforcement Linda Thomsen and former director of examinations and compliance, Lori Richards, did not play any "inappropriate role" in the SEC's probes of Madoff, according to the 457-page report released late on Friday before a three-day holiday weekend.

Two days ago, the SEC released a summary of the report, which accused the regulator of never conducting a competent probe of Madoff despite complaints dating back to 1992.

.....

[CutePuppy]

..... Details on how the SEC failed to uncover Madoff will soon be scrutinized by Congress. Senator Christopher Dodd's Banking Committee will examine Kotz's report on Thursday and the House of Representatives investigative committee will also convene hearings. .....

Some portions of the report were blacked out. Earlier this week, Schapiro said she wanted to safeguard any ongoing law enforcement action, and protect the names of junior staffers who did not play a central role in the examinations or investigations.

Kotz found that former SEC Assistant Director Eric Swanson's romantic relationship with Madoff's niece, Shana Madoff, had influenced the SEC's conduct.

After Madoff was arrested, the SEC's director of examinations' Richards recused herself from all matters concerning Bernard Madoff because Swanson had been in her chain of command.

From SEC Official Whose Unit Got Madoff Tip Had Family Money by Scam - BL, 2009 September 04, by David Scheer

Family members of a U.S. Securities and Exchange Commission enforcement official, whose unit got an anonymous tip in 2005 suggesting Bernard Madoff may be running a Ponzi scheme, entrusted $2 million to the scam, the agency’s internal watchdog said.

The e-mailed tip to the Office of Internet Enforcement was among at least six warnings the SEC failed to fully investigate during 16 years, Inspector General H. David Kotz said in a report released today. Investments by two members of the official’s family were disclosed as a footnote in the 457-page report, which doesn’t identify him or disclose any losses. .....

The Internet unit official told Kotz’s staff that he wasn’t aware of the tip until after Madoff’s fraud collapsed in December, and that it should have been forwarded for further investigation, according to the report. An attorney working in the office testified she couldn’t remember whether she referred it. Kotz concluded that it never was passed along.

SEC spokesman John Nester declined to comment. John Reed Stark, who has led the SEC’s Internet program since 1995, couldn’t immediately be reached after normal business hours. .....

Kotz also found that examiners failed to follow up on signs of fraud found during a routine examination of Renaissance Technologies LLC.

An SEC compliance examiner informed his supervisor about internal e-mails at Renaissance, which indirectly invested in Madoff’s fund through a swap agreement with another firm, saying Madoff’s business may be a fraud, Kotz wrote. While the agency started an investigation of Madoff, it didn’t return to Renaissance to examine its information. .....

From Madoff’s Fraud Signaled in SEC Renaissance Review - BL, 2009 September 04, by Joshua Gallu

The U.S. Securities and Exchange Commission failed to follow up on signs of Bernard Madoff’s Ponzi scheme found during a routine examination of Renaissance Technologies LLC that revealed concerns he may be running a fraud, the agency’s internal watchdog said.

An SEC compliance examiner informed his supervisor about the internal e-mails at Renaissance, which indirectly invested in Madoff’s fund through a swap agreement with another firm, saying Madoff’s business may be a fraud, Inspector General H. David Kotz wrote in a 477-page report released today. While the agency started an investigation of Madoff, it didn’t return to Renaissance to examine its information.

Renaissance e-mails said Madoff’s secrecy, auditor and fee structure were significant red flags, the report said. Nathaniel Simons, portfolio manager for a Renaissance fund, said he didn’t understand how Madoff made money or why he used a fee structure that gave such a large percentage of profits to feeder funds.

“As we don’t know why he does what he does, we have no idea if there are conflicts in his business that could come to some regulator’s attention,” Simons said in an e-mail dated Nov. 13, 2003, according to the report. “Throw in that his brother-in-law is his auditor and his son is also high up in the organization and you have the risk of some nasty allegations.” .....

Madoff’s fund base was “far short” of what he needed, Paul Broder, the risk manager at East Setauket, New York-based Renaissance, said in an e-mail on Nov. 21, 2003, according to the report. “None of it seems to add up.” .....

[Ev Reeman]

If any person believes the top brass at the SEC were unaware of any potential problems with Madoff I have some land in Florida and a bridge in Brooklyn for sale.

[Senator John Blutarski]

I think this is an opportune moment to invoke the wisdom of Chancellor Otto von Bismarck -

“Never believe anything until it has been officially denied.”

That pretty much sums up my feelings on this.

[Jo Nuvark]

Instead of Ponzi, when are they going
to rename it a “Maddoff” scheme?

[starlifter]

I have a real hard time believing that Arty Levitt, as connected as he is and was in the finance and ethnic circuit in NYC, was not aware of Madoff’s.

[Liz]

Nathaniel Simons, portfolio manager for a Renaissance fund, said he didn’t understand how Madoff made money or why he used a fee structure that gave such a large percentage of profits to feeder funds. .....

Madoff was "untouchable."

If any of the people in L/E, or oversight, dared suggest Madoff, J Ezra Merkin (with four feeder funds), and all the foundations and "charities" colluding with Madoff were engaged in money laundering and tax evasion ----they would have lost their jobs.

[CutePuppy]

It was all just “lack of experience and expertise” ... which is why the names of junior staffers who participated in the audit were blacked out from public report.

Now, if they were working for CIA, interrogating illegal enemy combatants and “doing the job most Americans would not do” under legal orders, their names would be out in the open and AG Holder would “reluctantly” open investigation.

Maybe Republican Representatives and Senators will ask some tough questions about SEC and FINRA and Madoff’s political connections and donations, and IG’s own “investigation” during the hearings, which may then be picked up by TV and other media, the way Abramoff’s “connections” were always cited.

[CutePuppy]

From Merkin’s Feeder Funds Seek Dismissal of Madoff Suit - BL, 2009 September 04, by Erik Larson

J. Ezra Merkin’s Ariel Fund Ltd. and Gabriel Capital LP asked a New York bankruptcy judge to dismiss them from a $557.8 million lawsuit filed by the liquidator of Bernard Madoff’s investment business. .....

Merkin in July asked a court to dismiss a similar lawsuit in which New York Attorney General Andrew Cuomo accused him and his Gabriel Capital Corp. of secretly placing $2.4 billion of client funds with Madoff.

Picard won a court order in July barring Merkin’s other fund, Ascot Partners LP funds, which lost almost $1.7 billion with Madoff, from moving its remaining assets of about $10 million. .....

[Liz]

Nathaniel Simons, portfolio manager for a Renaissance fund said “We don’t know why Madoff does what he does, we have no idea if there are conflicts that could come to regulators' attention......you have the risk of some nasty allegations." Madoff's brother-in-law is his auditor, his sons are high up in the organization, his brother is his Compliance Officer, his wife signed off on business reports..........

All these suckers had to do was request Madoff's order slips-----to know THERE WERE NO TRADES BEING MADE.

The trustee ID'ing Madoff's assets unearthed a labyrinth of interrelated international funds, institutions and entities of almost unparalleled complexity and breadth...... and assets and businesses in 11 places overseas.

No question-----tax evasion and money laundering was the name of the game for the wealthiest Madoffians-----businessmen who were funneling income to Madoff to avoid US taxes.........acting like "philanthropists."

Madoff's buddy---J Ezra Merkin--making zillions feeding funds to Madoff---co-owns an Israeli bank. This is critical b/c Israel is the only place in the world when an individual can debark, go to a bank with a suitcase full of cash---and nobody asks where they got it or if taxes were paid on it.

REFERENCE---NY POST, 8/4/09
ISRAEL-US 'CROOKS' -- AP
JERUSALEM -- Vigilant Israeli police said that they had broken up an Israeli-American crime ring specializing in tax fraud and money laundering. A joint probe with US authorities led to the arrest in Israel of seven suspects. The ring members defrauded the IRS of tens of millions of dollars and deposited the money in Israeli bank accounts, according to a police statement. http://www.nypost.com/seven/08042009/news/worldnews/israel_us_crooks_182868.htm

The tax-exempt dimension to Madoff's fraud is very fishy. Madoff was connected to numerous so-called tax-exempt " charities, and family foundations." The IRS has pinpointed tax-exempt "foundations and charities" as the locus classicus for tax evasion money laundering, and IRS fraud.

The landscape is littered with these "foundations and charities." Investigators need to determine why wealthy Brooklyn, NY residents registered some 800 tax-exempts in Lakewood, NJ.

[Liz]

(1) Chrysler filed for bankruptcy in May and (2) GMAC, General Motors’ former finance arm had to be rescued by the US government. SURPRISE Both of these billion dollar taxpayer bailouts are business partners.

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, and J Ezra Merkin---salivating to divvy up the taxpayers' billions.

WHERE IS THE MONEY? $BILLIONS in taxpayer bailouts were paid to Cerebrus' Fineberg (owner of Chrysler), and his partner, ex-GMAC chair, J Ezra Merkin.

HOGGING AT THE PUBLIC TROUGH In May 2004, Stephen A. Feinberg's "private investment group," Cerberus Capital Management, LP (Cerebrus is the three-headed dog that guards Hades), became majority owner of IAP Worldwide Services, Inc, one of the US Army’s largest contractors in Iraq.

In Afghanistan, Feinberg's IAP runs a drug/addiction center" in Kunduz---Kunduz is the largest opium supplier in the world. IAP also provides infrastructure support for the British Ministry of Defence in Kandahar....apart from supporting the US Army in Basra.

Feinberg's company----IAP----also serves a broad array of federal clients including the US Dept Of Defense, NASA, the US Geological Survey, the US Agency for International Development, the IRS, and a variety of other federal agencies.

WHERE'S THE MONEY? Ponzi Madoff’s pal, J Ezra Merkin, made zillions feeding funds to Bernie from his four hedge funds.....one fund was offshore. Merkin (then-GMAC chair) and Stephen Fineberg (as Chrysler owner) both got billion dollar tax bailouts.

Merkin/Fineberg 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.

========================================

REFERENCE---NY POST, 8/4/09
ISRAEL-US 'CROOKS' -- AP
JERUSALEM -- Israeli police said that they had broken up an Israeli-American crime ring specializing in tax fraud and money laundering. A joint probe with US authorities led to the arrest in Israel of seven suspects. The ring members defrauded the IRS of tens of millions of dollars and deposited the money in Israeli bank accounts, according to a police statement. http://www.nypost.com/seven/08042009/news/worldnews/israel_us_crooks_182868.htm

MERKIN'S CAYMAN ISLAND HEDGE FUND As GMAC chair, J Ezra Merkin ran hedge funds as a sideline and was feeding funds into Madoff's operation (and pocketing hundreds of $millions in fees)-----Merkin's name is connected to (1) Ariel Fund, based in the Cayman Islands (a partnership between Merkin and Fortis Bank in an infamous money laundering haven), (2) Ascot Partners, (3) general partner of Gabriel Capital LP, a $5 billion family of hedge funds, and, (4) managing partner of Gotham Capital.

Merkin and Cerebrus' Stephen A. Feinberg, bought Bank Leumi from the Israeli government for $500 million. Fineberg's private equity firm---Cerberus Capital Management LP---also owns Chrysler Motors. Merkin had 62.5% of the $1.2 billion in assets in his Gabriel Capital fund invested with Fineberg's private equity firm, Cerberus..........

SWILLING TIMELINE The US Treasury bought a $5 billion stake in GMAC headed by J Ezra Merkin's; also lending $1 billion to GM IN ADDITION to the $13.4 billion the US Treasury lent earlier to J Ezra Merkin's GM, and Fineberg's Chrysler. In 2006, GM sold 51 percent of Merkin's GMAC to Feinberg's private equity firm Cerberus Capital Management LP (which also owns Chrysler).

Merkin and Cerebrus's Fineberg also co-own an Israeli bank. Israel is the only place in the world where an individual can fly in, debark, go to a bank with a suitcase full of cash and nobody asks where it came from.......... or if taxes were paid on it.

IS CEREBRUS USING SECRET FEDERAL RESERVE INFO TO PROFIT? Knowing the Feds rise and fall of interest rates could make zillions for insiders. On October 19, 2006, John W. Snow, Secretary of the Treasury under George H.W. Bush, was named chairman of Cerberus.

[org.whodat]

What not sell them some of the bridge to Hawaii as well.

[Liz]

WHO IS J. EZRA MERKIN?

Jacob Ezra Merkin (born 1954) is an American money manager, financier, and philanthropist. He served as the Chairman of GMAC until his resignation on January 9, 2009, at the insistence of the US government. He is the general partner of Gabriel Capital LP, a $5 billion family of several hedge funds.

EDUCATION Columbia University (1976), JD, Harvard Law School Board member of Trustee, Yeshiva University (out 2008); Board of Visitors, Columbia College; Vice Chairman, Ramaz School, New York City. Managing Partner, Gabriel Capital Group (1985-). Member of the Board, GMAC (as Chairman). Beyeler Foundation (Switzerland) Trustee. Carnegie Hall Trustee. UJA/Federation of New York Trustee. President, Fifth Avenue Synagogue, New York City. He is the brother or Daphne Merkin, a writer. He is married, and the father of four children.

Merkin is the son of Hermann Merkin, a prominent banker, philanthropist, and author, and Ursula Merkin. The elder Merkin was also involved in legal troubles.....a bank he owned was charged with money-laundering.

Merkin attended Ramaz, an Upper East Side Modern Orthodox prep school, two yeshivas in Israel, then Columbia University and Harvard Law School. He briefly worked for the law firm Milbank Tweed. But in the early 1980s he moved on to Wall Street finance, his father’s business, working at a hedge fund run by Alan Slifka, his father's friend. There he met Joel Greenblatt, who founded Gotham Capital in 1985, where Merkin worked as an analyst until 1988.

As GMAC chairman, J Ezra Merkin ran hedge funds as a sideline and was feeding funds into Madoff's operation (and pocketing hundreds of $millions in fees)-----Merkin's name is connected to 1) Ariel Fund, based in the Cayman Islands (an infamous money laundering haven--a partnership between Merkin and London's Fortis Bank), (2) Ascot Partners, (3) general partner of Gabriel Capital LP, a $5 billion family of hedge funds, and, (4) managing partner of Gotham Capital.

On April 6, 2009, New York Attorney General Andrew Cuomo filed civil fraud charges against J. Ezra Merkin alleging he "betrayed hundreds of investors" by moving $2.4 billion of clients' money to Bernard Madoff without their knowledge.

The complaint states, Merkin lied about putting the money with Madoff, failed to disclose conflicts of interest, and collected over $470 million in fees for his three hedge funds, Ascot Partners LP with Ascot Fund Ltd., Gabriel Capital Corp. and Ariel Fund Ltd.

Merkin promised he would actively manage the money, but instead, he misguided investors about his Madoff investments in quarterly reports, in investor presentations, and in conversations with investors. "Merkin held himself out to investors as an investing guru...In reality, Merkin was but a master marketer."

Madoff depended on feeder funds to funnel investor deposits directly to him. In 2000, Merkin's investors "said" they were told was investing in distressed assets and bankruptcies......when he actually transferred more than one third of clients' funds' to Madoff (money laundering and tax evasion operation)

Merkin's Ascot Partners formed in 1992, held $1.7 billion from 300 investors, and earned him $25.5 million per year by the end of December, 2008. He advised investors that only 15% of the fund was invested with Madoff. "Substantially all" of its assets went to Madoff, although he represented the contributions as only a 15% investment.

J Ezra Merkin and Chrysler's Stephen A. Feinberg (who owns the private equity firm---Cerberus Capital Management LP) are partners in Bank Leumi bought from the Israeli government for $500M.

Merkin and Fineberg could also mean the connivers were stealing Federal Reserve insider info. Fineberg hired Ex-Treasury Sect John Snow to head Cerebrus. Knowing Federal Reserves moves in advance would make zillions for the thieves...........on top of the billions they were swilling elsewhere. These termites were running rampant allover the US government---Merkin and Feinberg's auto companies received billions in govt bailouts.

[mo]

Thanks for your footwork...Congress’ failure to supervise the existing Federal regulatory apparatus....and , in fact, its complicity in dismantling regulatory oversight...allowing these thieves free reign..unfortunately leaves a French Revolution type of recourse as an increasingly probable event.

[Ev Reeman]

It’s not only the SEC let’s remember but also Fannie and Freddie and the whole federal government system. The American people as a whole need to kick all these bums out and start with a bunch of fresh new faces, hopefully that are entrenched with traditional conservative values and principles.

[Ev Reeman]

It’s not only the SEC let’s remember but also Fannie and Freddie and the whole federal government system. The American people as a whole need to kick all these bums out and start with a bunch of fresh new faces, hopefully that are entrenched with traditional conservative values and principles.

[CutePuppy]

Interesting difference in SIPC's treatment of affected by Madoff (LDD - liberal Democrat donor) and Allen Stanford (EOD - equal opportunity donor) :

SIPC says Stanford victims are outta luck - NYP, 2009 September 05, by Paul Tharp.

Investor outrage is rising over how Wall Street's presumed safety net is leaving most victims of major Ponzi schemes out in the cold.

The Securities Investor Protection Corp. (SIPC) - touted as a backstop against brokerage losses -- is refusing to cover losses by investors in financier Allen Stanford's alleged $7 billion fraud. However, the government-sponsored agency is paying off selected victims of Bernie Madoff's $60 billion swindle. .....

SIPC is a nonprofit corporation funded by its members -- securities broker-dealers whose clients get some insurance against loss. SIPC makes good when a brokerage fails, but its rules make clear that the agency does not cover losses from fraud. ..... SIPC issued blanket rejections of claims for losses in the Stanford scams.

Meanwhile, since brokerage failures are generally covered, up to $500,000 in payments could be forthcoming to certain Madoff victims, depending on whether they gave a check directly to Madoff or wrote it to his brokerage outfit and hold a copy of their brokerage statement. .....

[Liz]

Congress’ complicity in dismantling regulatory oversight....allowing these thieves free reign, unfortunately leaves a French Revolution type recourse an increasingly probable event.

Excellent point-----better get out my knitting needles (/snic).

[Liz]

$500,000 in payments could be forthcoming to certain Madoff victims, depending on whether they gave a check directly to Madoff (or wrote it to his brokerage outfit and hold a copy of their brokerage statement).

They STILL don’t get it.

Writing checks directly to Madoff smells to high heaven------and so does feeding money into the brokerage scheme(AND TAKING MORE MONEY OUT THEN THEY PUT IN).

Now the scumbags stand to get a $500,000 reward for money-laundering and tax evasion.

[CutePuppy]

They STILL don’t get it.

I think they do get it... but are hoping and counting on that most people either don't understand or have a financial interest in not "understanding" it.

And they are shamelessly pushing yet another tax, which will trickle down to everyone who has investments (even passive, through pension funds etc.) while giving money back to their "preferred customers" - [securities lawyer Bill] Singer said Congress should tax Wall Street to set up such a backstop. Currently five regulatory levels protect investors, with the last being SIPC.