Ponzi - Madoff
----------------------
Bernie Madoff, the money manager who it was said
never lost money,
prima facie a genius (or a cheat).
At root the Madoff ponzi was a cash transfer machine stealing
money from the little, often
indirect, Madoff investors and giving it to Madoff insiders
like the Picowers, Shapiros, and Wilpons.
created 12/08
updated 12/18/11
Picower
7.2
billion Picower settlement
Jeffry
Picower withdrawals
Review
of 501(c)(3) Picower Foundation 990 filings 2001 thru 2007
Picard
and Sheehan talk about Picower on CBS's 60 Min
Picower's
history --- Forbes 2002 article 'Unaccountable'
Madoff/MIT
connection
Reading
Picower's Will --- a new Picower Foundation -- (or Time to kiss April Freilich's
ass?)
Picower
Foundation 990 filings
Madoff family
Fake
Bernie lays out the circumstantial case against the Madoff family
My
take on the circumstantial case against the Madoff family
JP
Morgan bank -- Reading the Trustee's complaint
Madoff insiders
Ponzi cash transfer
data
Picower Foundation
table
Madoff links
Appendix
Mitt
Romney charitable foundation 990 filings
Arrest update (2/25/2010) (11/18/10)
As
of today the number of criminal arrests in the Madoff ponzi totals six:
Madoff himself and five others connected to the firm:
Bernie Madoff --
(pled guilty, in jail)
Frank DiPascali
-- Madoff's ponzi customer man (pled guilty, awaiting sentencing)
David G. Friehling
-- Madoff's do nothing accountant (pled guilty, awaiting sentencing)
Jerome O’Hara --
ponzi computer guy, who faked records
George Perez --
ponzi computer guy, who faked records
Daniel Bonventre
-- financial guy who transferred funds back and forth between
ponzi and the trading business and faked SEC records
Annette Bongiorno
-- Key manager on 17th floor under DiPascali arrested 11/18/10
Joann Crupi -- Another
long time manager on 17th floor under DePascali arrested
on same day as Bongiorno
David L. Kugel --
A 40 year experienced Madoff trader, who for years also faked trading records.
He spans the two of the Madoff business (office on 18th floor?). Admits
to faking
trading records as far back as early 70's, and his own account records
are obviously fraudulent
back to 1977. (Strong proof Madoff has been a slimeball from day one.)
His specialty was
“convertible arbitrage” trading both real and fake. Salary was 588k and
he withdrew over 10
million from his accounts. He is a possible link to Peter Madoff. (pled
guilty, awaiting
sentencing and is cooperating)
Eric S. Lipkin --
Worked for Frank di Pascali for 16 years and was Madoff Securities payroll
manager.
His father had been Madoff first employee, hired 1964. (pled guilty, awaiting
sentencing)
Enrica Cotellessa-Pitz
--- Bernie's long time (1978) controller is pleading guilty to criminal
charges:
faking documents to deceive SEC, conspiring with the outside accoutant
to provide false audit reports.
She was involved in moving 600 million from the ponzi to the trading side
of the business. The
trustee wants a 3.75 million clawback (3.3 million salary and 500k withdrawals)
from her and
her husband. She is a cooperating, and it turns out (according to the trustee)
she was DiPascali's mistress.
It has been
confirmed by criminal investigators that they are looking into Stanley
Chais (LA feeder), into the Madoff family members for criminal tax evasion.
In addition many civil suits have been filed against other insiders and
feeders for recovery of funds by the court appointed Madoff Trustee (Picard)
with suits also by SEC, NY AG, and MA AG.
Mark Madoff dead (update 12/11/10)
Mark Madoff,
Bernie's oldest son age 46, killed himself (hung himself) today in his
NYC apartment with his two year old in the next room and his wife in Florida.
The Madoff Trustee is out to bankrupt him (he explicitly said this on 60
Min) and has filed several lawsuits against him seeking millions. What
Mark Madoff couldn't stand being poor?
As I wrote
here nearly two years ago, because so much of the Madoff firm's income
came from Bernie 17th floor operation and because Bernie was 70 years old,
far beyond normal retirement age, I find it totally unbelievable the Bernie's
brother and sons could be ignorant of the (so-called) investment advisory
business run out of the 17th floor, unless they had good reason not to
know what was going on.
When David
Brook's blob discussing Mark Madoff's and David Holdbrook's deaths was
published in the NYT (12/15/10), I posted the following comment to it:
(comment #75)
Let's see...
The business
is family owned and operated (father, brother, two sons, niece). A large
fraction of the firm's income comes from the 'secret' business Bernie runs
on the 17th floor. Bernie is 70 years old in 2008 far beyond normal retirement
age. The sons run the trading operation, and records show many millions
of dollars, sometimes 100 million, slosh back and forth between the trading
business and the 'secret' business (the chief slosher has been arrested).
All the family knows Bernie is not a legitimate business man/investment
manger, because
1) Most of them, including Mark, have special
accounts in the 'secret' 17th floor investment advisory business and see
the kind of unreal returns Bernie pays, and
2) They all know Bernie and the firm are not
paying proper taxes. Records show virtually the whole Madoff family (including
wives) and favored employees charging tens of thousands in personal expenses
monthly to the firm. And much larger sums (many millions) flow under the
table to the family and favored employees to buy mansion homes.
The
odds are virtually zero that Mark and the rest of the family did not know
a fraud (of some sort) was being run out of the 17th floor. Talk about
George Bush being incurious! Don Fulton, 12/15/10
Two days later
there was another NYT article on Mark Madoff's death, so I posted below.
'Mark Madoff’s Name Became Too Big a Burden to Bear', By DIANA B. HENRIQUES
and PETER LATTMAN (12/16/10) (ranked #2 out of 285 posts, posting
#43)
My
take on the circumstantial case against the Madoff family
I keep coming back to this ...
A large fraction
of the revenue and profit of Madoff Securities came from the investment
advisory business on the 17th floor. I believe it was reported that in
recent years the profit from the investment advisory business was actually
subsidizing losses on the trading side and keeping the firm afloat.
Just
suppose for a moment that Bernie's sons, who have worked for him for years,
don't know anything about the investment advisory business dad is running
on the 17th floor. Is it even conceivable that they haven't gone to their
father and said, 'Hey, pop, you're getting older (Bernie is age 70 in 2008)
and at some point you are going to retire. We depend on the firm and the
firm can't afford to lose this business, and besides we want to know how
you earn these great returns, just take some time to show us how you do
it, train us so we can take it over. This is how companies work.
If
this didn't happen, why not? Was it because the family just 'understood'
it was better 'not to know' what was happening on the 17th floor, even
at the risk the firm might fail when Bernie retired.
Another thing does not add up ...
Bernie over
the years made no secret that his 'special sauce' for investment was the
exotic sounding split-strike trading strategy, in fact his biggest feeder,
Fairfield Greenwich, described it on their web site while listing Madoff
Securities as their executing broker. But here's the problem. It would
have been obvious to his sons, who were top people in the trading side
of the business, that not only were they not doing the trading the split
strike required, but also there was no group of traders working on the
17th floor to execute it! No trading, no short term gains. So just how
did they think their father was earning those great returns?
Chais dead (update 9/28/2010)
NYT had a
short story today that Madoff's LA bag man Stanley Chais 84, who has not
been in good health, just died. The article mentions the SEC suit against
Chais charging him with defrauding his investors. On the criminal investigation,
the article only says, "Last year, the Justice Department also started
a criminal investigation into Mr. Chais and his funds." The article indicates
that law suits again him are still pending, saying 'his surviving relative
face legal action from his Madoff investors.'
My memory is
that one of his sons at one point was scheduled to replace him as fund
manager as he got older and his health declined, but the article (on the
word of family lawyers no doubt) says his wife and sons don't know nothing
about how the fund were run...)
7.2 billion
Picower settlement (Dec 2010)
Even
though it had been reported in court papers in spring 2010 that the Picower
suit would be settled for 2 billion, Barbara Picower ended up forking over
7.2 billion exactly the amount the Trustee had sued for. 7.2 billion
was the amount the Trustee figured had been the Picower's net Madoff withdrawals
for the last 13 years. Barbara said she settle for 7.2 billion because
that's what Jeffry would have wanted. Oh, yea! I read the Picower's reply
to court before Jeffry died, I guess I missed the part where he agreed
to return 7.2 billion.
Barbara and Jeffry Picower
Trustee recovery and payout (update 5/5/11)
"The trustee,
Irving H. Picard, who has filed more than 1,000 suits seeking money for
Madoff investors, said in the statement that he had recovered $7.6 billion,
or about 44 percent of the estimated principal of $17.3 billion lost in
the Ponzi scheme." (NYT news story May 5, 2011). Doing the math (7.2 billion
picower/17.3 billion total lost principal) x 100% = 41.6% of all estimated
lost principal in the ponzi has been recovered from just one couple, Barbara
and Jeffry Picower!
1/3rd of all the ponzi cash ends up in Picower pocket!
(latest number see above is over 40%)
Trustee figures
the cash lost in the Madoff ponzi was about 20 billion, so incredibly one
investor (Picower) of thousands go Madoff investors end up with about 1/3rd
of all the Madoff cash! Just what service did he render to the ponzi to
be worth so much cash?
Trustee estimates
Picower's cash input at 620 million, but likely this is just a simple sum
and very misleading. The Trustee himself reports a case when Picower puts
in 125 million (more than 1/4th of all the cash he ever put in says the
complaint!) into a new account, which with Madoff's accounting magic appears
to generate a 40 million profit in two weeks (!), then a few months later
out comes the original 125 million investment leaving 81 million in phony
profit to grow. It's likely this pattern was repeated.
Below is the
Trustee's Dec 2010 court filing of the Picower settlement agreement to
get a judge to sign off on it (he does). Interesting things in it:
* 7.2 billion
to be returned are in a JP Morgan account (see title of the filing). (NYT
(see below) reports two Goldman insiders say his accounts there ten
years ago were worth 10 billion, so this hardly bankrupts Barbara Picower.)
* (p3) "Estate
representative (Barbara) wishes to divest any and all funds received
from Madoff (that's a crock, the Trustee could only go back 13 years)...
to use the remaining assets of the Estate primarily to establish a charitable
foundation in accordance with Jeffry M. Picower’s last Will and wishes."
* (p3) If the suit were to be litigated
Estate representative (Barbara) would assert that Picower "had no involvement
in, knowledge of, or participation in the Madoff fraud ... and were
innocent
owners
of all assets transferred to them by Madoff.
http://www.scribd.com/doc/45532848/Agreement-by-Picower-Estate-to-Pay-7-2-Billion
NYT article on settlement (12/17/10) by DIANA B. HENRIQUES
http://dealbook.nytimes.com/2010/12/17/big-settlement-with-madoff-investor-near/
On his wealth
the NYT 12/17/10 article by DIANA B. HENRIQUES says this:
"In
the late 1990s, Mr. Picower’s personal brokerage accounts at Goldman were
worth about $10 billion, according to two people with direct knowledge
of the account."
Note this is 10
billion in one account ten years ago! I have never seen any info
on the Picower recent wealth, all we know for sure is that Barbara is able
to cough up 7.2 billion (2.2 billion of which goes to the Justice Dept)
and will still have wealth to form a new charity. WSJ and NYT say
Picower had been a client at Goldman Sachs for 30 years and leveraged his
stock investments, at one point he had 5 billion in margin loans. He might
very well have doubled that 10 billion to 20 billion in the last ten years
of his life, if he was a competent investor! Was he? Who knows.
Secret multi-billionaire
-- "Mr. Picower
was among the wealthiest individual clients at Goldman Sachs. Executives
who ran the firm’s exclusive private wealth management business, with clients
including Ralph Lauren and Bill Gates, were amazed that Mr. Picower had
become so wealthy yet managed to stay out of the public spotlight." “It
was amazing,” said a former Goldman executive. “The guy was worth $10 billion,
just at Goldman, and that alone would have made him one of the richest
men in the country, yet he wasn’t in the Forbes 400,” the magazine’s annual
roster of the rich and super-rich, until after the Madoff scandal." (NYT
12/17/10)
Settlement press releases
The press
releases from the Trustee and Barbara Picower adds a few details. The amount
(7.2 billion) being returned. Barbara Picower says this:
"The
settlement “will return every penny received from almost 35 years of
investing with Bernard Madoff,” Mr. Picower’s wife, Barbara, said in a
statement released through Mr. Zabel, a partner at New York law firm
Schulte Roth & Zabel."
I think this is
another Barbara Picower crock. I don't see the Trustee saying this. In
fact I think it is very unlikely to be true. The press reports the clawback
period as 13 years (1985), which I think is about as far back as the Madoff
records go. The amount returned (7.2 billion) is the exact amount
the Trustee sued for.
And there is
this from the Trustee in the press statement:
"Mr.
Picard further stated, “When we filed suit against Mr. Picower and others
in the spring of 2009, the records available led us to allege that Mr.
Picower might have or should have known of Mr. Madoff’s fraud. ro,
and we have arrived at a business solution instead.
It's amazing what
consideration a 7.2 billion settlement will buy. 'Additional records' gee
that's specific. You think the fact that Mr. Picower is dead might
be relevant? The two Trustee complaints details dozens of pages of indications
of fraud. Notice this statement does not say that we were wrong, we now
think Picower was innocent, we changed our minds or that any of indications
or fraud we put forward no longer apply.
No, it just
says 'there's no basis to pursue the complaint'. Well of course there isn't,
the suit's purpose was to recover 7.2 billion and that is exactly what
the settlement achieves, so of course they are settling. No double this
vaguely worded statement will be used by Barbara Picower sometime in the
future to indicate her and Jeffry's innocence, but it says no such thing.
** ProPublica on Picower (Dec 17, 2010)
Reputable
ProPublica has a very nice summary of what the Trustee documents show about
the relationship between Picower and Madoff, which I have previously written
up to MIT (April Freilich's account manipulations, etc). (by Jake Bernstein)
-- The annual
rate of return for two of Picower's regular trading accounts in the four
years between 1996 and 1999 ranged from about 120 percent to more than
550 percent annually.
In 1999, one account earned 950 percent.
--Picower belonged
to a select group of Madoff investors who received souped-up returns. A
Wall Street Journal story published in May cited unnamed sources saying
that prosecutors were looking into eight investors who appear to have received
special treatment from Madoff.
http://www.propublica.org/article/madoff-client-jeffry-picower-netted-5-billion
Trustee litigation update (2/3/11)
JP Morgan,
who was Bernie's banker for years, it has been revealed (suit unsealed)
today (2/3/11) is being sued by the Madoff Trustee (Picard) for 1 billon
in profit and 5.4 billion in damages. In the suit the trustee alleges that
JP Morgan 'aided and abetted' a fraud, and referring to internal bank emails
alleges that the bank 'knew or should have known' that Madoff' was likely
engaged in a fraud. In a 2009 suit against DiPascali (see far below) the
Trustee said that all the ponzi cash (five billion at one point) sloshed
into and out of a single JP Morgan Chase account.
The bank officials
were advised by some hedge fund manager that Madoff was very likely involved
in a fraud, but did nothing except act to protect their own investments.
The news stories say that in Oct 2008 (3 months before Madoff was arrested)
that JP Morgan did report Madoff to the government officials. According
to the suit filed by Mr. Picard, the bank filed a suspicious activity report
to the U.K.’s Serious Organised Crime Agency in October 2008.
Here is the 121 page Dec 2, 2010 Picard suit against the
JP Morgan. (My notes on reading the JP Morgan complaint are here.
)
http://online.wsj.com/public/resources/documents/020311madoffjpm.pdf
-------------------------------------------------
My NYT posting to 2/7/11 Wilpon/Madoff story
(Mets
Owners Face Novel Claim in Madoff Clawback)
From
the day Madoff was arrested it has been widely speculated that many Madoff
investors long suspected Madoff was a cheat, that his so-called great returns
came from illegally front-running his trading customers. I read the Trustee's
recent complaint against JP Morgan and sure enough it reveals that this
is what some at the bank long suspected.
Think
about it --- if a Madoff investor suspects that Madoff is a front-running
cheat, then ignoring all those investment red flags makes sense. Red flags
in this context are a positive, confirming that you have latched onto a
money making crook. I have no sympathy for such investors who (as a group)
were essentially too stupid to understand that they were the ones being
cheated.
Nevertheless,
some (Trustee's 'net winners') did benefit with the Madoff insiders like
the Wilpons and Picowers benefiting hugely. At root the Madoff ponzi was
a cash transfer machine stealing money from the little, often indirect,
Madoff investors and giving it to the Madoff insiders.
------------------------------------------------
Washington
Post links (below) to a Bloomberg TV 12/13/10 interview with a lawyer,
David Berg, a partner at Berg & Androphy, who says Picard in his clawback
lawsuit is doing a good job, that the suits are strong because after a
two year study he has lots of evidence.
http://www.washingtonpost.com/wp-dyn/content/video/2010/12/13/VI2010121301784.html
Trustee litigation update (Bloomberg news, 11/1/10)
"A New York
lawyer who was appointed as trustee in December 2008, Picard, 69, told
U.S. Bankruptcy Judge Burton Lifland in his latest report that he recovered
(to date) a total of about $1.5 billion for creditors of Bernard L. Madoff
Investment Securities LLC."
"Picard is also pursuing
19 lawsuits seeking to recover more than $15.5 billion from parties related
to Madoff, including his friends and family, and from so-called feeder
funds, which directed most or all of their clients’ money to Madoff. The
biggest of these is a suit seeking $7.2 billion from the estate of Jeffry
Picower. " ("Picower settlement discussions continue.”)
"Picard said
he “anticipates filing extensive additional litigation” to recover
fictitious profits paid out to some investors, so-called “claw-back” suits."
(earlier from WSJ July 26, 2010, "In an interview, Irving Picard said he
could wind up suing about half the estimated 2,000 individual investors
he has called "net winners" from their dealings with Mr. Madoff." )
---------------------------------
Another coup for Markopolus (
====================================================================
(original essay beginning, soon after Madoff was arrested)
Here's my scenario (1/15/09)
Reading though
all the Ponzi-Madoff material I collected for this essay it occurred to
me that a very reasonable scenario, consistent with known facts, can be
assembled that explains how Bernie probably ran the ponzi at least in its
last year of operation. I have not seen this scenario, or anything like
it, published as of the date I write this (1/15/09).
Madoff Securities
files a report with SEC in Jan 2008 saying they have assets under management
of 17 billion (17,091,640,696) that they manage for 23 clients. I believe
17 billion is probably accurate, that in fact in the beginning of 2008
Bernie was sitting on 17 billion in liquid assets. This huge cash
pile, which he has likely maintained for years, is why he has never has
a problem funding withdrawals. A huge cash pile means no concerns short
term about balancing inflow and outflow, he only needs to be concerned
long term, and it probably explains why is always looked so relaxed and
smiling in photos (17 billion cash, why worry!).
It is a ponzi,
because there are claims on the 17 billion of real assets of about 54 billion
from something like 100 clients that Bernie dealt with directly. In other
words Bernie has only about 31% = (17 bil/54 bil) of the assets he should
legally have. Where do I get the number 54 billion? Well it's the 17 billion
in cash plus the 37 billion in reported Madoff losses. I think it's pretty
clear what happened. 17 billion was plenty of cash for an ordinary year,
but 2008 was far from ordinary. Bernie toward the end of the year got hit
with an avalanche of withdrawals. There was a widely publicized withdrawal
request (from an unnamed investor) for 7 billion that Bernie may, or may
not, have met. During 2008 he paid out nearly all his 17 billion cash plus
whatever new cash he could raise. Near the end his new cash inputs
were in the millions (the largest known from Carl Shapiro of Boston for
250 million), but it was peanuts compared to the billions he probably needed.
Bernie well knew his total client asset claims had peaked (earlier in the
year) at near 50 billion, which explains why when arrested he called it
a 50 billion ponzi.
Fooling the
SEC --- If the SEC comes calling, he can show the SEC that he has
17 billion in (liquid) assets, which matches exactly with the amount of
assets he reported, so no problem here. But notice he tells the SEC
(in Jan 2008) he is managing money for only 23 clients, whereas the running
NYT list of what look to be direct Madoff clients is around a 100
or so. (On this NYT list a hedge fund is just one client.) But hiding the
ponzi from the SEC is easy, all he need do is hide some of his client records.
If
the SEC comes calling and adds up the claims from the 23 clients they know
about, mirabile dictu, it will total to 17 billion matching exactly the
assets on hand!
The liquidators
find Bernie has paper records, which since his firm was on the forefront
of computer technology, initially looks puzzling. But the beauty of paper
records is that it makes it easier for Bernie to hide from the SEC how
many clients he has! Effectively all he needs do is have two file cabinets.
One file cabinet, which he shows the SEC, has 23 clients with 17 billion
in claims. The other file cabinet, which he hides, has the other 77 clients
with 37 billion in claims. (Simple, that takes care of the SEC)
-----------------------
Confirmations
I 'published'
the above scenario on 1/15/09 by posting it as a comment to a NYT
article about Bernie not trading.
Markopolos in his House hearing 2/4/09
pretty much 'confirmed' my view on Bernie's assets. Markopolos said the
17 billion was "truer" than 50 billion and estimated Bernie carried between
15 and 25 billion in assets.
(5/13/09 update)
Front page
story in NYT is that insiders say Madoff feeders had withdrawals of about
12 billion in 2008. This is in the ballpark of my 17 billion figure for
the beginning of 2008.
Hard cash numbers
Aug 11, 09
SEC court filing against Frank DiPascali says that Bernie's "slush fund"
(JPMorgan Chase bank account 703), into which all deposits went and from
which all withdrawals came, contained 5.5 billion in "summer 2008" and
that it was drained by more than 6 billion in withdrawals in the last three
months of the ponzi down to a few hundred million.
--------------------
180 million entry in Madoff Family Foundation
Another new
thing I have noticed, new in the sense that I have not seen any published
references to it, though I don't know if it is significant, is that Bernie
apparently ran large amounts of money though he and his wife Ruth's family
foundation. The Madoff Family Foundation, which in 2007 made less than
100k in donations, was buying and selling (unspecified) assets of about
180 million! Looks very strange to me, could be money laundering, sure
would like to know what these assets were.
(update 5/13/09)
As of May
2009, 180 million above is looking like a very large number. This is comparable
to the fund flows between the NY and London offices that the trustee says
were money laundering. Still no references to this 180 million in any suits
or filings.
(update 10/1/09)
A partial
explanation may be the split-strike strategy. I've noticed high numbers
on some 990 charities (supossedly) invested using the split-strike strategy.
If the assets are in equity that go to cash, say, every quarter, then the
assets shown bought and sold are added up for each quarter and will be
about x4 the assets in the account.
-------------------
Bernie a genius?
There's a
key fact that argues strongly that insiders like Bernie's bagmen could
not have bought the line that Bernie was an investment genius. This point
has gotten almost no press, but Markopolos, the SEC whistle blower, correctly
hammered it home. The fact is this:
Bernie's
investment record, assuming it was legitimate, ranked him with the most
successful hedge fund managers of all time. Yet Bernie worked (almost)
for free, repeat he worked almost for free! His revenues,
or so he claimed, came only from (relatively tiny) trading commissions
of the money under management.
This extraordinary
fact may have been largely obscured to the investing clients, because prima
facie (on its face ) it looks suspicious. But it was known and beloved
by all of Bernie's' bagmen, because it allowed them to charge hedge
fund like fees (without the expense of actually running a hedge fund!),
making them all filthy rich. In a ponzi keeping the salesmen happy and
the money coming in had to be priority #1.
I find it impossible
to believe that the insiders didn't know, or at least suspect strongly,
that Bernie was a cheat. Hence I have searched out pictures and info on
Bernie's arrogant bagmen with special emphasis on the holy trinity of (USA)
bagmen, Jaffe of Boston, Noel of Greenwich, and Merkin of NY, for this
essay. Even if they walk free, at least they will get their asses sued
off by their clients.
Introduction
Just as Enron
became famous with several books written about it (I read three), there
is little doubt that many books will be written about Bernie Madoff, asset
manager extraordinaire, especially as law suits eventually reveal what
happened to his many clients. With Bernie's arrest on Dec 11, 08 and news
stories whizzing by daily about fraudulent losses, possibly to 50 billion,
I
thought it was time to take a few notes (shelf life on this kind of raw
material can be brief).
And part of
the appeal, no doubt, is it's going to be kind of fun to see just how stupid,
and/or corrupt, rich people really are. As I start writing, it is several
days after Bernie has been arrested (Dec 11,08), and every day there continues
to be more and more Madoff stories on the front pages.
Although Bernie
(& his wife) were from Queens, this story has some local roots. Bernie's
entree to Palm Beach society came via (very rich) Boston philanthropist
Carl Shapiro and his son-in-law Robert Jaffe, who had been gathering money
for Bernie (as Cohmad Securities) since 1989. Another key Bernie collector
(Fairfield Greenwich) is based in Conn.
Many things are fascinating about this story
* Rich people now crying victim who were all to eager to share in Bernie's
too
good
to be true returns. Many of them likely suspected Bernie was
scamming people, they were just too stupid to realize it was them.
* Only one person arrested! False monthly trading records and tax statements
had
to be supplied to hundreds (perhaps thousands) of investors for decades.
Don't tell me this was run my one man who spent a lot of time out of the
office. The Madoff firm was family run. Bernie's brother and niece were
compliance people in a firm running a ponzi for 20 years. Why, at a
minimum, have they not been arrested, and why has his accountant not been
arrested?
* How could this go on for so long, suspected to be 20 years? Not one insider
is known to have ever complained or tipped off the SEC.
* Where was the SEC, especially when what was likely going on was spelled
out
to them a decade ago and checking up on a ponzi is easy?
* Let's hear more about Bernie's bag men, who now all claim to be shocked,
shocked
that
Bernie was running a scam. Some of them probably deserve
to go to jail too. All of them will have their asses sued off, and investors
will probably sue each other too. Fun, fun!
* Was this a straight ponzi, or was Bernie actually trading?
* What was the actual money flow into and out of the fund over the years.
How
much did Bernie and/or his family skim off? Is some stashed away?
* What does Bernie's association with Yeshiva Univ tell us about Bernie's
motivation? On the one hand he worked hard to help Yeshiva, on the other
hand he scammed them out of 8% of their endowment. Was this
unintended? (If he had been allowed to wind down over time, would
he have paid out in full to his friends, like Yeshiva, before sticking
others
with the tab?)
Bernard Madoff on his trading floor, 1999 (age 61)
* As of May 15, 09 a whole new aspect of the case is coming to light. A
"handful"
of big time crooks and tax cheats, who as Picard delicately
puts it had
"special access" to Bernie, are starting to be exposed in court filings.
The
first exposed is tax cheat Jeffry Picower. Bernie provided him phony tax
loss statements to the tune of billions of dollars.
Jeffry
M. Picower withdrawals (update 7/09)
From
the facts as known today Picower ended up getting fifty times (x50)
more cash from the ponzi than Madoff! Do you see a problem here? Or as
Tobor the robot used to to say, 'This does not compute'.
Picower has emerged
as the big mystery man in the Madoff scandal. Somehow he ended up with
5.1 billion of the ponzi cash! Nobody knows how much actual cash went into
Madoff's ponzi, but my guess is something like 15 to 25 billion. (Add 12
billion that NYT estimates was withdrawn in 2008 to the 13 billion in claims
and you get 25 billion, but some of the claims probably don't meet Picard's
'net cash' criteria.) Also the record shows Bernie was doing all sorts
of favors for Picower, phoney super high returns, phoney tax loss statements.
What's going on here?
"In
reality, this was not a financial scandal, but a well-run confidence game.
Not a penny of the $13.2 billion that disappeared was lost in the stock
market. The lion’s share of this loot exited through a few accounts (biggest
by far being Picower's) that had been systematically inflated with non-existing
"profits" over two decades and its ultimate whereabouts still remains a
mystery." (Edward J. Epstein web log on New Republic site 7/26/09)
A third to a fifth
of all cash paid out to the thousand of Madoff investors ended up in Picower's
pocket! Two speculations have been discussed: Picower could have been blackmailing
Bernie, or payouts to Picower were really disguised payouts to Bernie and
his family. Both make sense to me and either is possible. Madoff liked
to move money in two steps (to avoid taxes). Picower, as a long time friend
of Bernie's and tax tax shelter expert, might very well have 'sold' his
services to Bernie, for a nice cut of course, stashing billions in overseas
in tax havens so the Madoff family would be taken care of.
There has got
to be an interesting story here, but somehow there has been almost nothing
in the press, and no talk of Picower being indicted, except Picower's name
did appear in a WSJ story as one of eight insiders that unnamed sources
said criminal investigators were looking at.
Picower withdraws over one billion dollars from ponzi
in 2003
and more than 400 million/year (1996 to 2005)
source -- Dan Nguyen and Jake Bernstein, ProPublica
- June 23, 2009
http://www.propublica.org/projects/picower/chart.html
For reason
unexplained a large fraction of all the billions in cash that Bernard Madoff
ever raked in his decades long ponzi made its way into Jeffry Picower's
pocket. In the years Picower was funding the Picower Institute for Learning
and Memory his cash withdrawals from the Madoff ponzi exceeded his gift
to MIT by x50 to x100. Here's the record of Picower's MIT gifts and his
Madoff ponzi withdrawals for years 2001 to 2005 (in millions):
Picower's
Picower's
year
Gift to MIT
Madoff Withdrawal
-------
----------------
-----------------------
2001
10.2
821
2002
10.0
922
2003
10.0
1,025
2004
10.2
480
2005
10.2
468
-----------------
-----------------
subtotals 50.6
3,716
Picower's Madoff
cash withdrawals were 7.2 billion (net) in just 13 years. This is x72 times
the 100 million or so the Madoff family is known to have received! The
court appointed Madoff Trustee has made credible allegations that both
Jeffry and Barbara Picower, along with their associate April Freilich,
knew their (so-called) investments with Madoff were phony and that they
were active participates with Madoff in fraudulent activity.
Or is this is they way it was?
Where is this
money? By far the largest Picower charity grant was 50 million (fully funded)
to MIT in 2002 to build a new brain science institute, but 50 million is
only about 1% of the 5.1 billion. I sent the letter (below) to the Tech,
MIT's newspaper (7/19/09)
Jeffry
Picower is emerging as the #2 man in the Madoff scandal. The suit filed
by the Madoff trustee against Picower says the huge phony gains and huge
fraudulent tax loss statements delivered to Picower at his request were
nothing more than payoffs for “perpetuating the Ponzi scheme". Picower
ended up with more cash from Madoff's ponzi in his pocket than anyone (blackmail?):
5.1 billion cash, not phoney paper gains, but cash. The roughly 1% of that
5.1 billion that MIT accepted from Picower for the Picower Institute for
Learning and Memory is clearly tainted.
The trustee's
filing makes interesting reading, I suggest everyone at the Picower Institute
read it, and then reconsider whether Picower's portrait should hang in
the lobby.
Don Fulton, MIT 64
Trustee suit against Picower (May 13, 2009)
http://www.scribd.com/doc/15282761/Madoff-Trustees-Suit-Against-Picower
http://online.wsj.com/public/resources/documents/20090512picard.pdf
Picower's response (July 31, 2009)
http://www.scribd.com/doc/17924529/Jeffry-Picower-Response-to-Madoff-Trustee
http://s3.amazonaws.com/propublica/assets/docs/PicowerMTDFINAL.pdf
The defendants in the (above) Trustee's suit include:
* Jeffry Picower individually and as a trustee for Picower Foundation
* Barbara Picower individually and as a trustee for the Picower Foundation
* Picower Foundation
(Followed up with this email to the Picower Institute
at MIT press person)
Picower Institute
As an
MIT alumni I am embarrassed to have Jeffry Picower's name associated with
MIT. The Madoff scandal has produced credible allegations that Picower
is a world class tax cheat and major participant in one of the largest
frauds in history. The 50 million he gave MIT, the Maddoff trustee alleges,
was other peoples money that Picower obtained by (effectively) blackmailing
Madoff (read the trustee filing below carefully).
MIT should
take steps to separate itself completely from this crook. Ideally return
the 50 million to the Madoff trustee, but baring that remove Picower's
name from the Institute and remove his portrait.
I sent the letter below this
day (7/19/09) to the 'Tech' .... (in summer Tech
only published once a month. There were no letters in
Aug issue)
Posting to
Forbes magazine 6/29/09 article discussing Picower. (I have confirmed that
a large portrait of Picower and his wife hangs in the lobby of the MIT
Picower Institute as of July 25, 09.)
1%
of Picower's 5.1 billion net cash from Madoff is now sitting on the MIT
campus in the form of the 'Picower Institute for Learning and Memory' building.
50 million dollars of what the trustee calls "other peoples money" has
gotten Picower his name on the building and a big portrait in the lobby.
If MIT doesn't return the 50 million, they should at least take down the
portrait and rename the place.
Picower & wife portrait hanging in lobby of MIT's
Picower Institute for Learning and Memory
(source -- ProPublica Picower article by Jake Bernstein,
June 2009)
Hi res MIT Picower lobby portrait
( photo credit: Don Fulton)
Picower info sites (almost wholly negative in tone)
Wikipedia -- Jeffry Picower --- http://en.wikipedia.org/wiki/Jeffry_Picower
http://hedgefundoperationalduediligence.com/life-death-jeffrey-picower-madoffs-frenemy/
2005 dedication of new Picower Institute for Learning
and Memory building on MIT campus
(photo -- TechTalk Dec 7, 2005)
Picowers sit next to MIT president Suson Hockfield
(photo -- TechTalk Dec 7, 2005)
MIT links describing
the 50 million Picower Foundation gift. (excerpts) "This is the single
largest gift given to MIT by a private foundation in the university's history."
"The Picower Foundation gift will fund a new state-of-the-art facility
for the center, plus $12 million for four endowed professorships and $8
million for research and related activities."
http://web.mit.edu/picower/news/index.html
(begining, scroll down to 2002)
http://web.mit.edu/newsoffice/2002/picower.html
(complete)
MIT Link to
the agenda for the 12/1/2005 dedication of the Picower Institute of Learning
and Memory:
http://web.mit.edu/picower/events/inaugural.html
---------------------------------------------------------
MIT continue to take money from the Picowers
In May 2008 MIT announces it is to take an additional 4 million dollars
from the Picowers.
"The
gift launches the 'Picower Institute Innovation Fund', which will provide
support to Picower Institute faculty members for innovative or high-risk
neuroscience research activities. Jeffry and Barbara Picower's far-reaching
vision of expanding the reaches of neuroscience is bolstered by their most
recent gift to MIT," said Marc A. Kastner, dean of the MIT School of Science
and Donner Professor of Science."
MIT also has continued to take about 200k a year from Picower to fund fellowships,
and of course the big haul was 2001 to 2005 when it got 10 million a year
to build and fund the Picower Institute for Learning & Memory.
Harvard & Univ of Pittsburgh too
The foundation
began financing a similar consortium in diabetes and obesity research just
over a year ago, giving about $2.3 million in 2007 to five prominent researchers,
including Jeffrey Flier, the dean of Harvard Medical School in Boston.
J. Timothy Greenamyre, a neurologist at the University of Pittsburgh in
Pennsylvania received an e-mail (Dec 08) from Barbara Picower informing
him that his and his colleagues' funding was over. Greenamyre was one of
seven senior Parkinson's disease researchers whose labs made up a consortium.
The Picower money was really transformative for us," says D. James Surmeier,
an electrophysiologist at Northwestern University in Evanston, Illinois,
who was part of the Parkinson's group.
By 2007 if
MIT or any of these schools had reviewed the Picower Foundation 990's they
could have seen that the evidence for fraudulent investment gain (every
stock bought year after year goes up in following months!) the Picower
Foundation is overwhelming. Do they not review the 990's carefully, or
do they just not care how honest their donors are?
---------------------------------------------------------
(9/11/09 update)
Upon analyzing
the Picower 990 IRS filings I discovered that every (27) equity
purchase in the last seven years had been fraudulently backdated. I wrote
up this new information in a strong letter and sent it to MIT & press.
sent via email:
Judith Korch, news person @ Picower
Institute for Learning and Memory
Jason Pontin, head of MIT news office
(he responded that he had received a copy
obviously from Picower news person) and told me it would go to
MIT president and VP, Treasurer
Beth Healy @ Boston Globe,
The Tech (MIT newspaper)
Irving H. Picard (Madoff Trustee)
sent via US mail (with highlited Picower portfolio attachments):
* Professor
Li-Huei Tsai, Picower Professor of Neuroscience, (new head of) Picower
Institute for Learning and Memory, 43 Vassar Street, 46-3301, Cambridge
MA 02139
* Theresa
M. Stone, MIT Executive Vice President & Treasurer, Room 3-221
77 Massachusetts Avenue, Cambridge, MA 02139
* Beth Healy,
Boston Globe, 135 Morrissey Boulevard, P.O. Box 55819, Boston, MA 02205-5819
* Irving
H. Picard, 45 Rockfeller Plaza, 11th Floor, New York, NY 10111
--------------------------------------------------------------------------------------------
(2/11/10) Review with hi-lighted Picower portfolio attachments
--- US Mail version
http://twinkle_toes_engineering.home.comcast.net/picower_foundation_portfolio_analysis.pdf
--------------------------------------------------------------------------------------------
Review
of 501(c)(3) Picower Foundation
990 filings 2001 thru 2007
Don Fulton
Sept 11, 2009
Picower Foundation's Mind Boggling Short Term
Investment Gains
------------------------------------------
Executive Summary
I have reviewed
the Picower Foundation IRS 990 filing for the last seven years. I found
one case where the cost basis of a capital gain is not consistent with
the stock history. I found four cases where a stock suddenly appears in
the portfolio showing a purchase date years earlier, but is not included
in the portfolio for the earlier years. Some of this has been noted before
by a Madoff researcher, but I have made some new discoveries, including
strong evidence of systematic backdating fraud in the foundation's investments.
In my review
I found that every stock purchased (total of 27) in the last seven
years appears to have been backdated. With backdating it's easy to pick
(short term) winners because it's like betting on a race after it has been
run. The 2001 990 short term (unrealized gain) record looks a little suspect
showing nine stock purchased that year and all nine rise substantially
(18% to 53%) in the following months. By 2007 the case for fraud is overwhelming.
From 2001 thru 2007 27 stocks total have been added to the portfolio and
every
single one (all 27) rose substantially (14% to 127%) from the purchase
date to Dec 31 of the purchase year. (Madoff's fabricators were not subtle,
apparently their guidance from either Bernie Madoff or Jeffry Picower was
never show a loss when adding a stock to the portfolio. I guess they counted
on grantees not checking their 990s' too carefully. The Madoff Trustee
alleges that Picower "dominated" his Madoff accounts and "directed" the
stock purchases.)
I also found
little kickbacks to Ruth Madoff in the Picower Foundation grantee list.
------------------------------------------
For years MIT
has received large contributions from a 501(c)(3) private foundation run
and funded by Jeffry and Barbara Picower of Florida (Picower Foundation).
For years 2001 thru 2005 MIT received about ten million dollars each year
from the Picower Foundation and in later years have received 200,000 a
year. The five ten million dollar donations were used to fund and build
a new building for a brain institute (re)named the Picower Institute for
Learning and Memory and a large portrait of Jeffry and Barbara Picower
was hung in its lobby.
Jeffry Picower
has emerged from obscurity into the limelight in 2009. He has been identified
as a Madoff insider with what is delicately termed 'special access' to
Bernie by the Madoff Trustee. He has been named by the Wall Street Journal
as one of eight Madoff insiders that criminal investigators are looking
at. He has been sued by the Madoff Trustee (Irving Picard) for return of
5.1 billion dollars cash that he received from Madoff, far more net cash
than anyone else is known to have received from the Madoff ponzi. The money
Picower received, including funds received by the Picower Foundation, are
characterized by the Madoff Trustee as "other people's money", in essence
stolen money. And as is now known it was stolen, at least in part, from
other non-profits and charities! About 1% of the 5.1 billion in stolen/ponzi
Picower money is now sitting on the MIT campus in the form of building
46 and endowed professorships of those who occupy it.
It turns out
that all of the Picower Foundation assets were invested with Bernie Madoff
and had been for many years, so a review of the annual 990 filings of the
Picower Foundation gives a window into Madoff and how honestly the Picower
Foundation was run by Jeffry and Barbara Picower. (990's list Barbara Picower
as the Executive Director at 50 hr/week and Jeffry Picower as Trustee at
25 hr/week, but Jeffry Picower states in his recent (7/31/09) court filing
that he was the trustee "charged with making investment decisions" for
the foundation.)
'Madoff' in the Picower Foundation 990's
Do the Picower
Foundation 990's mention Madoff? Some do. The 2001 filing shows 70% of
the foundations assets residing at "B. Madoff" (no address). In later filings
'Madoff' is not associated with assets, but it does show up several times
in the form of 'Ruth Madoff'. The grantee list contains entries like this:
"Queens College Foundation, Mr. Ruth Madoff, $5,000". Here we have Jeffry
& Barbara Picower providing little kickbacks to Madoff in the form
of small (for them) donations to Ruth's college alumni fund or the Madoff
cancer charity.
Review of Picower Foundation's 990s
I recently
reviewed all seven the 990 filings of the Picower Foundation (2001 thru
2007) that are available from Foundation Center (990's resource center),
focusing on the investment performance of its half billion or so portfolio.
The Foundation's portfolio is totally different from Madoff's famous split-strike
strategy portfolio he used with most clients, which combined rapid trading
of blue chip stocks with S&P 100 options. The 990's portray the Picower
Foundation portfolio to be a simple, conventional blue chip/bond portfolio
(no options) with typically two dozen or so large stocks that slowly turn
over mixed with treasury bonds for risk reduction.
According to
the Madoff Trustee Picower had such 'special access' to Bernie Madoff that
Madoff crafted (with lots of Picower input alleges the Madoff Trustee)
a 'buy and hold' portfolio exclusively for Picower's several accounts including
the Picower Foundation account. Picower in his recent court filing also
characterizes his Madoff portfolios as "buy and hold". It is now known,
of course, that Picower's 'buy and hold' portfolios were all part of the
Madoff ponzi and that no stocks were ever bought. At the end of 2007 the
Picower Foundation's 990 shows it as having assets of nearly one billion
dollars, so it was a major component of the ponzi.
Using the 990
forms I have tracked the performance of the Picower Foundation portfolio
(2001 thru 2007). It's easy. It took me no more than a couple of hours
using just a printer and calculator. All the equity is listed alphabetically,
fits on a single page, and is in the same format on each 990. The value
of each stock on the last day of the year is given along with purchase
date, cost basis, and unrealized gain/loss. A list of realized gains and
losses is also included. In some years there was no equity buying or selling
at all.
Prior to my
analysis of the Picower Foundation 990's the only mention I have seen in
the press of the Picower Foundation 990's is by a serious Madoff researcher
who writes under the name Mrs Panstreppon, here,
("Bernie Madoff: Anomalies in the Picower Foundation 990s", July 16, 2009).
She noticed that four stocks bought in 2005 increased in value by 44% (62
million dollar gain) by the end of the year, but it turns out this was
only the tip of the iceberg.
Portfolio performance (as measured by) total assets
If one looks
only at the bottom line of the Picower Foundation portfolios, there is
no evidence of excess returns. When the market tanked in 2001 and 2002,
the portfolio contracted from about 700 million in 2000 to 482 million
at the end of 2002. In the market recovery years of 2003-2005 the portfolio
recovered, but weakly as in these years it was more heavily into bonds.
At the end of 2006 the market value of the Picower Foundation portfolio
was 686 million, which was less than it had been six years earlier. Of
course, some of the reduction in assets is due to grants, but this was
not the dominant factor as grants in some years were in the 2% to 3% range
rising to a little over 5% in years when MIT was getting 10 million a year.
The portfolio value did significantly grow in 2007 (to 958 million), but
40 million of this was a contribution by Jeffry Picower (of Madoff cash,
no doubt). With its relatively small number of stocks and concentrated
positions some volatility in such a portfolio is to be expected and the
2007 bounce was due to strong performance from several stocks that were
shown in the portfolio as bought in earlier years.
Little red flags
If someone just
looked at box I on page 1 ('Fair market value of all assets at end of year')
of the Picower Foundation 990's and its variation over the years, there
was little to indicate that its investment portfolio was not just what
it pretended to be: a long term buy and hold, conventional large stock/bond
portfolio with mediocre performance. However, a little closer look at the
portfolio does reveal some strange anomalies, some little red flags.
For example,
in 2001 two sales of Citigroup Inc are shown with a 710% gain in just seven
months. (I don't think so babe!) It might be suggested that this entry
is just mislabeled and refers not to Citigroup stock, but to Citigroup
options. Nope, I quote from Picower's recent filing with the court, "The
Defendants BLMIS (Madoff) account statements during the years referenced
in the Complaint did not reflect any options trading."
Occasionally
some stocks just pop up in the 990 portfolios showing a purchase date years
earlier, but they are not listed as being in the portfolio on earlier years'
990's. For example, in 2002 CarMax shows up with a 11/28/01 purchase date,
but it's not in the 2001 portfolio. In 2003 Cavco shows up with the same
11/28/01 purchase date, but it's not in the 2001 or 2002 portfolio. In
2004 Eagle Materials shows up (twice), again with the same 11/28/01 purchase
date, but it's not in the 2001, 2002 or 2003 portfolio. Finally in 2007
American Inter Group shows up with a 12/26/00 purchase date, but it's not
in any of the earlier 990's. Did anybody at MIT or the Picower Foundation
notice these (let's be polite and call them) portfolio anomalies?
Flashing red flag --- Short term (unrealized) gains
However, if
anyone had thought years earlier to ask the simple question:
How did newly purchased stocks perform?
then a totally different picture of the Picower Foundation
portfolio performance emerges. Now the performance is spectacular, well
it's beyond spectacular, its outrageously spectacular. It is for all practical
purposes (a good engineering term) statistically impossible. It's not how
stocks perform, it's been rigged.
It's important
to understand that 990 Forms are not filed with the IRS until well into
the next year (if a three month extension is filed, which it sometimes
was, this can be as late as Nov). So 990's investment performance for each
year is reported to the IRS well after the year has ended. Therefore the
place to look for account fraud is in the performance of stocks acquired
during the year, because here choice of stock and purchase date could potentially
be made after the end of year when performance of all stocks are known.
So this is where I looked, and sure enough what I found in Picower Foundation
990's portfolio results short term (2001 to 2007) is clearly fraudulent.
My findings
In seven years
(2001 thru 2007) there were a total of 27 stock purchases, and going through
them I found that not one (not one!) of the 27 stocks went down
between its purchase date and the end of its first year (Dec 31)! Every
stock increased in value in the following months with gains ranging from
14% to 127%. What are the odds? The worst performer in all 27 purchases
had a very nice increase of 14% in a few months! The average increase on
all 27 purchases was an astounding 50% on stocks held just a few months!
Why, you may
ask, if many millions of dollars were added to the portfolio by having
all the purchases apparently backdated and fraudulent, why is the long
term performance of the portfolio so mediocre? After the first year if
a stock remained in the portfolio, as it usually did, then the market determined
its future valuation. What happened was the pump up of the portfolio with
backdated short term gains was not sufficient to overcome the long term
drag caused by poor stock selection and poorly time changes in the equity/bond
ratio. So while the Picower Foundation's portfolio's performance long term
was poor to mediocre, my findings show it was not from want of trying by
Madoff/Picower. They pumped as much phony gain short term into the portfolio
as they could, but in the end they were just not able to fully control
the valuation of a portfolio that Picower wanted to put forward as 'buy
and hold'.
I will mail
a paper copy of the equity pages from seven years of 990's with all the
equity purchases highlighted in yellow, but for now here is a brief summary
of what I found:
2001 --- nine stocks bought. Here are the gains on these individual stocks
during 2001.
+38 %
+53 %
+24 %
+22 %
+48 %
+18 %
+30 %
+28 %
+30 %
At the end of 2001, it's 9 for 9.
2004 (in 2002 and 2003 no stocks were bought) --- two stocks bought. Here
are the gains on these individual stocks during 2004.
+107 %
+87 %
At the end of 2004, it's 11 for 11.
2005 --- four stocks bought. Here are the gains on these individual stocks
during 2005.
+27 %
+77 %
+46 %
+38 %
At the end of 2005, it's 15 for 15.
2006 --- six stocks bought. Here are the gains on these individual stocks
during 2006.
+127 %
+31 %
+35 %
+28 %
+30 %
+63 %
At the end of 2006, it's 21 for 21.
2007 --- six stocks bought. Here are the gains on these individual stocks
during 2007.
+122 %
+40 %
+65 %
+63 %
+14 %
+88 %
At the end of 2007, it's 27 for 27.
Talk about
consistency! Did anyone at MIT, at the Picower Institute for Learning and
Memory or at the MIT financial office, or the director or any trustee
of the Picower Foundation ever notice this barely believable short term
investment record that got less and less believable every year? Did MIT
make any effort to vet Jeffry Picower? Did MIT have any idea what the source
of his wealth was? Or was MIT blinded by someone dangling a 50 million
dollar pledge under its nose?
How to explain these phenomenal short term gains?
How to explain
these phenomenal short term gains? The odds of picking 27 winners
in a row approaches metaphysical zero, so I explain it by saying the stocks
purchased and purchase dates on the 990's were obviously chosen after the
year was over. The portfolio shows obvious signs of backdating, the gains
were simply fabricated. Backdating, of course, along with other illegal
account manipulations, is precisely what the Madoff Trustee (Picard), based
on a forensic analysis of Madoff files, has charged Picower with being
complicit in in his various Madoff accounts. Of Picower's accounts in general
the Madoff Trustee found Picower's account records to be "patently false
on (their) face".
But isn't Madoff,
not Picower, responsible for the backdating fraud? Not according to the
Madoff Trustee (Picard). In his suit against Picower he alleges that Picower
"dominated" his Madoff accounts and "directed purported purchases and sales
of securities within (his) accounts".
I have now
confirmed this backdating pattern extends to the Picower Foundation account
records for years 2001 thru 2007. But let me note a crucial difference:
The
Madoff Trustee got access to all the Madoff/Picower records and revealed
the illegal account manipulations in Picower accounts only in 2009, but
the 990 Picower Foundation filings, with their strong hints of portfolio
fraud, have been widely available in the public domain for years.
Jeffry Picower
in his recent filing to the court provides us with his explanation of the
performance record of his various Madoff accounts. He says Benie was a
great stock picker and overall gains were not out of line with results
achieved by some high risk hedge funds. That's it, that's his explanation,
he sees no fraud. So based on his response to the attack on him by the
Madoff Trustee, I ask the question of the name over the door, portrait
on the wall, major MIT donor boy Jeffry Picower. Is Jeffry Picower
a) insane? or
b) senile? or
c) nitwit? or
d) complete slimeball, who is going down for his role as an insider
in the largest financial fraud of all time, very likely with charges
of tax evasion?
I'm betting the answer is d).
MIT's defense?
If MIT ever
decides to speak to what has turned out be (in essence) their taking more
than 50 million dollars in stolen money from the Picower Foundation, their
explanation is likely to be something like this. The Picower Foundation
at the time was a well known private foundation, and its record of grantees
over the years include a huge number of large reputable institutions.
My response
is, this is absolute true. While many of the grantees of the Picower Foundation
are small and relatively unknown, it is true that the grantee list includes
iconic NY institutions like the American Ballet Theatre, Metropolitan Museum
of Art, and the NY Public Library and even Beth Israel Deaconess Hospital,
part of Harvard Medical School. However, for years 2001 thru 2005 when
MIT was receiving 10 million a year from Picower the other institutions
in most cases were only receiving 100 to 200 thousand (1% to 2% of what
MIT received). So while all bear some responsibility for taking tainted
Madoff/Picower money, as I see it MIT as the major grantee of the Picower
Foundation in recent years bears most of the responsibility.
What's to be done --- pull a Boesky?
So what's
to be done? Of course, one possible solution is return the 50 million to
the Madoff Trustee for distribution to Madoff investors, which includes
other non-profits and charities.
Another possible
(ass covering) solution is suggested by how the Jewish Theological Seminary
handled a somewhat similar situation with Ivan Boesky in the 1980's. Boesky
had donated 2 million to Jewish Theological Seminary for a library, and
they named it after him. When Boesky turned out to be a crook and got fined
100 million dollars (eventually he was dragged off to jail) for insider
trading, the Seminary had a little problem. Their solution was to get 'permission'
from Boesky to rename the library. "The bronze letters that spell out the
Boesky name on the library building at the seminary campus at 3080 Broadway,
at 122d Street, will be removed shortly, the (Jewish Theological Seminary)
officials said." (NYT 11/26/86)
Has MIT given
Barbara or Jeffry Picower a call? How about calling Boston developer Norman
B. Leventhal, who has been a Picower Foundation trustee all these years
and in whose name MIT graduate fellowships (funded by the Picower Foundation)
have been awarded.
Don Fulton
MIT 64
Sept 11, 2009
References:
Picower Foundation 990's
http://foundationcenter.org/findfunders/990finder/
Madoff Trustee (Picard) suit against
Picower (May 13, 2009)
http://online.wsj.com/public/resources/documents/20090512picard.pdf
Picower's reply to court (July 31,
2009)
http://s3.amazonaws.com/propublica/assets/docs/PicowerMTDFINAL.pdf
Copies (with high lited 990's attached)
Susan Hockfield, MIT president
Beth Healy, Boston Globe
-------------------------------------------------------
Gerald C. McNamara, Jr
A long time
trustee of the Picower Foundation is identified in older 990's (2000 and
earlier) as below (in recent 990's identification is only 'Gerald C. McNamara'
c/o Picower Foundation):
Gerald C. McNamara
300 West End Ave
Apt 8A
New York, NY, 10023
Doing a little
online searching this Picower Foundation Trustee is probably 'Gerald C.
McNamara, Jr', a Managing Director of Goldman Sachs, age 55, son of the
late (died 1977) 'Gerald C. McNamara' of Saddle River, NJ, who was a securities
broker. Gerald C. McNamara is shown being appointed Managing Director of
Goldman Sachs in 2001. (One people search ties 'Gerald McNamara' to the
street address above, and people searches for Gerald C. McNamara in Florida
come up blank. Another Madoff writer, Mrs Panstreppon, also thinks Picower
Foundation trustee McNamara is a Managing Director of Goldman Sachs.)
What's so interesting
about this is that McNamara firm, Goldman Sachs, had black listed Madoff
more than a decade ago.
"As
Mr. Markopolos explained in his letter, Goldman Sachs was refusing to do
business with Mr. Madoff" (NYT 1/3/09)
"More
than a decade ago bankers from Goldman Sachs' asset management division
were despatched to Bernard Madoff Investment Securities to discover how
the legendary fund manager maintained such consistently good returns. The
American banking giant prided itself on managing funds in-house but if
it could get a better deal for its clients at Madoff, Goldman would gracefully
admit it and allocate some funds.
One
former Goldman partner said: "I remember the guys came back baffled. Madoff
refused to let them do any due diligence on the funds and when they asked
about the firm's investment strategy they couldn't understand it. Goldman
not only black-listed Madoff in the asset management division but
banned
the
brokering side from trading with the firm too." (UK Telegraph, 12/20/9)
Having a Picower
Foundation trustee who is both a senior financial guy and at Goldman Sachs
raises some interesting questions.
1) Did financial
guy McNamara not notice the mind boggling short terms gains and other anomalies
of the Picower Foundation 990 portfolios? Did McNamara know the Foundation's
assets were managed by Madoff? (It's a matter of public record that
some of Picower Foundation 990's showed much of the Foundation's assets
were at "B. Madoff".)
2) Was McNamara
aware of Madoff's poor reputation within Goldman Sachs and their refusal
to do business with him? Does he ever tell Jeffry Picower about Goldman
Sachs' black listing of Madoff?
-------------------------------------------------------
(9/27/09 update)
Picard
and Sheehan talk about Picower on CBS's 60 Min
CBS's
60 min had a long interview on with Irving Picard and his chief counsel
David Sheehan. In discussing clawbacks from those who took out more than
they put in Jeffry Picard was discussed in some detail (below is a screen
capture from the show). Sheehan was very forthright in saying Picard had
to have known what was going on. He mentions that Picard was not a rube
and gets this "off the charts" statement showing a 950% return. And he
discussed Picower's involvement in backdating.
Link to 9/27/09 video of the CBS 60 Min interview (Picower
starts at about 10 min into the video)
http://www.cbsnews.com/video/watch/?id=5345013n&tag=related;photovideo
screen capture of Picowers from CBS 60 minutes (9/27/09)
All
Picower Institute
portrait boy, Jeffry Picower, was featured in a long story on CBS's 60
min last Sun about the Madoff recovery effort. Below is a link to the full
story. You'll notice the two lawyers leading the Madoff recovery effort,
who now know how Jeffry Picower earned (to use the term loosely) much of
his money, are a tad less admiring of him than MIT officials and Picower
Institute directors in the past have been. They are suing him for return
of 5.1 billion, about 1% of which funded the Picower Institute at MIT.
Picower appears
about 10 min into the 13 min video (one 1 min commercial near start).
http://www.cbsnews.com/video/watch/?id=5345013n&tag=related;photovideo
Don Fulton
-------------------------------------
9/28/09 My email to a couple dozen postdocs associated
with Picower Institute and a few days later the four Picower professors.
(I didn't mention 60 Min, because I didn't see the 60 Min Picard interview
(replay) until after the email was sent.)
Memo
To: Picower Professors and Researchers
From: Don Fulton, embarrassed MIT alumnus
don_fulton@hotmail.com
Date: Sept 28, 2009
Subject: Recent revelations about Jeffry Picower and
the Picower Foundation
As a hard working
researcher all you may know of Jeffry Picower is that he was a generous
benefactor that made the Picower Institute for Learning and Memory at MIT
possible and that he and his wife's private granting foundation, Picower
Foundation, had to close because it had invested all its assets with Madoff.
But in the
last few months new information about Jeffry Picower and the source of
his wealth has come to light from the Madoff investigation. Maybe you don't
care since Building 46 and the Picower professorships are fully funded,
but I think you should, at least as long as the Picower name is connected
to MIT. And, of course, there is also the ethical dilemma that almost all
the money accepted by MIT from the Picowers to built the Picower Institute
and fund the professorships was according to the Madoff Trustee "other
peoples money", in essence the money was stolen (by Madoff).
I am a retired
MIT engineer (EE 64) with time to pursue what interests me, so in Dec 2008
when Madoff was arrested claiming 'I did it alone' and victims were popping
up everyday claiming never to have noticed anything amiss, I smelled a
good story and have followed the Madoff developments closely ever since
assembling a large Madoff archive on my home page (link below). And was
I surprised when in spring 2009 the Madoff money trail led straight to
Jeffry Picower and back to my alma mater.
To a follower
of the twists and turns of the Madoff saga and a reader of primary documents
(like me), which in this case includes court filings and 990 filings, Jeffry
Picower is not the innocent victim of Madoff he pretends to be. He's a
Madoff insider, more like an associate of Madoff. My low opinion of Jeffry
Picower is shared by others. In the excellent new Madoff book, Too Good
to be True, by former Barrons writer Erin Arvedlund you find this entry
in the Index {Picower, Jeffry, illegal activities of}. Picower, she says,
"had a history of tax avoidance" and it's downhill from there with several
pages required just to summarize all the charges against him by the Madoff
Trustee.
Picower Foundation unique 990's
I think it's
little known that Madoff (probably with Picower's input) crafted and maintained
a unique investment portfolio just for use by Jeffry Picower. The Picower
Foundation investments as reported in its IRS 990 filings are thus quite
interesting because they provide a unique public window into how Madoff
operated. The 990 portfolios of other charities who invested with Madoff
are far less interesting, because they were supposedly invested using the
famous Madoff split-strike strategy, which always took the entire portfolio
to cash on the reporting dates. The Picower Foundation portfolio was structured
(fabricated) to look real while at the same time producing super returns,
not an easy thing to get right for a portfolio that purports to buy and
hold stocks for years.
My 990's review
Recognizing
the importance of the 990's as a window into Madoff and that the fact 990
information had been available to MIT and online for a long time, I began
a detailed review of the Picower Foundation 990's. I sent a report recently
to MIT of my findings covering years 2001 thru 2007.
The Picower
Foundation 990's (2001 to 2007) did not indicate, at least not clearly,
that the foundation's assets were managed by Madoff. Perhaps this is because
Madoff didn't like his name used and perhaps also it was to give the illusion
to grantees that the investment manager and master stock picker of the
Picower Foundation was Jeffry Picower. But a search for 'Madoff' in these
years 990's does produce some hits. For example, in 2001 the bulk of the
foundation's assets are shown residing at 'B. Madoff', and the grantee
list several times shows 'Ruth Madoff' as the contact for contributions
(really little kickbacks) to her pet charities.
Picower's ponzi withdrawals
Picower's
withdrawals from the ponzi (7 billion) far exceeded his input (2 billion)
leaving him with 5 billion net cash. Most of the well known Madoff feeders
like Merkin (Ascot Partners), Noel (Fairfield Greenwich) were enriched
to the tune of 100 to 200 million dollars. Madoff and his extended family
are thought to have extracted 100 to 300 million. Compare this to Picower's
net 5,000 million dollars from the ponzi, more cash by far than anyone
else! The only other person even close in net cash is Madoff insider Stanley
Chais of LA, who received about 1/5th of what Picower got. If you 'Follow
the Money' in the Madoff investigation, it leads directly to Jeffry Picower.
Note, that Picower received billions (net) from Madoff is not really contested.
The court appointed Madoff Trustee, after a forensic analysis of Madoff's
books, determined that Picower had received a net of 5.1 billion in the
last thirteen years and sued Picower for its return. Picower in his reply
to the court confirmed that he had received "billions" from Madoff.
Is Jeffry Picower the world's cheapest philanthropic bastard?
Why did Jeffry
Picower and his wife Barbara last Dec just suddenly cut off funding and
leave hanging all the medical researchers, including those at MIT, they
were currently supporting and to whom they had promised future support?
Because the assets of the Picower Foundation suddenly vaporized with the
Madoff ponzi collapse? Please.... if you believe that I have bridge
you might be interested in.
Jeffry Picower
has wealth beyond anyone's imagination. He could have paid for every item
bought online from WalMart last year and still had billions left over!
His contributions to the Picower Foundation over the last decade (50 million)
were less than 1% of his reported wealth. So is the explanation simply
that he is the world's cheapest philanthropic bastard?
Or is he running for cover?
My theory
is that Picower has decided to play the role of Madoff victim as his best
hope of staying out of jail. When Madoff was arrested and his files were
suddenly open to inspection by the authorities, Picower had more than a
little problem (for details see the Madoff Trustee's May 13 filing) and
immediately ran for cover. Even though Jeffry Picower could have financed
the few million in continuing medical/scientific programs of the Picower
Foundation with pocket change, his role as Madoff victim required that
the Picower Foundation be closed ("caused" by Madoff related losses says
his court filing) and medical researchers and research supported for years
by he and wife Barbara be abruptly cut off.
990's portfolio transactions
My review
of the Picower Foundation 990's shows its equity portfolio purchases in
the last seven years had to have been rigged (backdated) with 27 of 27
stocks rising after purchase with an average gain of 50% in just a few
months, and the 990's for 2000 and 2001 show strong hints of similar rigging
of equity sales. Anyone looking closely at the Picower Foundation investment
portfolio over the years as reported in its 990's can see that its success
in buying and selling of stocks is just not statistically possible, it
does not represent a real portfolio.
Picower Foundation grant money was nearly all ponzi
money
You've probably
heard of Madoff's steady 10-15% returns, well that doesn't apply here.
Madoff paid his friend Jeffry Picower much higher rates of return (says
the Madoff Trustee). In 1993 the Picower Foundation assets were in the
range of 27 million and by the end of 2007 had increased to 958 million.
This is an increase of x35 in fifteen years, an average annual increase
in assets of about 27%! I don't know how much Picower contributed 1993
to 1997 because the 990's for those years are not available online, but
from 1998 to 2007 his contributions were small. In these years Picower's
contributions came nowhere near covering the grants of the foundation,
all the foundation's 600 million dollar increase in assets plus the bulk
of its 230 million or so in grants in these years came from the (so-called)
returns of its portfolio. Madoff just shoveled money into the Picower Foundation.
The Picower Foundation grant money was nearly all Madoff ponzi money.
Did MIT ever
look at the Picower Foundation 990's, even notice its 'almost too good
to be true' investment record? Or perhaps they did notice and concluded
professional investor Jeffry Picower must be one hellva of a money manager?
His investment returns were likely better than the MIT endowment returns,
so I wonder if maybe they considered recruiting him to help out with the
endowment? (Of course, I'm being sarcastic, but it's to make the point
that the Picower Foundation 990's returns history should have raised a
red flag, a red flag that was either missed or dismissed by MIT.)
Picower's knowledge
At the minimum Jeffry
Picower had to know the Foundation's portfolio was rife with fraudulent
transactions and gains (though he does not admit this), but the court appointed
Madoff Trustee (Irving Picard) in his May 13th court filing does not mince
words and goes much further. He accuses Jeffry Picower of being directly
responsible for the (illegal) portfolio manipulations. The Trustee's allegations
against Picower are too numerous to even summarize here. (See Arvedlund's
book for a summary and the Trustee's link below for details. I also have
include the link to Picower's content-free rebuttal).
In simple terms
the Madoff Trustee is alleging that the Picower Foundation was not honestly
run by the Picowers, Jeffry and Barbara (both are defendants, as
is the Picower Foundation, in the Madoff Trustee's suit to recover 5.1
billion), that the investment gains of the Foundation's portfolio, which
is where most of the Foundation's money came from, were phony ("payoffs"
from Madoff to Jeffry Picower says the Trustee), and that Jeffry Picower
knew they were phony and had a hand in directing them.
Why should you care?
The Picower
Foundation was more than a gift machine, a supporter of good research.
It may very well be that in its research support the Foundation was excellently
run (by Barbara Picower), but an assessment of the Picower Foundation cannot
ignore the source of its money. If the Picower Foundation acquired the
bulk of its assets in a manner that its investment manger, Jeffry Picower
in his capacity as Picower Foundation trustee, knew, or as the lawyers
like to say 'should have known', at the time to be illegal, should MIT
continue to permanently and eternally (quoting Prof Bear,
see footnote below) carry the name 'Picower' on a major research lab and
professorships (not to mention honoring the Picowers with a portrait in
the lobby)? I think not.
One possibility
is MIT take its cue from the Jewish Theological Seminary in the 1980's.
They took the name Boesky off their Boesky funded library after they, and
perhaps more importantly the rest of the world, found out how Ivan Boesky
made his money.
And what of
the 50+ million of Madoff ponzi money accepted from the Picowers? Is MIT's
position 'we've got it and we're going to keep it', the other Madoff investors
be damned?
Are you embarrassed?
With all the
new information that has come to light in the last six months about the
Picower/Madoff connection, aren't you (Picower professor or researcher)
the slightest bit embarrassed to be a 'Picower' professor and to work at
a lab named for Picower? What if Picower gets criminally indicted, what
if he goes to jail, does that change your thinking? I would like
to see MIT and the Picower Institute begin to address the new information
about the Picowers and how the Picower Institute at MIT was funded. To
just sit mute as MIT has been doing is unacceptable.
----------------------
Footnote --- After drafting this letter, I came across
laudatory comments (below) about the Picowers by Prof Bear in his 'From
the Director' column of the Winter 2009 issue of Neuroscience News. The
column was apparently written in early winter 2009 after Madoff was arrested,
but before Picower's inside status with Bernie became known.
-- "Picower
Institute for Learning and Memory at MIT is a permanent monument
to the vision and generosity of Barbara and Jeffry Picower and The Picower
Foundation."
--(our current
and future scientific accomplishments will be a part of the) "legacy of
Picower philanthropy."
-- "I have
greatly admired the Picower's deep commitment" (to great societal causes
including lessening human suffering from diseases of the brain.)
-- "We will
be eternally grateful for all the Picowers did" (to make our
Institute the best of its kind in the world.)
Footnote II --- It will be interesting to see the 990
filing of the Picower Foundation for 2008. Picower's recent court filing
strongly plays up his role as Madoff victim, claiming the collapse of the
Madoff ponzi "caused" the closing of the Picower Foundation, while simultaneously
dancing around the issue of what fraction of the Foundation's assets were
lost to Madoff. There are hints in the court filing that significant Foundation
assets may not have been invested with Madoff when the ponzi collapsed.
(Examples of the language: more than "half a billion" was left with Madoff
in various accounts, close to a billion was invested with Madoff "at one
time", and withdrawals would have been "accelerated" if he had known it
was a ponzi.) If not all the Foundations assets were lost on Dec 11, 2008,
then obviously concealing this fact for as long as possible would be consistent
with Picower portraying himself as a major Madoff 'victim' who is deserving
of sympathy not jail time.
Links
Madoff Trustee (Picard) suit against
Picower (May 13, 2009)
http://online.wsj.com/public/resources/documents/20090512picard.pdf
Picower's reply to court (July
31, 2009)
http://s3.amazonaws.com/propublica/assets/docs/PicowerMTDFINAL.pdf
my Madoff page
http://twinkle_toes_engineering.home.comcast.net/ponzi_madoff.htm
--------------------------
(update 9/30/2009)
The Madoff
Trustees were so pissed by Picower's July 31, 09 court filing, full of
grandiose statements about him being a huge victim of Madoff while ignoring
all the detail charges of illegal account manipulation (backdating, phoney
tax loss statements, etc) leveled by the Trustee in their May 13, 2009
filing, that today (9/30/09) they have made a 2nd Picower filing (79 pages),
rebutting his 7/31/09 filing point by point. And the new Trustee filing
contains new information about Picower and how he got to be so filthy
rich.
Madoff Trustee
(Picard) 2nd filing against Picower (Sept 30, 2009). Technically "Memorandum
of Law in Opposition to Defendants (Picower) Motion to Dismiss" (in other
words this filing to the court argues the case that Picower's motion to
dismiss should be denied) (document contains all the emails of the lawyers)
http://graphics8.nytimes.com/images/2009/10/01/business/MemoOpposingMotion.pdf
-- (first sentence) Picower
received "more than 7 billion of other investor's money"
-- "Picower
fails to even acknowledge -- let alone respond to -- the stark evidence
of fraud that occurred in his BMLIS accounts."
-- "Picower
benefited
tremendously from the Madoff's fraud and is not a victim." (Picower
claims to have suffered "devastating" and "immeasurable" loss, to which
the Trustee replys "nothing could be further from the truth ... Picower
was instead the biggest beneficiary of Madoff's scheme ....The sums
received by Picower are staggering by any measure."
-- 7.2 billion
(up from 5.1 billion previously) taken out and no more than 500 million
was put in by Picower! (describes how Picower puts in 125 million in 2006
and this was "more than 1/4 of the total cash that Picower even invested
with BMLIS" .... and five months later he takes out the 125 million, leaving
an 81 million 'profit' made on the 125 million to grow.)
-- As early
as 2003 Madoff was not able to pay the full amount of withdrawals that
Picower demanded ... "further evidence Picower knew, or should have known,
of Madoff's fraud".
-- Picower
kept a computerized monitoring of the stocks held in each of his accounts.
This is known because he attached printouts of it to faxes to Madoff when
he wanted changes.
-- "Reported
purchases and sales of stock were created in Picower's accounts months
after the transactions they supposedly described."
-- They ridicule
Picower for suggesting that his high returns, comparable to the world's
best money managers, was supposedly achieved by a "low risk, conservative
buy and hold investments in blue chip stocks and Treasury bills. This is
a feat that has been acomplished by no one." (same point I previously made)
-- The point
is made that the Trustee has not brought a claim against Picower
alleging he was a "co-conspirator" of Madoff, only that he had to know
he was benefiting from and being compensated for fraudulent activity. (Also
a point I made in letters to MIT --- That they are not accusing Picower
of knowing it was a ponzi, only that he had to know it was some sort of
fraud. (Front running is one candidate mentioned in a footnote (p17).)
-- Withdrawals
were "totaled more than six billion" (several refs)
-- (don't understand
this) Picower borrowed up to six billion from BLMIS for speculative trading.
(trading with Bernie??)
-- NY law imposed
personal liability on Picower (as trustee) for fraudulent conduct and this
liability applies even if he didn't participate, but just knew about it..
--- Trustee
has alleged that the Picower Foundation (& his two other non-profit
entities) were "dominated and controlled by Picower"
-- Picower
Foundation filed an SIPA claim prior to July 09 deadline. (which Trustee
says should be disallowed)
--- It appears
that the Trustee is also attempting to recover from Picower any tax refunds
he may get ("assignment of tax refunds")
Jump to more on the Picower/MIT
connection
(update 8/15/09) Picower posting (#9)
My posting
to a NYT Dealbook article discussing DiPascali, "Madoff Aide Holds Key
to People Involved in Scam".
Above
says “Both lawsuits assert that these investors knew they were participating
in a Ponzi scheme”. I don’t think this is correct, at least as far as Picower
is concerned. I read the Trustee’s Picower filing carefully. I see no reference
by the Trustee that Picower knew it was a ponzi.
The
accusations against Picower are several: “(Jeffry and Barbara Picower)
knew or should have known the activity purportedly conducted in their accounts
was patently false on its face”, because the accounts show much evidence
of (illegal) manipulation including “backdated transactions”, examples
of which are detailed in the suit. Also the returns were excessive, 22%/yr
for over a decade, given that the purported portfolio was buy and hold
blue chip stocks diluted with substantial treasury bonds (33% bonds as
of Dec 07).
The
Trustee draws the conclusions that the Picowers not only “knew or should
have known they were benefiting from fraudulent activity”, but in fact
“they were participating in fraudulent activity”. This is not equivalent
to saying the Picowers knew it was a ponzi.
The
Trustee is only charging that the Picowers knew (or should have known)
that Bernie was running (some sort of) scam, that account statements were
phony, and that the Picowers’ benefited from and participated in a fraud.
It does not say that the Picowers knew the nature of the fraud. It was
widely rumoured that Madoff was front running his trading clients. Maybe
Jeffry Picower thought that was Bernie’s racket. Maybe Picower didn’t care,
or didn’t care to know, how Bernie made his money.
By
misreading the Trustee’s charges it gives Picower a defense I don’t believe
he deserves. He can claim, and in fact does claim in his reply to the court,
that by leaving substantial money with Madoff it shows he didn’t know it
was a ponzi. — Donald E. Fulton
After posting
above, as a check I did a search for 'ponzi' in the pdf version of the
Trustee filing. (Note the non-pdf version does not appear to be searchable.)
The closest I can find to where the Trustee says Picower might have known
it was a ponzi is this:
"The
source of funds in many of Denfendants' accounts was fictitious profits
receved by Picower as a consequence of his participation in the ponzi scheme."
(p19)
I think my assertion stands.
You can't cheat an honest man
If
a crook steals from A and gives the loot to B, B can't keep the loot legally
using as a defense that he didn't know it was stolen. (If your kid steals
a car, then hands you the keys, saying, pop here's a gift, how long do
you think the police will let you keep it?)
So what does this
say about Bernie's so-called victims? I have not seen one story of
a Madoff investor offering to give back his earlier years' returns. Madoff
says (all or some fraction) of his returns were payouts in a Ponzi scheme,
so should not returns for previous 'x' years be considered stolen property?
In my view
a lot of Madoff clients, at least those that knew they were investing with
Bernie, are not victims, but (in effect) co-conspirators. They may not
have known the details, but they probably suspected that Bernie had something
shady going on. He had inside info, maybe he was front running the regular
trading clients at his firm (illegal), to the benefit those special few
richies who's money he personally managed, and they wanted in on it. Bernie
you see was choosy and hard to get to. You had to know him at the country
club, or university, or you had to get access to Bernie by going through
one of a select group of investment advisors who has access to Bernie and
who, for a nice fat fee of course, would sell you access to Bernie as long
as you didn't ask any questions and took Bernie on faith.
Economist magazine
says this explicitly --- "(Some investors) thought he might be trading
illegally
for
their
benefit on information gleaned by his marketmaking arm", and reports his
trading business was not pristine having been investigated for front running.
One commentor to a Boston Globe article wrote:
"The
single most basic tenant of investing is that increased returns equals
increased risk. In every case here those investing with Mad Dog Made Off
believed
that
the source of his high returns was insider information. They were
right that he was illegally gaining an edge, but they failed to recognize
it was a Ponzi and not insider info .... so too bad for them." (Boston
Globe comment by BLEEP-1,12/16/08)
(update 12/20/08)
Finally someone
in the mainstream press (Washington Post) has looked at the facts and drawn
the only reasonable conclusion: Many so-called victims of Bernie's scam
were cheats themselves. Some excerpts:
"I
contend that the losses ... might not have occurred at all, if many of
the Madoff's investors had not been cast from the same mold that
Madoff was. The facts should have been enough to make anyone suspicious.
Madoff's accounts were only perfunctorily audited, and his statements were
printed with a dot-matrix printer on lightweight copier paper .... So why
did so many professionals continue to invest with him? Only one
answer makes sense.
Some of those
investors must have suspected that he was a cheat, but continued
to invest because they thought they were benefiting from that cheating.
In other words, they took him for a different sort of cheat from who he
was -- one who was using information gained from his market-making operation
to earn illegal profits rather than one who was operating a breathtakingly
audacious Ponzi scheme.
And by continuing
to invest with Madoff under this belief, those institutional investors
became complicit in that cheating." (Washington Post op-ed, Madoff's
Willing Partners, by Len Fisher, 12/20/08)
(update 12/16/08)
Another investor,
Paul Kedrosky editor of Infectious Greed, one of the best known business
blogs, draws the same conclusion.
"The unexplained
story is the large and reputable organizations damaged, like HSBC, RBS,
Santander, BNP Paribas, Nomura, and so on. They had to know that Madoff's
"split-strike conversion" option strategy was muck, utterly unlikely to
produce the kinds of glassy-eyed stable returns seen by investors.
In their raging
cynicism they were happy to go along with the con, so long as it goosed
their own returns." ( They
Knew What They Were Getting Into by Paul Kedrosky at Daily Beast,
12/15/08)
A Yeshiva insider speaks out (update 12/24/08)
A professor
and author who teaches business ethics at Yeshiva University and who personally
knew Bernie from his work at Yeshiva, where Bernie was chairman of the
board of its Sy Syms School of Business, speaks out. He puts Bernie's investors
into two classes:
"But,
of course, we all know that Bernie Madoff was not acting alone. He had
many enablers. There are those who invested other people's money with him
and did not engage in the due diligence their position of responsibility
required.
There were
likely others who invested with him suspecting that all was not kosher,
but assuming that he was earning real profits with inside information
or by front-running." (article
by Moses L. Pava in 'Jewish Daily Forward', Dec 24, 08)
Pava in his (above)
article doesn't comment on whether Yeshiva Univ, which had invested 8%
of its endowment with Bernie, fell into the class of investors who didn't
due due diligence or into the class of investors who suspected Bernie was
a crook. Curious isn't it.
Dec 17, 08 Yeshiva
Univ president wrote that its 110 million dollar loss was not a direct
investment with Bernie, but had been placed with J. Ezra Merkin's Ascot
Partners, who gave nearly all the money to Bernie. The Univ president neglected
to say whether or not the Univ knew that Bernie, the board chairman of
it business school, was the actual money manager. Tufts Univ also invested
thru Ascot Partners, and they say they knew when they invested that
Bernie was the money manager. So if Merkin told Tufts about Bernie, how
could he not tell Yeshiva?
The Yeshiva
president in his statement emphasized that that Bernie had no connection
with Yeshiva. Somehow he failed to mention that Bernie remained the board
chairman of its business school until the day he was arrested! And Merkin
did not resign until then too.
Upon reflection
there is something very strange about how Yeshiva invested this large amount
of money with Bernie. Bernie as chair of its business school board was
widely known at Yeshiva as was Merkin. He had been on the Yeshiva board
for 12 years. Bernie had been awarded an honorary degree by Yeshiva in
2001, and the next year became treasurer of the board. I find it almost
impossible to believe that people at Yeshiva did not know that Bernie was
managing their money. Even if they didn't ask (!), Bernie or Merkin never
told them(?) What's strange is why would Yeshiva pay a commission
(reportedly 1.5% + 20% of the profits) to Merkin instead of investing directly
with Bernie. Was this a way of distancing themselves from something they
suspected was a scam, or maybe to hide it from some members of the investment
committee?
Merkin was
a trustee of the board at Yeshiva and Bloomberg reports he was chairman
of
its investment committee. Isn't Yeshiva investing big time with Merkin
'on its face' a conflict of interest? Did Merkin cut them a deal?
The WSJ (being
diplomatic) calls this arrangement "highly unusual" and points out that
Merkin had done the same thing with other boards he was on (UJA Federation
of New York and Bard college). The WSJ in the same article on Merkin quotes
an unnamed financier familiar with the Yeshiva investment through Merkin
as saying, "What was in his mind to charge that fee (1.5% annual). How
in the world could he justify that?" (WSJ 1/10/9) (Maybe because
he's a slimeball?)
Markopolos
(see below) in his SEC filing reports on many conversations with top bankers
and Wall St managers, who would tell him things like "we wouldn't touch
Bernie with a 12 foot pole" and there is no way Bernie is legitimate. In
other words Markopolos, who clearly had Bernie pegged three years ago,
was saying it was common knowledge on Wall St that Bernie was not running
a legitimate business. This makes many of Bernie's so-called 'victims'
look a little suspect.
Warning signs or positive signs?
An accountant
no one ever heard of (apparently with no web site) and no third party handling
trades? The press to date is portraying these as warning signs. But to
anyone who suspected Bernie was a little shady and wanted in, no outside
oversight was a positive not a negative. It explains a lot. A lot of Bernie's
clients were very likely sophisticated investors and not stupid, they were
just greedy. As the saying goes, you can't cheat an honest man. I think
someone should sue their asses off to recover past 'returns'. Why should
later 'investors' bear all the loss, while early 'investors' walk away
with fraudulent gains?
Is this nuts?
Not at all. The Wall St Journal had an inside page Madoff story titled,
"Investors May have to Surrender Gains" (Dec 15, 2008, p 16, by Jane L.
Kim, Jenny Strasburg, Aaron Lucchetti) saying that in some previous ponzi
schemes money had indeed be recaptured from earlier investors. On Dec 18
the NYT had a similar article "Even
Winners May Lose With Madoff" suggesting that 'clawbacks' could reach
back six years, and investors may end up suing each other.
Where are the accomplices?
70 yr old
Bernie doesn't strike me as a programming type. So why have not all the
people on the 17th floor who (supposedly) kept records been arrested? Have
they even been questioned? (I have seen no report that they have been).
There has not been a single news story that anyone noticed, prior to Bernie's
arrest, problems with his records.
I have seen
multiple stories that many peoples tax records showed lots of trading and
one person reported these records required paying 500k in capital gains
tax in one year. Tax records are needed every year for every
client, not to mention records of money in and out. This is a huge task.
Bernie is not acting as a clerk. Yet there is a story from the first investigators
into Bernie's office that they found paper records. Doesn't make
any sense.
Upon digging
I found a story or two that some of the trades shown on Bernie's trading
statements (reported to clients) are not consistent with the trading range
of the stock for that day. Trade prices of a hundred dollar stock, like
Apple, will be repeatedly off by a dollar or two. Bernie's large trading
firm, not just his asset management business, has been seized and is now
being liquidated. Outside observers say this likely means that the trading
firm was involved in preparing false statements, as I assume they must
have been. However, I don't see this this liquidation as definitive proof
they are guilty, because I see no way they could continue in business with
Bernie's high profile arrest.
Two separate businesses fairy tail
From the beginning
the story peddled by the whole Madoff family was that Bernie's money management
business was run entirely separately from the trading business, why, it
was even on a different floor! The first crack in this facade was a point
made repeatedly by a House committee member at the Madoff hearing that
all of Madoff's businesses were one legal entity.
A month after
Bernie's arrest a significant new fact has come to light from the liquidators
of the London branch of Madoff's trading business.
"Directors
of the London firm (London office of Madoff Securities) thought they owned
about $150m of US Treasuries, held at an account with Madoff’s brokerage
business
in New York. The brokerage business was supposedly run separately
from the investment-management arm where Madoff allegedly committed the
fraud.
The
Treasuries were bought on November 12 (2008) after Madoff instructed that
his assets be moved out of sterling into dollars. The London business was
given all the appropriate documentation by Madoff’s New York brokerage
to
confirm the trade. However, liquidators at Grant Thornton have yet to track
down the assets." (TimesOnLine
1/11/09)
Wow, what a story!
Just when Bernie is getting desperate for cash to keep the ponzi going,
150 million dollars goes missing from the trading business a few weeks
before Bernie is arrested. Bernie has the money moved from London to New
York. The New York trading office gives London trading office a confirmation
that the 150 million has been received and put into US treasuries. But
as of 1/11/09 the money is missing.
If these facts
hold up, then this is near proof that the trading business was not
at all separate from the money management business. Bernie needed money
for his so-called money management business, so he felt free to just reach
into the trading business and scoop up its available cash. Are we supposed
to believe that neither Bernie's brother, sons, niece or nephew were aware
that this huge pile of cash, roughly equivalent to the annual revenue of
the firm (!), had gone missing (from the supposedly separate) trading business
a month before Bernie 'confessed'. And who, if not the directors of the
trading business, Bernie's brother and sons, could have provided the false
documentation about its disposition to the London office?
(update 6/7/09)
This 165 million
is still missing. Bernie reportedly moved 10 million now and then between
NY and London, but this move of 165 billion was huge, 80% of the London's
capital. The move was initiated by a telephone call from Bernie to Chris
Dale in London. Supposedly he tells Dale he wants the money in US Treasuries
instead of UK guilt's. The press reports that the statement sent from NY
to London showing purchase of 165 million in treasury bonds is bogus. (UK
Independent, 6/7/09)
I think the
key question here is did this bogus treasury confirmation come from DiPascali
on the 17th floor, or was it issued by the trading arm of the firm. If
the latter, it implicates those who ran the trading business, Peter and
the two sons, in fraud.
(update 2/27/09)
Money move
from London to NYC is confirmed by London liquidator. He says 164 million
was moved to NYC, substantilly depleting funds in London, in Nov 2008 in
two transfers.
Don't know
what to make of this, but he reports the London office had no customers,
no clients and did not trade for 3rd parties. He says they just did proprietary
trading with Madoff capital. (Maybe this is just routine activity of the
trading arm of the firm.)
(update 1/28/09)
A 3rd fact
important has emerged showing the trading business was not separate from
the money management business. WSJ today (1/28/09), reporting on the Senate
Madoff hearing, says SPIC head testified that 600 million of stock
that the trading arm owed to trading customers it "didn't have on hand".
While this WSJ story is little cryptic, I think it means that 600 million
in customer stock that the trading arm should be holding in trust
for customers, is missing.
Wow again!
Do you suppose that maybe, just maybe, Bernie desperate for cash near the
end dipped into the supposedly separately run trading business, just like
he did in London trading business in Nov 08, and snatched away 600
million? Sure sounds like it. And gee, guess what, apparently no one in
the trading business even seemed to notice.
Working some numbers on Madoff Securities
One way to
assess if the other Madoff family members could have possibly believed
the Madoff business was wholly legitimate is to work some numbers. Here
is my ballpark estimate. Support for 150 employees @ 333k av per employee
(salary and overhead) is 50 million. Let's throw in 25 million profit to
be split among the family and a few other top employees, which gives them
all multi-million dollar salaries. The total revenue for the trading arm
of Madoff Securities comes out to be (50 + 25) = 75 million.
Now Bernie
is managing according to public figures, who knows the real figure, 17
billion. He must be skimming off at least 1/2% (probably more),
otherwise what's the point of being in this business. Now (1/2% x 17 billion)
= 85 million, which is more than the trading business brings in! This gives
a ballpark revenue estimate for all of MadOff Securities of (75 + 85) =
160 million. Now Bernie's money management business is claimed to only
use 10% to 15% of the employees of the firm, so it's hard to believe his
expenses could be more than 10 million. Most of the money management income
is thus pure profit, providing (85 - 10) = 75 million to be split among
the five Madoff family members, 15 million each av.
If these numbers
are anywhere near right, it means that 70-90% of the income of the
Madoff family is coming from the money management business not the trading
business. This fact alone makes it (almost) inconceivable that with Bernie
70 years old (like he's never going to retire or die!) the family isn't
preparing to sustain this 'business', er scam.
Only after
I did the above figuring did I find the little box below in the WSJ (1/10/09).
These numbers are in the same range as my estimates, and like my estimates
show the money management side of the firm producing more revenue than
the trading side. WSJ shows revenue as 42 million for the trading
arm, 74 million for the money management business (64% of the total) for
a total of 116 million for year 2004. (I'm somewhat puzzled as to where
WSJ got these numbers, because isn't income of a private firm normally
private?)
scan from Wall Street Journal (1/10/09)
Cash transfers from advisor side to trading side (update
12/18/11)
The plea agreement
of Erica Pitz today has disclose a very interesting fact about transfers
from the advisory side to the trading side. About 100 million a year!!
from 2002 to 2008 was being moved from the ponzi to the trading business.
Compare this to the number in the figure above.
"She
(Erica Pitz) also allegedly funneled large amounts of investor money from
the fraudulent investment advisory business to the firm’s legitimate proprietary
trading and market-making operations, including more than $600 million
between 2002 and 2008, according to Mr. Picard’s lawsuit."
Fake
Bernie lays out the circumstantial case against the Madoff family (upsdate
12/18/11)
Here's Fake
Bernie quoting from the Trustee's suits against the Madoff family. I haven't
checked these numbers, but on the facts Fake Bernie is generally pretty
good. The circumstantial case that the family had to be aware of rank criminality
within Madoff Securities is very strong.
Innocent Andrew? Puhlease
Andrew says
he was the "head of the firm’s Nasdaq trading desk"; so why didn't Morley
(Safer on 60 Min) ask him about how he redeemed nearly $15 million from
his BLMIS account re: purported Dell trades––that took place before he
ever opened the account?
All 60 Minutes needed to do was actually look at the trustee’s suit against
the Madoff family members which shows: a) Peter Madoff ”invested” $32,000
in the hedge fund and redeemed $17 million; b) Mark Madoff “invested” $745,000
in and took out $18 million and c) Andrew “invested” $900,000 and took
out $17 million. And these profits were made on trades that never
took place in the phony hedge fund.
Excerpts
from the suit: “Mark and Andrew Madoff supervised trading at the company’s
proprietary trading and market-making operations. They were, therefore,
aware at all times—or, at the very least, should have been aware—of the
trading volume and price ranges of the stocks traded… They knew or should
have known that the profits and executions described in customers’ account
statements, including their own, did not correspond to actual market conditions.”
“Andrew made most of the phony trades in his account #1M0140. No money
was invested into this account, yet he redeemed over $14.5 million
between 1998 and November 2008. A July 21, 1998 entry on the account statement
shows that the Dell shares were purportedly ‘sold,’ generating a gain of
$1,985,000. Three days later, on or about July 24, 1998, he redeemed $1,956,205
from this account.”
“The trustee discovered $60 million transferred to Andrew Madoff or to
entities on his behalf. Between 2001 and 2008, Andrew was paid $31,105,505
in salary and bonus. His compensation included bonuses of over $4.8 million
in 2006, and over $9 million in 2007, alone. ALL DESPITE THE FACT THAT
MADOFF SECURITIES REVENUE COULDN'T POSSIBLY HAVE SUPPORTED THAT KIND OF
COMPENSATION for one of its executives, no less a handful of family members
that 'ran the firm' (i.e. Bernie's two sons, Bernie's brother Peter, and
his daughter Shana).
Beyond
this amount, Andrew seeks an additional $40,624,525 in deferred compensation.”
(not a typo…he says he’s owed more money after the Ponzi scheme collapsed).
Did
Ruth, Mark, or Andrew really know that Bernie was perpetrating a fraud?
Maybe..But, how could they not have known something was awry when they
were getting brokerage statements showing trades made in their account(s)
before those accounts were even opened? And if the "boys" were "savvy Wall
Street traders", how could they have overlooked the millions of dollars
in profits [that they happily withdrew from their accounts] for trades
that were backdated to before they signed the account opening documents?
(Fake
Bernie Oct 31, 2011 posting)
-------------------------
His sons, brother, niece & nephew
Just suppose
for a moment that his sons who work for him, incredible as it might seem,
don't actually know what dad is doing in his money management business.
Then is it even conceivable that his two son don't ask, 'Hey, pop,
you're now 70 and we don't want to lose this business, teach us how you
get these great, steady returns'?
Bernie statements
show he does all his trading through is own trading house (reports are
not consistent here), and his sons run that business, so they have to know
what dad's trades look like. So unless they're financial idiots they must
know, even without asking, that dad cannot be making the money that he
claims to be making and is paying out. This is a family run business. His
kids are seasoned traders, one a graduate of the Wharton business school.
The amount of money involved is 50
billion dollars. Of course they
know what's going on.
It's unclear
(reports are inconsistent) if Bernie claimed to be using the trading arm
of Madoff Securities to do trades for his money management business. Let's
look at the options: either he was or wasn't.
a) Trades with Madoff Securities
In this scenario
it has to be obvious to those running the trading business (sons and brother)
that his trades (if there are any!) are not consistent with the publicly
claimed money invested and income generated. Conclusion: his son's and
bother have to know what is going on.
b) Trades with an outside house
Bernie always
claimed (and told the SEC) that his only revenue came from the trading
commissions of the money he managed. So he is going to give these trading
commissions to an outside house? This makes no sense. His sons and brother
wouldn't have asked him, why are you not trading with us? Who is this outside
house, none has ever been identified. Conclusion: This scenario
makes no sense, his son's and bother have to know what is going on.
(update 9/27/09) Sons, brother, & Shana to be sued
for 200 million by Picard
Picard and
Sheehan said on 60 Min they think the sons and brother had to know (but
I don't think the word ponzi was used.). Picard said he will sue sons,
brother and Shana (I guess the other family members working at the firm
got a pass!) for return of about 200 million. Can't really know the calculation
until I see the filing, but from 60 Min he's going after withdrawals from
their Madoff accounts, 16 million for Peter & 35 million for sons with
almost no cash input, phony loans, "piggy bank" millions in company credit
card charges and maybe salary too(?) Basically he's going to bankrupt
them. (This is independent of whether they get criminally indicted.)
(update 12/30/09) Sons, brother, & Shana to be
sued for 200 million by Picard (cont)
Picard
files suit against Peter, Mark, Andrew Madoff and Shana on 10/2/09. Sure
enough he wants back from them 198 million (total) that they fraudulently
got from the business. Suit says, "The Madoff ponzi massively enriched
the Family defendants." (So what does this say about Picower who got about
x36 times more money =[7.2 billion/0.2 billion] than the family!)
Fake Bernie's
blog opines that if the charges in this suit are correct Peter and the
sons are going to jail for securities fraud. It's now known the family
(plus Picower and Chaise) had special handcrafted portfolios and accounts.
This suit details case after case of rampant backdating in their accounts
where neither purchase date nor sale date are entered into the portfolio
record until months later! These obviously phony transactions yielded tens
of million to Peter and the sons. Also the Trustee says Misuse of funds
(money laundering) permeated all of Madoff businesses including the trading
business. The sons bought house after house (5 million at a pop) with cash
pulled directly from the Madoff IA piggy bank account ("703 account"),
sometimes characterized as a loan, but never serviced or paid back. They
are all a bunch of slimeballs.
These people
are securities professionals. With account statements like this there is
no doubt the Madoff family insiders had to know (at a minimum) that Bernie
'investments' were just a shame, that Bernie was shoveling millions into
their accounts. Where did they think this money was coming from? You think,
maybe it was stolen? Picard 10/2/09 suit against Peter, Mark, Andrew and
Shana here:
http://www.scribd.com/doc/23988738/10-2-2009-Complaint-filed-by-Picard-against-Peter-Andrew-Mark-and-Shana-Madoff
Excerpts from
the above 10/2/09 suit in fake Bernie's blog here:
http://madoffmemos.blogspot.com/2009/12/bernie-madoff-excerpts-from-lawsuit.html
A weird little
tidbit in the suit -- some of the family used the Madoff's one man accounting
firm, Friehling & Horowitz, to prepare their own tax returns. Why,
maybe because their income was so weird they didn't want any outsider to
see it?
(update 1/15/09)
NYT says investigators
are now sure that Bernie did not trade though his own firm,
and it was unlikely he was trading with an outside firm, so it is looking
very likely it was a pure ponzi with no trading. No trading is equivalent
to saying his son's and brother, who ran the trading business, must have
known for years that the bulk of the firm's revenue, which come
from the money management side of the business, was coming from a scam!
(Or maybe they believe in Bernstein's 'returns fairy'!!) (I posted a comment
about his son's and brother knowing about a scam attached to this NYT article
1/16/08)
Bernie was managing
money for a lot of charities. His sons had their own philanthropic foundations,
so did dad manage their charity money too? No way, it went to outside investment
managers. Gee, I wonder why? Trump, who knows a little something about
business, went on record as saying of course Madoff's sons are guilty.
Markopolos
from outside the firm, just looking at the public record, is able to show
convincingly that Bernie can't possibly be earning money legitimately.
Yet we are supposed to believe that Bernie's two sons, who have worked
for him for years and have risen to manage the business, one of whom is
a Wharton business school graduate, can't figure it out?
It's reported
in NYPost that Andy Madoff's wife of 17 years filed for divorce on
the very day Bernie was arrested (Vanity Fair reports this too). Curious,
no? Most of the 42 commentors to this NYPost article find this little
fact shows that the whole Bernie confession to his sons story had been
pre-arranged.
.
Mark Madoff, age 44 (left, with dad Bernie) and Andy
Madoff, age 42 (right)
Mark Madoff
reportedly lives in one of the grandest mansions in Greenwich Connecticut,
and is (was) on the board at Lincoln Center. Bernie and/or Madoff family
reportedly donated 50,000 to Lincoln center in 2004 and 77,500 dollars
in 2006, effectively buying his son Mark a seat on the board. (It must
be so easy to give away money when it's not yours!)
Here is a link
to Mark Madoff fly fishing
http://www.youtube.com/watch?v=Y9C4Guf4m48
(update 1/2/08) NYT Dealbook column comments on the sons'
Madoff:
"Mr.
Madoff’s sons have said nothing about how they could have worked
at their father’s firm for decades without noticing that the money he supposedly
managed did not exist." (same goes for the rest of the Madoff office
clan: brother Peter, niece Shana and nephew Charles Weiner)
His brother Peter Madoff
In 2008 business
listings of broker dealers the principals of Madoff Investment Securities
LLC are shown as Bernie Madoff, founder and Peter Madoff (age 62) "Senior
Managing Director". This has got to be Bernie's brother (or maybe
cousin). How come I have not seen even a single reference to him in any
early news articles?
Finally, a
month after Bernie is arrested the main stream press is beginning to look
at Peter Madoff. WSJ on 1/10/09 ran an article (with picture below) titled:
Madoff Brother, at Arm's Length? It asks how it could possibly be
that Peter, who worked side by side with his brother for forty years, who
managed the trading business, whose desk was a few feet from Bernie's
(there goes the myth that the money management business was physically
separate from the trading business!), and who at seven years younger
than Bernie was viewed as next in line to take over the firm, did not know
what was going on.
.
Peter Madoff, head of trading at Madoff Securities
and chief compliance officer (WSJ 1/10/09)
A search reveals
Peter is indeed Bernie's brother. It is his daughter, Shana, that recently
married the former SEC official, and the NYT reports Peter, a lawyer, was
(other reports say "is") the compliance officer of the company. Peter was
on the board of SIFMA (Security Industry and Financial Markets Association
representing 650 member firms), resigning only after his brother was arrested.
I checked out the SIFMA site and found the following delicious quotes.
Of course, all mention of Peter Madoff is now gone from their site. Do
you suppose they now think that maybe Peter is a crook?
"SIFMA is
the single powerful voice for strengthening markets and supporting investors
-- the world over ... Throughout 2008 SIFMA will focus on the following
goals: 'Ensure the public's trust in the securities industry and
financial markets' (Oh, yes, tell me anther one...)
One plus for
SIFMA: Peter and Bernie donated 56k to this lobbying organization over
the last nine years. SIFMA has approached the government about returning
the Madoff's 56k so it can go to investors. (12/17/08 Politico) Good for
them.
Also, Massachusetts
Secretary of State William Galvin's office said he subpoenaed Madoff's
brother, Peter Madoff. His daughter, Shana Madoff, who married the
former SEC official was also employed at the family firm as a "compliance
counsel for Bernard L. Madoff Investment Securities". As compliance people
Pete (& his daughter) should be up to their eyeballs in this.
(update 1/27/09) Peter Madoff in a court filing confirms
that he is the 'subject' of a criminal probe by the US Attorney's office
in Manhatttan.
According to
Virtual
Globetrotting below are two of Peter Madoff's houses, or is that mansions.
Peter Madoff's winter house in Palm Beach
http://virtualglobetrotting.com/map/61399/view/?service=1
Peter Madoff's house in Old Westbury, New York
(update 6/22/09) Suits by SEC and trustee against the
team at Cohmad say Cohmad was in effect Bernie's in-house marketing arm
for his investment advisory business, bringing in 800 clients about 20%
of his direct clients who invested billions. Guess who owned 9% of Cohmad
and was a director of Cohmad? Yup, Peter Madoff, the man who claims
to know nothing about Bernie's investment business down on the 17th floor.
Shana Madoff,
daughter of brother Peter and compliance lawyer at the firm, was featured
in a lot of news stories since she recently married an SEC official, Eric
Swanson, who reportedly in the past was involved in looking into Madoff
Securities. Swanson at the SEC for ten years rose to be the Assistant
Director in the Office of Compliancer Inspections and Examinations.
-----------------------
(update 6/22/2009)
Trustee suit
against Cohmad, Bernie's in-house marketing arm for his advisory business,
identifies Shana Madoff as a director or officier of Cohmad, and says she
acted as their compliance counsel.
-----------------------
Little known
is Charles Weiner, 50, the son of Bernie's sister, who joined the firm
in 1978. David Wiener, the son of Bernie's older sister, Sondra Wiener,
74, nephew of Bernie and brother of Charles Weiner who works for Bernie
was tracked down by the NY Post. He says his mother is a victim of Bernie
too (what do you know!) with the claim she lost three million. When
questioned by the NYPost, he made this idiot statement:
"Yes,
my family's a victim, more so than anybody else. It's very painful."
(David Wiener, Bernie's nephew quoted in NYPost 1/11/09)
Can you believe
this. A member of the Madoff clan crying about their losses to Bernie,
and this is just after they received in the mail a 1 million dollar (according
to NYPost) diamond studded goody pack from Bernie. His claim that the Madoff
family "more so than anyone else", repeat, "more so than anyone else",
is the victim here is incredible. What a bunch of pompous asses.
The NYT reports the Madoff
family is "so close that they even live within blocks of each other on
the Upper East Side." In a 2000 magazine article Mark Madoff is quoted
as saying, "What makes it fun for all of us is to walk into the office
in the morning and see the rest of your family sitting there.”
(update 7/9/09)
Even more family members
A story about
where Ruth has gone to live identifies even more Madoff family member's
assocated with Madoff Securities. Ruth is reported living with the daughter
of her sister Joan Roman named Diane Hochman.
Turns out Ruth's
sister's husband, Robert Roman, worked for Bernie until recently.
When he retired a couple of years ago, his duties were taken over by his
son-in-law, Seth Hochman, married to Ruth's neice.
The 'Special Access' boys (5/18/09)
The so-called
victims that Picard and law enforcement people (delicately) say had "special
access" to Bernie is growing. It started off with Picard in civil suits
giving info about feeder Chais and Madoff friend Picower. Today in a WSJ
front page story that law enforcement people are looking into some 'victims'
the following additional names appear: Shapiro and his slimy son-in-law
Robert Jaffe (since Shapiro is 96 years old I'd throw in his daughter,
Jaffe's wife), Frank Avellino, one of the first generation of feeders,
and real estate guy Noel Levine. The press is reporting Levine works out
of an office "next" to Madoff, but that's not right. His business has exactly
the same the address and telephone number of Madoff Securities. (See my
earlier writing: What's the deal with Noel Levine? below.)
'Special Access'
boys (as of 5/18/09)
Stanley Chais
Jeffry Picower
Carl Sharpiro
Robert Jaffe
Frank Avellino
Noel Levine
WSJ says below
about Shapiro.
"Federal
investigators are reviewing evidence that they think suggests Mr. Shapiro
also knew his returns were fraudulent, according to people familiar with
the matter. Unlike Messrs. Picower and Chais, Mr. Shapiro, a women's clothing
entrepreneur, was never in the finance business. He is one of Mr. Madoff's
oldest friends and biggest financial backers and helped Mr. Madoff start
his investment firm in 1960." (WSJ 6/18/09)
What's very interesting
about this is (if true) is that the guy who helps Bernie get started almost
50 years ago knows Bernie is crooked! Another piece of evidence that Bernie
has probably been a crook from day one. Ruth's father Saul Alpern is another
one who helped set up Bernie and recruited clients for him. And guess what,
Avellino, 'one of the special access boys', and Michael Bienes got their
start as junior accountants in Ruth Madoff’s father’s accounting firm in
the 1950s. It was Avellino who told his housekeeper ten days before
Bernie was arrested that her investment with Madoff was lost.
What about Frank DiPiscali?
The only non-Madoff
family member at Bernie's firm that gets any press is Frank DiPiscali,
age 52. He has been identified as chief financial officer and a 30 year
employee of Bernie's. Several of Bernie's direct money management clients
report that they most often dealt with DiPiscali on the phone. At this
point he is most well know for his lawyer!
Attorney
General of US, Michael Mukasey, has recused himself from any Justice Department
investigations involving fraud allegations against the Bernard L. Madoff
because his son, Mark Mukasey, is a defense lawyer representing Frank DiPiscali.
(NYT 12/17/08)
The guy who writes Bernie's blog has this tidbit, which I
have been unable to confirm:
"To
those morons that think there's some type of conflict just because Frankie
Dipascali hired Mark Mukasey before the shit hit the fan, you're off base."
(3/10/09)
Mukasey's son is not the only AG connection with Bernie:
Mukasey's
wife is (or was) on the board of the Ramaz school, an Orthodox school in
Manhattan, which had 6 million of its endowment invested with Bernie though
bagman Merkin's Ascot Partners.
(update 12/26/08)
"A longtime Madoff employee, Frank DiPascali, has been questioned and was
described by investigators as having been evasive in his answers."
Frank DiPascali (source -- June 09 Vanity Fair article)
(update 1/16/09) DiPascali doesn't pay his taxes --- IRS
2005 tax lien for 77k, New Jersey 2000 for 73k in unpaid taxes, and
New York in 1993 for 21k. (posting on Zimbio by rpf_81)
(update 3/9/09) Toome reports DiPascali described himself
as 'head of options trading'. Whoops that wasn't smart Frank, since the
liquidators say there has been no options trading for at least the last
13 years, so here we have a guy who ties himself directly into the scam!
It's reported
by Toome that he managed the corporate accounts in Bernie's money management
business. Again according to Toome, prosecutors are talking with three
people who DiPascali managed, Eric Lipkin, JoAnn Crupi and Robert Cardile,
who is Mr. DiPascali's brother-in-law, and have offered them proffer agreements.
(4/4/09) Galvin's recent filing about 'blindness fraud'
at Fairfield Greenwich contains evidence tying DiPascali directly
into
the fraud. In answer to questions from Fairfield's compliance officer,
Amit Vijayvergiya, DiPascali tells Fairfield about how proxies of (non
existent) stock being held are being handled ("prudently"), and more damningly
on the day of Lehman's failure (Sept 15, 2008) Amit calls and DiPascali
tells him about Bernie's (non existent) trading strategy for that day:
"(we don't) want to sell into weakness today and are looking for an exit
opportunity." (So there Amit, now go away!)
"(Above)
is just one example of what the (Galvin) complaint described as routine
DiPascali calls alerting Fairfield that Madoff was entering or exiting
(equities) in his purported (trading) strategy." (USA today 4/6/09)
Frank DiPascali is singing & implicates clients in
tax fraud (4/23/09)
Fortune today
in a long story about "How Bernie Did It" is reporting that Frank DiPascali
is telling everything he knows trying to make a deal for a lighter sentence.
Supposedly he is not tying the Madoff family into the operation
of the ponzi. But in an entirely new angle DiPascali is telling of an entirely
new illegal activity Bernie and the boys were involved in.
According to
DiPascali via Fortune Bernie was doing side 'favors' for some of his big
investors and feeder guys. He was generating phony loss statements
for them, so they could avoid paying taxes on other (persumably) non-Madoff
legitimate gains. DiPascali says they would call and tell him the amount,
and he would sent out the loss statement. He names Frank Avellino, an early
feeder fund guy, and Jeffry Picower, who had the big non-profit foundation
(see above).
Surprise, surprise,
but not a not surprise to me, Fortune is reporting that not only did some
of Madoff's clients know they were investing with a crook, they were crooks
themselves!
"Some
people widely assumed by the public to have been involved in the fraud
may not have been, and a small group of Madoff investors who appeared
to
be innocent victims may not have been entirely innocent after
all.
If, for example,
one of these special customers had large gains on other investments, he
would tell DiPascali, who would fabricate a loss to reduce the tax bill.
If true, that would mean these investors knew their returns were fishy."
(Fortune, 4/23/09)
Fake Bernie's
blog (5/25/09) , which generally has good info, comments that Frank DiPascali's
salary was 3 milion a year.
DiPascali goes down! (update 8/11/09)
The first
of the Madoff gang goes down! DiPascali appeared in court today and pled
guilty.
Here is the (8/11/09) DiPascali SEC court filing
http://www.sec.gov/litigation/complaints/2009/comp21174.pdf
“I
knew it was criminal, and I did it anyway,” Mr. DiPascali (age 52) told
Judge Richard J. Sullivan, of Federal District Court, just before pleading
guilty to 10 felony counts, including conspiracy and tax evasion.
Gee, charges includes
'tax evasion' and 'money laundering'. I bet this applies to more than just
Frank! For some crazy reason he will not be sentenced until next May! Both
his lawyer (Marc L. Mukasey, former AG son) and prosecutor asked he be
let out on bail until sentencing since he has been cooperating, but the
judge immediately put him in jail saying his incentive to flee was high
as he was facing a maximum of 125 years. He also settled with SEC, which
released a related document.
Only new tidbits
of info were this. DiPascali goes to work for Madoff in 1975 (age 18).
In early years he may have traded a few options, though he was just a kid
out of high school and knew nothing of finance. So the NYT article say
"For the first time, that complaint suggested that Mr. Madoff may have
started his money management business as a legitimate operation, investing
money mostly for friends and family using arbitrage and stock picking strategies."
DiPascali tells
investigators that he's helping Bernie fake returns for feeders at least
as early as the 1980's.
Court drawing attached to 8/11/09 NYT story on DiPascali
guilt plea
(DiPascali is supposedly the guy in the middle)
DiPascali released on bail (2/11/10)
Government
said DiPascali was cooperating and in summer 2009 asked for 2.5 million
bail. Judge refused citing risk of fleeing. Judge relented in Feb 2010
to very restrictive bail: home only, GPS tracking collar, FBI to accompany
when he leaves house, 10 million bond including houses and retirements
of 9 cosigners. DiPascali and wife to give up all assets except about 300k.
Judge says the scale of the fraud was "momumental, indeed unprecedented".
Here is the Judges bail order.
http://graphics8.nytimes.com/packages/pdf/business/courtorderdipascali.pdf
Government
says (link) DiPascali has provided "substantial assistance to the government".
Here is government's 12/14/09 cover letter to judge requesting bail. Contents
of the letter are redacted (under seal).
http://graphics8.nytimes.com/packages/pdf/business/letterdipascali.pdf
Madoff's net cash
SEC DiPascali
court filing does provide some hard numbers on Madoff's cash. What the
SEC calls his "slush fund" was account 703 at JPMorgan Chase. All customer
deposits and withdrawals were paid out of this bank account. This was the
net cash Madoff had on hand. The court filing says as of "summer 2008"
it contained 5.5 billion. But that withdrawals spiked after the market
collapse of Sept 2008 and in the last three months of the ponzi (either
from Sept 11 or Oct 1) Madoff paid out "more than 6 billion" .
(update 8/14/09) DiPascali posting (#7)
I made this
posting to a NYT Dealbook article about DiPascali.
One
of the charges to which DiPascali pled guilty was tax evasion. Tax evasion
was wide spread in the Madoff gang, one of the benefits of having a business
that was effectively not audited.
Several
(illegal) tax avoidance schemes used by Madoff and family have been described
in various Trustee and SEC filings. Half the family and top staff were
charging thousands in personal items every month to company credit cards.
Bernie didn’t pay himself a regular salary. When he and Ruth needed a few
million to live on, the business would make a so called ‘loan’ to a family
member, like Peter, and it would be paid off directly to Bernie. Or the
business would loan 100 million to the London office, and London would
make so-called ‘interest’ payments directly into Ruth’s personal account.
Or Ruth would make so-called ‘personal’ outside investments, but in reality
the money to buy the share came from the business.
The
Fortune article ‘How Bernie Did It’ stated that DiPascali has fingered
the 5.1 billion boy Jeffry Picower in illegal account manipulations. In
the suit by the Trustee against Jeffry Picower it described, based I think
on communications found in the files, how Picower’s girl, April Freilich,
would call up Bernie’s boy, Frank DiPascali, and request “billions” (billions,
not millions) in phony tax loss statements, and as a little favor Bernie
delivers. What possible use is there for phony loss statements except to
cheat on taxes?
Clearly
half the family, including Ruth, and insiders too like Picower can be rounded
up on tax evasion. — Donald E. Fulton
Daniel Bonventre (2/25/2010)
Out of the
blue today comes word of (criminal) arrest of Daniel Bonventre, age 63,
who appears to be a financial guy in the Madoff firm. His title is 'Director
of Operations'. He is described as overseeing the back-office record-keeping
staff for the last thirty years. A search of this essay for his name comes
up blank. He has been almost totally off the Madoff radar screen since
the Madoff firm collapsed.
I
later read Erin Arvedlund in her 2009 Madoff book had reported that two
Bonventre sons (or his wife sons from an earlier marriage) worked at Madoff
Securities and were paid 400k each!
It's reported
that one way investigators identified who at Madoff Securities needed special
attention was to look at how much Madoff paid them. This was probably very
effective as in case after case he pays those whose loyalty he needs very
well indeed.
The criminal charge
against Bonventre (below) detail how he intermingled funds between the
trading firm and the ponzi (using fabricated records). He also personally
beneifited to the tune of two million dollars and cheated on his taxes.
He is credited with saving the ponzi from collapse in 2005 and 2006 by
borrowing 262 million using bonds of some investor (maybe Picower??) for
collateral. Also the complaint says that the trading firm lost money and
over ten years 750 million dollars of ponzi money was siphoned off by Bonventre
to the firm.
To
put these numbers in perspective the annual revenue of the Madoff trading
firm was estimated by the WSJ as only 116 million. So I guess Peter and
the sons, who ran the trading business, would have us believe they are
so stupid and/or incompetant that they didn't notice that (on average)
more than half the firm's annual revenue mysteriously come from nowhere!
http://graphics8.nytimes.com/packages/pdf/business/20100225bonventrecomplaint.pdf
Daniel Bonventre, Madoff Director of Operations, is
arrested (2/25/2010)
--------------------------
Notes from reading the Bonventre criminal complaint
(2/25/10)
This guy was
in charge of the back room of the trading business and records show he
personally signs checks for 10 million to investment advisory customers
in 2006. (So much for the argument that the trading operation was run separately
from the investment advisory business.)
The income
tax fraud is detailed and is small potatoes (considering the amounts involved
in the ponzi). His total omitted income from his personal 1040's over five
years is a few hundred thousand dollars. He can not have been a big cheese,
just one of the Madoff worker bees.
He is accountant
by training with an associates degree in accounting.
Detailed bank
account numbers in the complaint indicate that the ponzi was running on
a much smaller cash cushion than anyone thought (or in fact seems reasonable!).
The numbers are that ponzi cash (at least in one bank) typically run between
0.5 billion to 1.5 billion after year 2000.
Bonventre tells
FBI that Madoff told him that hundred of millions (he shifted) were from
'commission income' from investment advisory trades in Europe, but complaint
says Bonventre had access to all trading records of the firm and had to
know this was not true.
As the end
of the ponzi approached (Dec 2008) this guy shifts 181 million from the
trading firm accounts to the investment advisory accounts. A similar hundred+
million transfer had been made to the investment advisory accounts in 2005
as it had insufficient cash in its accounts to cover withdrawal checks.
Ordinarily the money flow went the other way as the trading operation lost
39 million/yr (on average) in its last seven years of operation.
An unnamed
investment advisory client (which Madoff insider could this be??) sends
in 150 million in Federal bonds in 2005 which Bonventre uses to make a
100 million bank loan to solve the immediate ponzi cash crisis.
In first four
months of 2006 260 million is paid out to four ponzi clients. All of this
money came from the trading firm accounts. The loan peaks at 350 million,
but by Aug 2006 the loan from the trading firm is paid off.
To survive
SEC audits Madoff, Dipascali and Bonventre together hatched a plan to generate
fake documents. The two Madoff programmers who have been arrested were
the ones actually generating the fake trading records.
It's clear
from the complaint that DiPascali ratted this guy out. (The complaint repeatedly
says "according to DiPascili".)
Bonventre had
his own Madoff account and it looks like he had one of the stock accounts
some Madoff insiders had. On Nov 20, 2002 Bernie writes him a check for
one million. Two days later (!) a handwritten note is found instructing
that his account records be altered to show a backdated gain of 1.2 million.
The procedure is repeat a couple more time earning him an additional 800k.
(Complaint is not clear but his account balances were often negative.)
The include a note from him directing a (phony) 450k million gain be created
on a 129k investment. (Oh yea, this is how the insiders do it).
Each year this
guy would transfer from trading's bank account about 100k to his personal
bank account to top up his salary & bonus. He never reports any of
this 'extra' income to the IRS.
My 2/27/10 posting to NYT Dealbook column on the Bonventre
arrest.
What
I find remarkable in the Bonventre complaint is the disclosure that for
a long time Madoff’s cash pile has been so tiny. How could he operate a
65 billion ponzi with cash of just a few hundred million? Whistleblower
Harry Markopolos said he thought Madoff’s cash pile was typically many
billion.
The
Madoff Trustee (Irving Picard) is suing Jeffry Picower (now his estate)
for return of 7.2 billion (net) he withdrew in the last 13 years. Is this
one Madoff investor (Picower) largely responsible for bleeding Madoff’s
ponzi dry? — Donald E. Fulton
----------------------------------------
Enrica Pitz
(update 12/18/11)
Press is that in two days she will take a plea pleading guilty to four
counts of faking records to fool regulators and the SEC. Turns out, according
to the trustee, she was DiPascali's mistress.
-------------
Another non-family
Madoff principal, who somehow manages to stay below the press radar screen,
is Enrica Cotellessa Pitz. She is shown in business listings as the firm's
controller. Mrs Panstreppon of TPM blog, which has lots of good Madoff
stuff, credits her lack of press to a tribute she wrote, published in New
York Daily News in Sept 2007, about teaching nun, Sister Marguerite Torre
of Queens, who is the real sister of Joe Torre, long time manager of the
New York Yankees. (translation, Pitz is a good local catholic girl)
Enrica Pitz, age 50, Madoff Securities controller
"Enrica Pitz, of Ozone Park, was chairwoman of the
principal selection committee for Divine Mercy Catholic Academy, the merger
of Nativity and St. Stanislaus Bishop and Martyr schools." (New York Daily
News 9/4/2007)
(Update 2/12/09)
Looking at
the exhibits attached to the MA AG court filing against Cohmad Securities
I see that many of the 1/2 million or so per month checks being sent in
2007 and 2008 by Madoff to Cohmad Securites were signed by Pitz.
Update (2/11/11)
Pitz, identified
as a Madoff Securities controller, is named in the Trustee complaint (for
billions) against Bernie's banker JP Morgan. She was involved in arranging
a 100 million dollar loan by the bank to Madoff to keep the ponzi afloat.
Annette Bongiorno (w/
Semone Anderson
& Winnie Jackson) (3/11/09)
A new name
at the firm is getting some press, and a WSJ story (3/9/09) is tying her
directly
into
the fraud. (There was an earlier 2/27/09 article in London Telegraph about
her, and in mid Feb Toomre reported she was under suspicion.) Annette Bongiorno,
age 60, was Bernie's secretary for 25 years, and she may have run a mini-feeder
group whose investors are call 'RuAnn' investors.
There had to
be a team generating fake trading statements and here for the first time
we have a name. The WSJ charge is this (as reported by CBS news):
"According to Journal reporter
Amir Efrati, Annette Bongiorno directed two assistants to research
daily stock prices, at times dating back several months, and use the information
to produce (fake) trading tickets that would reflect the robust returns
Madoff had become famous for.
The two assistants,
Semone Anderson and Winnie Jackson, offered information on the alleged
fake tickets to the U.S. attorney's office in what is called a proffer
agreement, which protect informants from having their statements used against
them as long as they are truthful, reports the Journal."
-- Annette
(Argese) Bongiorno at one point lived next door to Frank DiPascali. In
fact it is reported that she introduced her neighbor DiPascali to Madoff.
-- In more recent
years, Mrs. Bongiorno apparently moved to a house worth $2.6m in Manhasset,
Long Island. Her husband Rudy is a retired electrician. One might reasonably
wonder how a former secretary and city electrician might be able to afford
such a relatively expensive property. She also has a 1.2 million house
in Florida and a 100,00 Mercedes (another report says she has two Mercedes
and a Bentley). NY News (3/25/09) comments, "Annette Bongiorno must have
been one hell of a secretary."
This report,
if accurate, tells us a lot. First we have three people directly involved
with implementing the fraud. The reference to 'several months' back means
Bernie is only generating fake returns quarterly, and only a tiny team
was needed to get the raw data. (Applying that data to hundreds of customers
my have been a much larger task, unless, of course, it was programmed.)
It tells us how deep the government is going to go in prosecuting, which
is not very deep.
And get this
--- Here we have evidence (if the charge is accurate) that at least one
of Bernie's feeder/saleman, granted a smaller timer and insider, but still
here we have a feeder who knew the whole operation was a scam! Toome
wonders if maybe she will sell out Ruth, Peter, and the boys to save her
neck?
Annette Bongiorno (NY Daily News, 3/25/09)
(update May 09)
It has now
come out that Annette Borniorno's little fabricating team was apparently
pretty incompetent. In several lawsuits against feeders the trustee says
his team has found that hundreds of stock prices on customer tickets
have been found to be outside their daily trade range, and settlements
dates were sometimes on weekends and and holidays. Well, Annette doesn't
look like the brightest bulb on the tree.
(update July 2010)
There are
some interesting tidbits about Bongiorno in a suit filed by US attorney
in NY to recover three million in cash from her. The filing says
she knew what was going on, telling stories to Madoff's direct investors
she knew to be false. Since 1995 it says she has been (in effect) partially
retired spending a lot of time in Florida. Her salary was peanuts (200k
to 300k/year), but her big bucks came from her 'investments' with Madoff.
In Apr 2008 she plunks down 6.5 million for Florida condominium under
construction, but she pulls out when Bernie goes down. .
Over 23 years
(since 1985) she 'invested' a total of 900k and over time it grew to 67
million! Wow, a factor of > x74 increase. She certainly was on Bernie's
favorite list. Even if all the money had been invested at the beginning
(very unlikely), this is a growth rate of 20.6% a year for 23 years. 14
million was withdrawn from her account with 53 million left in her account
when Bernie is arrested.
JoAnn Crupi
Picard hired
a forensic accountant to go over Bernie's books and his finding are in
a May 9, 2009 court filing. He finds Madoff Securities makes millions in
'loans', which are really tax scams, a way for Bernie to pull out cash
and to buy off key employees. These loans are never paid back to the business
the forensic accountant finds. The payroll is padded too, Frank DiPascali's
boat captain is on the Madoff Securities payroll!
A particular
interesting 'loan' is to JoAnn Crupi for 2.2 million to buy property in
NJ. She has worked for Bernie for 25 years in the asset management section.
Toomre Capital reports she worked for Frank DiPascali. Here's evidence
she has been bought off by Bernie to the tune of 2.2 million. I'd say that
the odds are pretty good that JoAnn Crupi was one of Bernie's chief statement
fabricators. She was probably incompetent too, because another court filing
showed more than 500 trade statements given to Merkin have large blocks
of stock execution prices outside the daily trade range.
(update June 22, 2009)
TPM asks how
it is that insider Crupi with her 2.7 million 'loan' gets almost no press
(& no photo). They report the WSJ said in March she was given a proffer
agreement. If so, TPM thinks the prosecutors have made a huge mistake (&
I agree) because the presence of the 2.7 million 'loan' and her other business
dealings (which they detail) show she was a knowledgeable insider.
Annette Bongiorno & JoAnn Crupi arrested (update
11/18/10)
Annette Bongiorno
in Florida and JoAnn Crupi in New Jersey were both visited by the FBI and
arrested on same day (11/18/10). This is almost two years after Bernie's
arrest. As I write, the complaints have not been released. The news article
points out that both received so-call 'loans' (no need to pay them back,
a tax scam by Madoff) of a couple of million to buy real estate.
Reading through
the statement released by the DA upon the arrest of Bongiorno and Crupi
(link below) I see that (finally) the IRS is involved and the Madoff gang
is being charged with tax evasion. Tax evasion is one of the charges against
them and an IRS investigator who specializes in ponzi investigations is
identified as working on the case. And the penalty for tax evasion is steep:
five years for each count and one of them has three counts and the other
five. They are also charged with conspiracy, which is a good sign!
http://www.justice.gov/usao/nys/pressreleases/November10/bongiornoannetteandcrupijoannarrestspr.pdf
Some details
of how the ponzi worked are disclosed here. They would research stock prices
in WSJ and then "backdate" purported purchases to set the returns at the
target returns set by Madoff. The DA says Bongiorno backdated for her own
personal account too, having put in 0.92 million and having withdrawn 14
million (that's cash folks!). (The DA statement contains a whopper of a
typo saying restitution of 154 billion (not million) is requested
from these two.)
** Was Annette Bongiorno Picower's account person?
The
description of Bongiorno's role fits nicely with we what we know about
Picower's accounts and its manipulations. She managed 8.5 billion in accounts
as of Dec 2008. This fits. It is alleged that she recorded "exceptional"
gains prior to accounts being set up. The exact same charge against
Picower is detailed in the Picower claw back suit. And she (sometimes)
requested clients return statements so she could alter them by "often include
additional backdated trades". And
the DA says she would receive instructions from clients about the gains
they wanted to see in their accounts. Again, bingo.
I made the
following two postings to the NYT article about the arrests.
How
come it took nearly two years to arrest Bongiorno and Crupi, they should
have been easy targets. Both were long time managers on the 17th floor
(under DiPascali) where the ponzi was executed, and both were bought off
by millions in phony loans. How is it that not a single Madoff family member
(beside Bernie) has been arrested? Many family members got far larger phony
loans. How is it that not a single feeder has been arrested?
How
is it that the big gorilla in the room, the pair that ended up with much
of the ponzi cash, Jeffry and Barbara Picower, who got not millions, but
7.2 billion says the Madoff Trustee, have not been visited by the FBI?
Sure Jeffry Picower is dead, but Barbara Picower, as manager of the family
Picower Foundation, filed and signed off on IRS 990s, which for years contained
detailed phony Madoff portfolios.
Donald E. Fulton, Boston MA, Nov 18, 2010
Next day after reading the DA's statement I posted this:
The
statement released by the DA upon the arrest of Bongiorno and Crupi (link
in story) contains something interesting not reported in the news stories.
Its description of how Bongiorno ran her 8.5 billion in accounts shows
that some of Madoff's favorite clients had to know that Madoff's returns
were not real. The DA's statement says the Bongiorno would (sometimes)
request clients to return statement so they could be altered, whereupon
she would "often include additional backdated trades".
If the DA's has it right,
then some of Madoff's investment 'victims' were not so innocent as they
pretend to be.
(update May 2009)
The trustee
attached the Am Express credit card charges for one month (Jan 2008) to
one of the filings for those with company cards. The bill is 30 pages with
over 100k in charges, over 80% of it charges by the Madoff family. Bernie's
card is less then 1/2% of the total. Ruth is at 30k, son Mark at 27k, niece
Shana at 11k, son Andrew at 8k, brother Peter at 5k (subtotal 81k). The
biggest non-family charges are Frank DiPascali at 6k, JoAnn Crupi at 5k,
Daniel Pennachio at 2.5k and Larry Birch and Richard Carroll at 1.5k each
(subtotal 16.5k). Since these are mostly luxury non-business charges on
a business card, this shows that virtually the whole Madoff family is a
bunch of tax cheats. Where is the IRS in this investigation?
Included with
the family charges on the AM Express bill is this tidbit: JoAnn Crupi charged
over 5,000 including 522 at a New Jersey wine shop. To me this indicates
that JoAnn Crupi was a real insider, right up there (in charges) with Frank
DiPascali. Here's a link to the 30 page Jan 2008 Am Express bill and a
summary of those sucking at the Madoff Securities teat
:
Of the 17 names
above (Shana has two cards!) the only one's I don't know to be family are
these eight: Richard Carroll (Florida boat charges), David Kugel, Frank
DiPascali, Stanley Shapiro, Larry Birch, Leonard Mayer, Daniel Pennachio,
Joann Crupi.
Ruth charges 2.39 at a drug store!
What she carries no cash at all? 10k of Ruth's charge is a contribution
to 92st Y. Mark spends 8,400 for one night at a hotel (Esperanza,
Santa Monica, Ca)!
http://dng.northjersey.com/media_server/tr/2009/05/13madoff/american_express.pdf
David L. Kugel (update Nov 2011)
Described
as a trader (office on 18th floor?) with a degree in accounting and a licensed
trader. The WSJ describes him as, "a former supervisory trader in the firm's
proprietary-trading operation". The Trustee report (below) says he was
an experienced arbitrage trader before joining Madoff in 1970, and at Madoff
Securities he worked for years (stops trading in 1999 and become a manager
at Madoff Securities) doing legitimate arbitrage trading.
So here we
have a guy who for 30 years works in the trading side of the house (alongside
Peter Madoff) doing real trading for customers and Madoff's propriety accounts,
while at the same time assisting the 17th floor (providing historical data
to Annette Bongiorno and JoAnn "Jodi" Crupi) to generate fake arbitrage
trading tickets for the ponzi. So the trading side of the house was not
all that separate from the ponzi!! Also for years he had a margin account
at Madoff Securities with a loan balance vastly exceeding SEC limits, yet
he never got a margin call. What does this say about Peter and the sons,
who ran the trading business?
Kugel's specialty
was faking the “convertible arbitrage” trading records, which he did for
1,300 'select customers' (says Trustee), which included his own family
accounts (sweet deal!). He also worked faking trading records with Crupi
and Bongiorno. His salary was 588k. He had withdrawn 10 million from his
Madoff accounts in recent years. Trustee is suing him for 22 million. He
shows up in the Madoff credit card records. He will plead guilty to fraud
and is cooperating with criminal investigators. Because he has been with
firm since 1970, when it was quite small, and is a trader, he is a possible
link to Peter Madoff.
In his plea
Kugel will admit to faking trading records as far back as early 70's. Trustee
documents fake Madoff arbitrage trades that occurred in 1977 in
Kugel's own account. And even more damning is Kugel's account statements
from 1997 onward (detailed in the Trustee charge) are as phony as a $3
bill, which the Trustee says would have been obvious to Kugel (especially
since he was generating the phony records. This is proof that Madoff for
more than 30 years has been running a fraudulent business, and is a strong
indication that he has been a slimeball from day one.
David Kugel's
son, Craig Kugel, also had worked at Madoffs from 1996 working closely
with Peter Madoff for a while. He had accounts at Madoff's for over a decade
and the Trustee says "he was aware, or should have been aware" that the
account records were incompatible with legitimate trading activity. Kugel's
daughter also had an account with Madoff whose account statements were
irregular. The Trustee alleges all the Kugel family "knew of the
fraud" at Madoff Securities.
Trustee clawback
(below) against David Kugel, his wife and kids (61 pages). His fake
post-dated arbitrage trades were often sloppily executed. In one case in
1994 short sale volume of a stock was almost x100 times the actual trade
volume.
http://www.scribd.com/doc/42955029/Madoff-Trustee-vs-David-Kugel
Liz Weintraub Caro
According
to Mrs Panstreppon's Blog (2/19/09) Liz Weintraub Caro was the information
officier at Madoff Securities for 25 years. She died about a year ago.
In her blog Mrs Panstreppon is calling upon Liz's husband to tell the FBI
what his wife might have told him over the years about Bernie's operation.
"Your
legacy will live on with your beloved family and at Madoff Securities,
where your 25 years of leadership has been an integral part of our success.
Our hearts go out to Marshall, Eric, David and the Caro, Weintraub and
Corrigan families --- Bernard L. Madoff Investment Securities. (NYT death
notices 2/9/08)
Bernie's wife (1/5/08)
There has
been relatively little reported about Bernie's wife, Ruth, except that
she had once written a cook book, had been required to turn in her passport,
and maybe she had "helped maintain secret records". Today in court the
government requested the judge revoke Bernie's bail and put him in jail,
and also put on the public record an accusation against Ruth Madoff.
"The
government argued Madoff and his wife mailed valuables such as jewelry
and watches to friends and family members, in violation of his bail terms."
(Reuters, 1/5/08) Three days later it comes out that at Bernie's arrest
his desk was found to contained 100 signed checks to family and employees
totaling 173 million. (It would be nice to know who was on that list and
the family/employee split).
Later reports
(NYT) say the mailed jewelry, which included 13 diamond watches and 4 diamond
brooches, was purportedly worth $1 million. NY Post says the mailed items
included, "eight to 10 gold antique watches, among them Patek Philippe
and Vacheron Constantin timepieces, each worth between $30,000 and $70,000."
Madoff bail forbids him from 'dissipating his assets'. Incredibly his lawyer
at the hearing, Ira Sorkin, did not deny Bernie and wife mailed expensive
jewelry, he just pointed out they mailed 'cheap' stuff too like a 200 dollar
pair of mittens. (I guess 200 for mittens Ira thinks is cheap!)
Bernie,
I don't think your getting your money's worth from big cheese lawyer Ira
when this is the best he can come up with trying to keep you out of jail.
Or is going to jail really part of the plan to protect sons and family?
In his written
response Ira characterized the watches and jewelry as “a few sentimental
personal items”, adding (get this) "Mr and Mrs Madoff’s decision
to mail it was an honest mistake." Now there's hutzpah, characterizing
Bernie's actions as 'honest'.
A possible confirming
fact about watches is that according to the head of Bernie's London office,
who has been talking to the UK Daily Mail, Bernie had a strong interest
in vintage watches and a relationship with a London watch dealer. It could
be that Bernie had favorite vintage watches that he didn't want sold, so
he scattered them to the family. Five separate mailings are reported. (Lock
him up)
We knew Bernie was
a pig, now we find out (if government claims are true) that his wife is
a pig too. (His lawyer admits the mailing were made by Bernie and his
wife.) So why hasn't Mrs. Madoff been arrested for dissipating assets?
Her cook book (Great Chefs of America Cook Kosher) is for sale on Amazon
for only $52.59 (it must be a collector's item). [update (1/16/09) NYT
tracked down the editor of the Ruth Madoff cook book, and she tells NYT
that she wrote the entire book, and as far as she knows Ruth Madoff never
even tried any of the receipies.] Here's a negative Amazon customer review
of her book:
"MADE
OFF with delicious eats --- I'm tired of pampered wives "writing cookbooks"
as busy work. Shame on you and your husband for destroying Jewish lives
with your greed - kosher greed doesn't make it any better. I hope you,
Ruthie, enjoy the Kosher food in prison."
Ruth Madoff with Bernie in Mexico last May celebrating
Bernie's 70th birthday (source UK DailyMail online)
Ruth in younger days
source - fake Bernie blog
Unraveling in Nov 2008? (update 2/12/09)
From MA AG
Galvin court filings we learn that Ruth Madoff withdrew from a brokerage
account 10 million on Dec 10, which is the day (as the family tells it)
Madoff 'confessed' to his sons, and had previously withdrawn 5.5
million on Nov 25(2008). Interestingly the accounts were with Cohmad Securities,
which is Jaffe's sales house for Madoff funds. The NYT in its story notes
"The
transactions by Mrs. Madoff (are) certain to fuel speculation about whether
Mr. Madoff’s family knew about the scheme he is accused of running ..."
(NYT 2/12/09)
Was this
a little traveling money for Bernie and Ruth? Or maybe for a payment on
his plane, who knows, without info on Madoff's living expenses it's hard
to put this into context. Ira, who is also Ruth's lawyer and who previously
explained about how Bernie and Ruth mailing the 70k watches was an "honest
mistake", refuses to comment.
Ruth's first
known withdrawal on Nov 25 is about two weeks after Bernie scooped up all
the free cash (150 million) from the London office on Nov 12. Taken together
this is suggestive that the ponzi was beginning to unravel in Nov 2008.
Just too, too, pat
In further reporting
on this story (NYT 1/5/09) some of the jewelry is mailed to Bernie's sons,
and they immediately call their lawyers who turn in Bernie. Give me a break.
This is just too, too, pat. It looks more and more like the government
is a puppet with Bernie and his family pulling the strings.
Is the fix in?
Something
really smells. As of Dec 20, about 10 days after the fraud is discovered,
no one else has been arrested, and NYT has run an article that investigators
are saying no else but Bernie seems to be involved. This is absurd, who
generates the false monthly statement to hundreds, if not thousands, of
investors? (Economist magazine notes it's "unlikely" he acted alone
"given the huge amount of paperwork required to keep his scam going".)
Unbelievable, what the hell is going on? How at a minimum can his whole
family and his accountant not be guilty, plus perhaps scores of other employees
and, of course, his bag men like Noel, Merkin and Jaffe, who were his 'recruiters'.
NYT is peddling
this little cover story for his sons --- "His family knew Mr. Madoff had
an investment management business, but Mr. Madoff had always kept it separate.
Moreover, he explained that he placed his trades through “European counterparties”
rather than use the trading desks his sons oversaw." (12/20/08) Who do
investigators think was fabricating and sending out phony monthly reports
to investors when Bernie was out of the office at one of his many vacation
homes (France, Palm Beach, Hamptons) golfing and sailing?
Rabbi Marc
Schneier, chairman of the World Jewish Congress, tells a Palm Beach Synagogue,
"The scam of the century, orchestrated by one man, Bernie Madoff."
(Palm Beach Post, 12/27/08) Why this emphasis on one man? Granted
Bernie was probably leading the 'orchestra', but I want to know who else
was playing, like maybe his whole family and a good chunk of the firm as
well to do the paperwork?
(update 12/22/08)
FBI is now
involved questioning people who worked for Madoff Securities and the tone
of the reporting is beginning to change --- "It is understood that the
US authorities believe it would have been impossible for the financier
to have sustained a fraud of such magnitude over a number of years without
significant
assistance." (TimeOnLine 12/22/08)
(update 1/12/09)
More than
a month since Bernie is arrested and still no other arrests. However, not
to worry??
"Along
with the court appointed trustee, agents from the Securities and Exchange
Commission and F.B.I. are (still) investigating whether other people aided
Mr. Madoff." (NYT 1/12/09)
NYT also reports
today that those who read legal tea leaves think Bernie is negotiating
a plea, which if this comes to pass means no trial. And the judge today
refused the government's request to rescind bail and send Bernie to jail
for mailing the jewelry. Could it be the judge's leniency is related to
the plea bargaining? There has been brief speculation in NYT that the government
might be using a charge against Ruth Madoff as leverage in the plea bargaining
with Bernie. Leverage for what, hidden records, information on who did
what? Seems to me using his wife against his sons and brother is
a pretty weak strategy, but maybe it will help get Bernie to rat out DiPiscali
and some of the bagmen.
Bernie's back room (update 12/27/08)
I have seen
no comprehensive review of customer statements that Bernie sent out, but
stories about statements are beginning to dribble out. Here as reported
in the Palm Beach Post 12/27/08 is what a Palm Beach investor who had invested
with Bernie since the 1970's had to say:
"Until
Dec. 11, he never suspected anything was amiss at Madoff's firm. "To give
you a concept of how sophisticated it was, as soon as a company paid a
dividend, it was on the account statement the next day," Leif said. "At
the end of year, his tax reporting was meticulous. He balanced to the penny
every year. It was perfect."
Confirmation that
Bernie in this scam was supported by a large back room at his firm.
Snobby investment managers for the rich
A lot of the
snobby ('your not rich enough for us to consider') wealth managers are
revealed to be nothing more than salesmen and (pretty close to) scam artists.
They weren't doing 'due diligence, investing' or diversifying at all. All
a lot of them were doing was taking clients money, skimming off a few percent,
and handing over the money to Bernie (& people like him) to invest.
A classic case
is 'Fairfield Greenwich Group' (below) widely discussed in NYT and Wall
St Journal. It is headed by Walter Noel, who along with Jaffew and Merkin,
is part of the holy trinity of Bernie bagmen. They handed over more than
half (7.5 billion) of their 14 billion to Bernie. I looked at their web
site. It's a classic snob job checking you out to see if your rich enough,
qualified enough, snobby enough to invest with them. It looks like most
of their effort goes into their web site and selling with little to no
effort to handling the money. After all, they can just hand it to Bernie.
.
Walter Noel (left) of Fairfield Greenwich Group
The Group's (mutual) funds let clients access Bernie
Madoff's asset management business (NYT, Dec 18,08)
You can't tell
me that a large organization like the Fairfield Greenwich Group, I think
I read they had nearly 150 employees, was not thoroughly familiar with
Bernie's financial statements and accounting. According to the NYT (12/18/08)
this was firm with 250 million in revenue in 2007, 160 million of it from
Madoff. How could they not have known that Bernie statements were audited
by a storefront accounting firm with a single accountant. And the fact
that this didn't bother them, tells me a lot about Walter Noel and the
others at the Fairfield Greenwich Group.
https://www.fggus.com
(Fairfield Greenwich Group site)
"We had no
indication
that we and many other firms and private investors were
the victims of such a highly sophisticated, massive fraudulent scheme.”
(Fairfield Greenwich Group statement.)
Hey Noel and
Fairchild you were being paid 160 million a year (!) to monitor and protect
your clients investments with Bernie. (One man accounting firm, paper records,
fraudulent trading statements, hey no problemo!) Here is a link to an article
by (the famous) Henry Blodget who read through the Fairfield material,
and who lists in detail all the work Fairfield management claimed to be
doing to protect their clients. (What a bunch of lying turds.)
http://clusterstock.alleyinsider.com/2008/12/fairfield-greenwich-experts-we-thought-bernie-madoff-was-the-best-money-manager-in-the-world
(update 12/21/08)
The NYT today
has another front page story about the biggest of Bernie's bag men, Walter
Noel, founder of Fairfield Greenwich. With Fairfield's business with Bernie
booming (7.5 billion), Noel has really lived it up with 4 huge houses and
has worked to become a 'big man' in the Ct/NY social scene. Picking up
on Blodget's earlier point (above) the Times article lists all the promises
made by Fairfield Greenwich to protect investor money, like checking on
assets weekly. ('Firm Built on Madoff Ties Faces Tough Questions',
NYT 12/21/08)
Really telling
is this tidbit from the NYT article. In early 2008 Fairfield pitched selling
the firm to private equity investors. The NYT talked to one who heard Fairfield's
pitch. When asked asked about the money manager of their big fund (Bernie),
Fairfield executives response was "We don't really talk about him."
Noel, and probably
the other 20 owners of Fairfield Greenwich, is going down. Even if the
FBI doesn't arrest him, his investors will sue his ass off.
source --- NY Post 12/16/08
Vanity Fair feature on Greenwich's Noel family in
2002
Paul Sullivan
of NYT (1/6/09) comments on Noel snd Fairfield Greenwich
"He
(Noel) lost $7.3 billion of client money to Mr. Madoff, collecting huge
management fees for doing little more than passing money along to him."
Yup
(update 3/3/09) Monica Noel defends hubby
Get this ---
Here's how Noel's wife defends her husband in the current Vanity Fair:
“He
did sales — he relied on others for due diligence." (Vanity Fair, April
2009)
Hey lady, he was
the boss, founder and head of the firm, he's responsible. The Vanity Fair
article goes on to say the family is concerned that they have become "Social
Pariahs". Lady, your husband should be in jail, he was at the minimum 'willfully
blind', and you're concerned about your loss of social standing!
What a bunch of pompous asses.
The April 2009
Vanity Fair article on Noel has lots of interesting background and info,
such as, Noel got connected to Bernie (in early 1980's says NYT) through
Tucker's wife whose family knew Bernie. Noel's wife is Swiss-Brazilian,
so his five daughters learned to speak several languages and married internationally.
Four of the five sons-in-law worked for Fairfield Greenwich and living
abroad were able to recruit widely in Europe and SA.
http://www.vanityfair.com/style/features/2009/04/noel200904
"Walter
Noel owns 17 percent of F.G.G.’s business, as does (Jeffrey) Tucker, (Tucker
is a former SEC lawyer) who like Noel semi-retired two years ago. F.G.G.’s
chief shareholder is Andrés Piedrahita, who owns 22 percent. Piedrahita,
50, is a short, brash Colombian married to Noel’s eldest daughter, Corina,
45."
It's reported
that filthy rich Noel has a 19,000 sq ft home on the Caribbean island of
Mustique (never heard of it), and that is reportedly where they are now
hiding out. Heaven forbid they should be in Greenwich helping their investors
reclaim some of their Madoff funds. Google Earth shows Mustique to be tiny
island near St Vincent (2 mile x 0.6 mile) with an airport, and Noel's
home, Yemanja, is at the top of a mountain. It rents for 55,000 a week.
Andrés Piedrahita (3/31/09 WSJ)
Andrés
Piedrahita is a Spaniard married to Noel's daughter, Corina, and is a managing
partner of Farifield Greenwich. For a 3/31/09 WSJ story he talked to the
WSJ reporter saying, “I look at myself in the morning, and I’m very
proud of what I have done, and so are my partners, and Nobody knew
anything about anything." To which a poster commented:
"Not
since Bush told Brownie he did a heck of a job have I seen someone who’s
so delusional."
MA Greenwich filing (April 2009)
MA AG Galvin
complaint against Fairfield Greenwich is here.
A few tidbits from the complaint:
-- Noel earned
30 million a year.
-- Tucker
(in an interview) was asked to name who was involved in implementing the
split strike strategy and the only people he could name were Bernie and
DiPascali. (Ah yes, due diligence)
-- None of
the Fairfield Greenwich partners had ever been to the 17th floor.
-- "Concept
of due diligence was part of the Fairfield Greenwich's marketing pitch,
but not an activity it meaningfully engaged in." (almost poetic)
-- As of 2005
they knew Bernie's accountant had only one employee. (No problemo....)
-- From all
the Fairfield emails referenced in the complaint it's clear the guys at
Fairfield were so detached from due diligence, and/or so stupid, that they
thought Bernie was implementing a split strike strategy.
-- In Sept
2008 with credit markets all but frozen, they begin to wonder who's providing
the liquidity and counterparties for Bernie's option trades. Their plan
of action, "we should speak to blm asap and get some 'color' from him on
how we are getting option liquidity"
-- In Oct
2008 they finally send Noel (of course now Noel claims he only did marketing!)
and Tucker down to Bernie's office for some due diligence. They had sent
in advance a list of questions, like who are the people involved in implementing
the split strike strategy and their roles. Bernie's answer is "traders"
with no names or specifics and the Noel and Tucker just accept it and say
nothing. They ask about counterparties and Bernie says he won't tell them.
(Bernie must have had a good laugh after this meeting, knowing he was dealing
with a bunch of jerks he could just steamroller.)
-- Here is
the background on the recorded telephone conversation where Bernie coaches
Fairfield. It's 2005 and SEC is starting to investigate Bernie as a follow
up (so says the complaint) to Markopolos's 2005 letter. As part of this
investigation they are going to interview Bernie's largest customer and
that's Fairfield Greenwich.
-- "Fairfield
has not offered to repay the enormous fees it reaped even though it now
knows that the performance upon which those fees are based is fictitious".
(dipshits to the end)
(my thoughts)
Fairfield
must have known something was very wrong when Bernie got very mad about
the level of redemptions in Oct 2008. Fairfield emails indicate they thought
Bernie was all in cash as of Sept 08 and was to stay that way due to the
state of the credit markets. Think about it. If Bernie is doing what he
says and is all in cash, then why are redemptions a problem? They
matter only to the extent that future revenues will be lower. It doesn't
make sense, yet there is no indication that this sunk in. Stupid!
But consider this
statement Noel makes (to the AG) about the latter months of 2008, "We thought
we could help him a bit if we give him more money." (14 million
is collected from Fairfield insiders and sent to Bernie) The only way this
makes any real sense is in the context of a ponzi, which supposedly Noel
doesn't know anything about.
Trustee files suit against Fairfield Greenwich (5/18/09)
Picard has
filed a 45 page civil suit (here)
against Fairfield Greenwich and its three principal partners: Walter Noel,
Jeffrey Tucker, and (son-in-law of Noel) Andres Peidrahita. A few tidbits
from the complaint:
-- Defendants "knew or should have known" that Bernie "was engaged in fraud".
-- In confirmation statements 280 stocks are found to be outside of their
daily range. Some settlement dates were on holidays and weekends!
(boy, Bernie's back room fabricators were incompetent)
-- (you'd think that maybe someone at Fairfield Greenwich would have looked
to see what impact the billions in options Madoff indicated he was buying
for Fairfield Greenwich, which on some days "exceeded the options trading
the entire market" says the suit. Nah! In fact says the suit there was
no impact on the options market at all. Gee, I wonder why?)
-- Even the
S&P stock volume (just for Fairfield Greenwich) was unrealistically
high, often over 20% of the NYSE daily volume and occasionally over 50%.
Should have been a red flag says the suit.
-- Following
companies who after having done due diligence on Madoff refused to deal
with him and "had serious concerns that his business was not legitimate":
Goldman Sachs, Merrill Lynch, Morgan Stanley, Citigroup, Credit Suisse,
Societie Generale. Also serveral contract due diligence firms had reported
to their clients (for a decade in some cases) that they suspected fraud
at Madoff Securities. (Here is the most comprehensive statement confirming
what Markopolos claimed to the SEC in 2005, that Madoff securities was
widely viewed on Wall Street as fraudulent.)
-- Numbers
in Madoff's 2008 SEC filing (public info I think) were inconsistent with
what was being reported to Fairfield Greenwich.
-- Fairfield
Greenwich knew that Bernie had been investigated by the SEC, not only because
Bernie briefed them by phone on what to say, but because Tucker was interviewed
by the SEC.
-- Picard
wants the boy at Fairfield Greenwich to return 3.2 billion they took out
in the last six years. 1.2 billion of the 3.2 billion was taken out within
90 days of Bernie going under.
-- Fairfield
Greenwich boys have filed (or will file?) SPIC claims. (Well, of course,
because as they say we're victims too) The suit says their SPIC claims
should be denied. (yes! no half million for you!)
Trustee suit against Fairfield is amended adding more
Fairfield Greenwich managers and partners (7/23/10 update)
The 3.6 billion
recovery suit against Fairfield Greenwich was hugely expanded (7/20/10)
with a 228 page amendment (below). The suit is attempting to recover billions
from (by my count) 19 managers and partners of Fairfield Greenwich who
are now named as defendants. It's very detailed and in addition to the
228 pages of text has something like 100 exhibits (attached).
http://www.madofftrustee.com/CourtFilings-Download.aspx?Docket=596
Excerpts from reading through the above filing
-- "Noel was
acutely aware of many facts and red flags that put him on actual and/or
inquiry notice that BLMIS was engaging in fraud, and yet failed to conduct
any proper, independent and reasonable due diligence or follow up."
The exact phasing
above is repeated for partner after partner of Fairfield including Jeffry
Tucker and lots of members of Noel's family, not just his sons-in-law,
but some of his daughters too who worked in the firm.
-- In 1989
Tucker, Noel and Kolber are looking for an outside investment manager.
It's Tucker's father-in-law (Norman Schneider) who introduces them to Madoff.
-- In a recorded
telephone call in advance of a 2006 SEC inquiry Madoff instructs the Fairfield
people to tell the SEC that Madoff is merely "the executing broker" and
that all investment decisions are made by Fairfield. The filing notes all
the Fairfield people on the conference people "knew this to be false".
Fairfield's accounts with Madoff were specifically characterized as "discretionary"
accounts, so Madoff had full authority to trade with their money as he
wished.
-- "Not only
did the defendants fail to conduct the required due diligence, they wilfully
ignored information that was right in front of them, and then lied about
it."
The filing
discusses a 400 million dollar ponzi (Bayou Group hedge fund) that was
exposed in 2005, saying a Fairfield investor pressed Fairfield about the
similarities between Bayou and Madoff (small accountant, no incentive fees,
etc). Fairfield to respond to the investor gives Madoff's accountant (Friehling)
a telephone call and is told they are a small to medium size firm with
hundreds of clients. A little later Fairchild gets a Dun and Bradstreet
on Friehling and find out they have one employee and total annual revenue
was 180k, so Madoff's accountant is in fact quite similar to Bayou's, and
they now know that Madoff's accountant has lied to them, yet they do basically
nothing.
The filing
says Fairfield did 'nothing' (underlined) to confirm if Friehling was capable
of auditing a firm managing an estimated (Fairfield didn't know how much
money Bernie ran) 10 billion dollars, many billion of which was Fairfield
money. Freihling had not been peer reviewed by the major auditing organization
since 1993 because he had told them he didn't do audits. This information
was public information, and the filing says just "basic due diligence"
by Fairfield would have "revealed Madoff's auditor was a fraud".
"The defendants
knowingly and purposefully turned a blind eye to the fact that this strategy
(split strike strategy based on basket of S&P 100 stocks with an 'out
of the money' option collar) ... continued to yield positive returns without
any correlation to the S&P 100."
Fairfield had
billions with Bernie and 'figured' (based on what Bernie told the SEC)
that they had 42% of Bernie's split strike volume. Thus they were in possession
to see that Bernie's in and out trading was huge and should leave footprints.
It was a significant fraction (often 40 to 50%) of stock volume and nearly
always hugely exceeded exchange option volume. There is a striking graph
(p115) of Madoff's what they would have figured was Madoff's option volume
vs the Chicago Board of Trade option volume. (Markopolos points out that
even if the options were done over the counter as Bernie claimed, the counter
parties would have been laying off risk on the options exchanges, so their
would be huge option footprint.)
In a very telling
revelation the filing shows the written agreement between the Fairfield
funds and Madoff held Madoff immune if the an option counterparty failed
to perform. Thus the feeder funds were liable for loss if a counterparty
defaulted, yet the filing says, even though Fairfield told investors that
counterparties all came from an approved list, that Fairfield in fact never
knew the identity of even a "single" option counterparty! Bernie wouldn't
tell them who his counterparties were.
The filing details a host of paperwork irregularities on the options. Bernie
claims he is doing all his options trading over the counter, but the confirmation
slips Fairfield gets show an options' CUSIP number, which means they were
traded on an exchange. There inconsistency between agreements and confirmation
slips as to whether Madoff in options trades is acting as an agent or principal.
"Every trading confirmation" Fairfield gets shows Bernie is trading as
a principal, but once he registered with the SEC in 2006 SEC rules required
a written authorization for each trade and Fairfield never provided this
authorization.
Madoff tells
the SEC there are only five employees in his investment advisory business,
and Fairfield has a copy of this information. Who did they think was doing
all the trading? Fairfield was telling customers that Madoff had "dozens"
of PhD traders repeating a story Madoff told them. Fairfield never knew
the name of even a single Madoff trader.
Near the end
Fairfield hires a consultant (Gil Berman) who reviews some of Bernie's
confirmation slips. Madoff's paperwork (we now know) was always sloppy
and Berman finds that sometimes Madoff options collar doesn't correspond
to his equity holdings as the split strike strategy requires, and (importantly)
these restrictions were written into a contract between the feeder funds
and Madoff. (Berman finds that Madoff would sell equity with the collar
in place or sometimes the collar would be for twice the equity held.) This
"over-hedging" (options manipulations) were seen to consistently generate
substantial profits (95 million in one month for Sentry duuring the 2008
meltdown), so the filing suggests all (or some) were likely deliberate
so that Madoff could show a profit in a big down month. Berman suggests
to Fairfield that Madoff "may be a fraud" and of course, Fairfield just
ignores Berman.
** The filing sums up: "For
years the Defendants had overwhelming evidence that Madoff was not a legitimate
investment manager." (p142)
By the time
of Madoff's collapse the Fairfield partners had withdrawn nearly all of
their personal investments with Madoff. The net asset value of Fairfield's
funds dropped "to almost nothing" when Madoff was arrested and he admitted
he had not bought any securities. Fairfield investors lost "billions".
The filing
discusses two outsiders who had concluded that Madoff as a fraud. One is
Markoplos and the other is identified as Edward Thorp, the "grandfather
of quantitative analysis", who the filing says in 1991 (based on a one
day review) concluded that "Madoff's claimed returns were nearly impossible
and he was likely a fraud".
"Investment
professionals reasonably concluded that a fee structure where the true
investment manager voluntarily chose to pass on massive amount of fees
was a major red flag of fraud. Defendants knew that the very compensation
structure from their relationship with Madoff, which permitted them to
be so unjustly enriched, was itself a massive sign of fraud."
"The above
are some of the many illustrations showing that 'the street' fully and
openly suspected Madoff was a fraud." (p160)
In nearly 200 pages
(!) of text this complain lays out the details of how for nearly 20 years
the Fairfield team lied through their teeth to their investors about the
due diligence they claimed to regularly performed. Whereas in fact they
were little more than a bunch of (secretly captured) Madoff salesmen, who
only occasionally inquired of Madoff what he was doing, and then only in
the context of being able to 'explain' it to a prospective investor and
make a sale.
After a year
and a half, why are there no criminal charges against the Fairfield boys?
Isn't blatant misrepresentation to investors to tune of billions of dollars
not illegal, not fraudulent?
What's the goal of the civil action against Fairfield?
I'm puzzled
by what Picard is trying to accomplish here. He argues 3.2 billion paid
out to Fairfield in the last six years is recoverable and he wants this
money back! OK, it's reasonable to try and recover the wealth the
Fairfield boys made from the business, which the filing estimates over
the years totals about one billion, but where does the other two billion
plus come from?
Is Picard (blindly)
trying to recover money from Madoff indirect victims (Fairfield's customers)
to pay to Madoff direct clients? This doesn't make sense. Or is the 3.2
(or 3.6) billion number, which he can legally justify, just a pro forma
tactic, and he will be happy to just bankrupt all the Fairfield defendants?
Fake Bernie on Noel (update 3/27/09)
"Right, tell
me the gentiles aren't in a hurry to be rich too. And we helped everyone
- not just our own people. Not by a long shot. Can anyone spell N-O-E-L??
And all of those little blonde haired, blue-eyed daughters of theirs?"
(Fake Bernie blog 3/27/09)
What Fairfield Greenwich told clients
(update
1/5/09) WSJ indicates today that following a 2005 SEC probe Fairfield revised
its customer material to indicate its link to Madoff that had previously
been concealed. The date of the two slides below is unknown.
It's pretty hard
for the investors with Fairfield Greenwich to claim they didn't know Madoff
was (at least) involved in managing their money. WSJ obtained a presentation
from Fairfield Greenwich for their Sentry Limited fund (invested with Bernie).
As you can see (below) in the two slides that the WSJ published, Bernard
L Madoff (BLM) is identified as doing the trading using "their (BLM's)
sophisticated trade execution technology" (whatever that means!),
which is outlined as an in & out S&P 100 hedge strategy --- "profit
from short periods of positive momentum in large-cap US equities on a hedged
basis." (doing a little Googling I find positive momentum
is jargon for upward momentum)
scan from WSJ 12/27/08
scan from WSJ 12/27/08
Fairfield slides artfully misleading
Notice how
artfully misleading these two Fairfield slides are. If you don't read all
the fine print in the first slide (& even if you do!) it appears that
Fairfield Greenwich runs the money, that they are the money manager. Fairfield
Greenwich is shown in the 'Investment Manager' box, whereas 'Madoff Securities'
appears only in the Broker box. (And clearly a broker is secondary to the
investment manager with the broker just executing trades as directed, right?)
However, if you read the fine print in the Investment Manager and Broker
boxes it's a lot murkier as to who actually makes investment decisions.
Fairfield Greenwich just reviews, approves, and monitors risk guidelines,
allocates capital, and selects the manager. Broker Madoff executes the
trades of the strategy. Clear, right?
The second
slide too is maddeningly, and doubtless deliberately, vague too as to who
makes the investment decisions. It can be read as saying Madoff (BLM) does,
but it's not at all clear. BLM uses "sophisticated trade execution technology"
-- What does 'technology' here mean? Is it computer models that implement
the trading algorithm, or does it just refer to Madoff's computer hardware?
It is (I would suggest) deliberately unclear. It suggests that Fairfield
Greenwich is doing a lot more than what they really did, which was pretty
much just shovel the money to Bernie.
Fairfield Greenwich history
With benefit of what is now known about Fairfield's connection to Bernie
the history of Fairfield Greenwich on their site provides some insight
into their relations to Bernie. (Bloomberg.com reports Fairfield's Sentry
fund invested $7.3 billion solely with Madoff.)
"The
search for good managers ... (included) the development and seeding of
the split-strike conversion strategy in 1989 and the launch in Dec
1990 of FGG's flagship single manager fund." (Fairfield Greenwich
history)
Clearly the single
manager referred to above is Bernie. Noel and his crew are saying they
have been associated with Bernie for 20 years(!) and are even taking credit
for "seeding" the development of his so-called 'split-strike strategy'.
Bagman Jaffe's Cohmad Securities also started in 1989, so we have two major
USA Madoff feeders both starting in 1989.
(update 3/2/09) Fairfield Greenwich's idea of due diligence
Fairfield
Greenwich provided the WSJ info about their past due diligence on the Sentry
fund (Bernie fund). It's unbelievable thin. Fairfield Greenwich can apparently
point to only two 'checking' visits to Bernie's headquarters in
20 years! (WSJ 3/2/09)
In 2001 co-founder
of the firm (Jeffrey Tucker) visits Bernie's office and asks about the
2001 Barron's article. Bernie says OK you can do a spot check right now,
but limits him to two stock trades on two days, and then (later) shows
him the paper records of the trades. (It's not hard to see how Bernie
can get out of this one. He just wonders out of the office and tells chief
record faker to look up the two stocks on those days and print out a (fake)
paper record with the right totals. Wow that was hard!) The only other
visit Fairfield can point to is a year later when their auditor and an
unnamed Fairfield person went to see Bernie. (Bernie probably did the same
song and dance, which he had down pat.)
Link to investor suit against Fairfield Greenwich (12/19/08)
Within one
week after Bernie's arrest some investors in Sentry fund filed a class
action law suit against Fairfield Greenwich. Here's a link
to the court papers. Some interesting tidbits from a quick read:
Greenwich Sentry
LP is a "private investment limited partnership". This was only 220 million
of the approx 7 billion Fairfield had with Bernie.
Fairfield
Greenwich Limited is chartered in Cayman Islands! (Another Fairfield fund
is chartered in Bermuda)
The claim
is Fairfield "failed to perform even a minimum level of due diligence"
and
is by a good amount of detail.
Fairfield's and Bernie's joint fairy tale
Fairfield
pretended to customers that they were the investment manager and Madoff,
if mentioned at all, was just a broker. This was their justification for
high hedge fund fees. From the recorded telephone conversation between
Bernie and Fairfield top execs released by the MA AG, this little fairy
tale it turns out was useful to Bernie too in his dealings with the SEC.
Here excepts of that call with commentary by Fortune magazine:
"Obviously,
first of all, this conversation never took place ... okay?" Madoff began.
("Yes, of course," was the reply from Fairfield Greenwich's risk manager,
though the company has since asserted that it informed the SEC of the conversation
at the time.) Madoff proceeded to spin a strange, fragmentary -- he seemed
to interrupt himself every few words -- self-contradictory set of talking
points for Fairfield to follow in its SEC interview.
In reality,
Fairfield's Sentry funds had their entire $6.6 billion stake invested with
Madoff, and he controlled every investing decision (though, of course,
in this case, "investing decision" meant Madoff simply took whatever money
was sent his way). But he reminded them of their cover story: "You've
approved the parameters of the strategy, and I've agreed to follow these."
Fairfield, he kept repeating, had selected the strategy and a range of
stocks, and Madoff's only role was to control the timing of when these
investments were entered into and exited.
"[W]e never
wanted to be looked at as the investment manager," he (Bernie) said. "So
in the past, if we've ever been asked about what our role is with any of
these types of funds, it has always been that we are the executing broker
for these transactions." Having just said that Fairfield had the sole power
to choose the investing strategy, Madoff turned around and explained to
them that he had changed the "trading directives" several years ago
and was only now getting around to informing Fairfield Greenwich that its
strategy had changed. "I'll send you up the new trading instructions today,"
Madoff said blithely.
Madoff was
telling Fairfield to deny the obvious: that he was managing their money.
At the same time, he portrayed his firm's role as something well known
to the SEC.
( Fortune April 09, "How Bernie did it".)
Another filthy rich Fairfield Greenwich partner
While Noel gets nearly all the press, there are about 20 Fairfield Greenwich
partners. NYT 1/23/09 had a feature article about the upper east side town
house of another Fairfield partner, Richard Murphy. How filthy rich is
he? When he bought the 25 foot wide townhouse in 2007 he paid 33 million,
the record price at the time for this type of upper east side townhouse!
(He's now trying to sell it, no job, and along with the other Fairfield
partners he's being sued by their clients, and speculation is he will maybe
only get 30 million for it. Tough break....)
What about Robert Jaffe and Cohmad Securities?
Robert
Jaffe , who along with and Noel and Merkin, is part of the holy trinity
of Bernie bagmen. The MA AG wants to know about the relationship between
Jaffe, Madoff and Cohmad Securities. Cohmad is a small (10-20 employees)
Boston based investment firm whose name is derived from Cohn and Madoff.
Cohmad also had a NY office in the same building (lipstick building between
Lexington & 3rd) as Madoff (Cohmad Securities, 885 3rd Avenue # 18,
New York, NY 10022, (212) 230-2480). These people were recruiters (salesmen)
for Bernie and are thought to be the primary recruiter of MA investors
for Bernie. It is reported that Madoff owned 20% of the firm and Maurice
Cohn 80% and that Bernie's introduction to the Palm Beach Country Club
crowd came via Robert 'Bob' Jaffe of Cohmad, son-in-law of Carl Shapiro.
The Boston Globe describes Carl Shapiro, 95 years old, as a Boston philanthropist,
who over the years has given away hundreds of millions of dollars to Boston
hospitals, museums, and universities. (In fact I recently noticed on a
visit to the Boston Symphony that one of the violinist occupies the 'Carl
Shapiro chair' which the BSO says is funded in perpetuity.) The
Globe says Shapiro got involved with Madoff through his son-in-law Jaffe
who founded Cohmad Securities.
Bob Jaffe's father-in-law, 95 year old Carl Shapiro,
huge Boston donor,
gives Bernie 1/4 billion dollars!! 10 days before
Bernie is arrested
for a total loss of 545 million. Thanks Bob!
The NY Post says this about Jaffe:
"In
addition to being Madoff's buddy, Jaffe (age 64) also was a promoter for
Madoff, and was known in some circles as 'the Recruiter' as part of his
job running Cohmad Securities, a firm whose sole purpose was to
market Madoff's investments." The Boston Globe says, Jaffe, husband of
Museum of Fine Arts trustee Ellen Shapiro Jaffe, has worked for Cohmad
Securities Corp. since 1989. Here's a link
to a puff piece about Jaffe from Dana-Farber Cancer Institute.
.
.
Robert Jaffe, son-in-law of very rich Carl Shapiro,
resident of Palm Beach (& Boston),
principal in Cohmad Securities and key recruiter (salesman)
for Bernie Madoff
(hey buddy did the surgeon get those eyebrows a little
too high?)
A spokesman
for the Jaffe-Shapiro family says they did not know about the fraud. (They
don't know nothing!) And, guess what, he too is a victim of these "tragic
events" (WSJ 12/27/08) (Maybe he just read Bernie's lawyer statement about
this being a 'tragedy'.) The WSJ reports that Jaffe just built an
11,000 sq ft (!) "mansion" two doors down from Bernie's home in
Palm Beach.
---------------
Shapiro and Jaffe's settle for 625 million (update
12/11/2010)
This week
Carl Shapiro, age 97, his daugher and her husband (Robert and Ellen Jaffe)
settled with the Madoff Trustee for 550 million plus 75 million to the
the Justice Dept (I will need to read up on the Justice Dept settlement.)
Boston Globe columnist probes the ethics of taking
tainted money (update 12/11/10)
Here's an article
by Steven Syre in the Boston Globe 12/10/2010, almost two years to the
day after Madoff's arrest, raising (gently) some moral questions about
the money that many Boston instutions have taken from Carl Shapiro, who
over the years has spread his million far and wide in the Boston. Money
now known to have been stolen from other Madoff investors.
In settlement, Shapiros are still giving
By Steven Syre, Boston Globe Columnist
December 10, 2010
Here
is today’s $625 million question: Did Carl Shapiro’s huge settlement with
the federal government make things right?
Shapiro,
one of Boston’s truly great philanthropists, and his family agreed to write
a check for that staggering sum this week. They are returning so many millions
that had supposedly been earned from investments made by Bernard Madoff,
who actually swindled the money from other clients.
Whether
$625 million is the right amount, and is this the fair way to settle the
matter, are hard questions to answer for two reasons. First, many details
about Madoff and the Shapiro investments remain unknown. Second, any story
about vast amounts of public charity and stolen money mixed together is
bound to make your moral compass spin.
The
most important thing we still don’t know: How much of the Shapiro fortune
was money that Madoff pilfered in the infamous Ponzi scheme that blew up
in 2008? The $625 million payment is merely a negotiated settlement of
a legal dispute.
Here’s
how they reached that number: Irving Picard, a trustee who represents the
interests of Madoff victims, had argued the Shapiros took a little more
than $1 billion out of their Madoff account during the last six years of
the scam. Shapiro countered his family had kicked in another $500 million
to Madoff that Picard hadn’t counted. That netted out to about $550 million.
Another party to the dispute, the Justice Department, received $75 million,
bringing the total to $625 million.
One
important footnote: Picard made it clear he would not pursue money already
donated to nonprofit institutions, a sum that runs into the many of millions
in the case of the Shapiros.
As
neat as figures sound, a settlement based on the movement of money over
the six years prior to Madoff’s arrest leaves a lot of financial history
untouched. Shapiro, now 97, first made a fortune selling his Kay Windsor
dress business in 1971 for $21 million and gave a good deal of the money
to Madoff. Over decades, those accounts grew much larger, at least on paper.
Picard stops following the trail backward at 2002.
Shapiro
says he was hoodwinked by Madoff all along, and no one investigating the
case has alleged otherwise. But I have a hard time reconciling the idea
that a smart businessman with relentless focus on detail could be completely
snowed by his friend for so long.
All
along the way, some of Greater Boston’s most famous hospitals, museums,
and universities have had their hands in Shapiro’s pockets, and the city
is undoubtedly a better place for it.
On
a quick drive yesterday, I passed Shapiro buildings at Brigham and Women’s
Hospital and Beth Israel Deaconess Medical Center. I stopped off at the
Museum of Fine Arts to see its spectacular new wing, built in part with
millions from the Shapiros. I drove to Boston Medical Center, where the
nearly complete nine-story Shapiro ambulatory center will open in the spring.
That’s only
a sampling. Don’t ask me whose money really paid for it all. I don’t know.
The $625
million settlement isn’t perfect. But it’s a worthy act by a family that
spent much of its fortune — presumed or otherwise — to help others. The
Shapiros stand apart from investment advisers who recklessly sent their
clients’ money to Madoff and now hide under rocks when called on to take
responsibility.
Steven Syre is a Globe columnist. He can be reached
at syre@globe.com.
© Copyright 2010 Globe Newspaper Company.
---------------
(update June 22, 2009)
Suit by trustee
says Jaffe brought in over 150 clients (from Boston and Palm Beach) to
Madoff, "while knowingly or recklessly disregarded facts that indicated
that Madoff was engaging in fraud." His personal accounts with Madoff showed
returns as high as 46%. Jaffe in the last 12 years withdrew at least 150
million dollars from his accounts.
Trustee suit
makes it clear that Jaffe knew Bernie was a scammer. Jaffe, like other
insiders, was ordering up his account tax records. He would request a "specific
dollar" amount of 'long term' (of course!) capital gains for a particular
date, and would receive from Bernie confirmations that (mirable dictu)
just the right quantitity of securites sales that "antedated" his request
had occurred. The trustee says therefore Jaffe knew (for a fact) that Bernie
was falsifying account statements and that account statements showed fictious
trades.
What a slimeball
Jaffe is! (Does that mean that his wife Ellen, who sits on all those boards
of Boston hospitals, museums, and schools, is by extension a slimeball
too, or is she like Ruth Madoff, someone who doesn't know nothin.)
---------------
Robert and Ellen Shapiro Jaffe (Palm Beach Post)
Jaffe, who
of course, is very rich in a rich man's town, gets the kid gloves treatment
from the local paper (Palm Beach Post, 12/20/08).
"Two
weeks ago, Robert Jaffe was the toast of Palm Beach society. He was sought
after by the wealthy and influential. He was chairman of the multimillion-dollar
Palm Healthcare Foundation. ... Known for his impeccable grooming, penchant
for fine suits and royal bearing, Jaffe, 64, has been sullied by
his association with Bernard Madoff. They lived within 1,000 feet of each
other - Madoff in a $9.4 million home and Jaffe in a $17.1 million mansion
on North Lake Way."
"Jaffe, club
members say, was Madoff's emissary. He was the man you went to to get to
Madoff. You had to grovel, said one club member. If the person invested
with Madoff, Jaffe told the newspaper that he would make one or two points
on the deal. But ... some of his clients were shocked that Jaffe earned
money by giving them entrée to Madoff."
Jaffe has worked
with Bernie for 20 years, he's a pal of Bernies, he's Bernie's neighbor,
and Bernie has made this ordinary stock broker filthy rich, and he doesn'
t know anything! His training for this job: a BS in Business Administration
from Suffolk University in downtown Boston, which in the 1960's was a fourth
rate institution..
Quote from
Jaffe in 1998 in Daily News Record, a men's fashion publication, "The clothing
I wear is more - dare I say - cutting-edge. It's a few years ahead of the
pack." (from Boston Globe 12/21/08) Is this guy a real ass, or what?
Some commentors to the story about Bob Jaffe in the Boston
Globe (12/21/08)
"Bob
is no more than a slick cancer."
"It's likely
Mr. Jaffe did not pull out his money even when he was able and had the
chance, and even though he may have had his suspicions that the Madoff
firm was not on the up and up, because had Jaffe done so, it would have
been a clear admission -- easily discoverable -- that he believed something
was very wrong at the Madoff firm.
As long as Mr. Jaffe played along with the scheme, and
as long as he maintained the status quo continuing to push the Madoff product
to his 'friends' and confidantes, Jaffe could always claim he was also
an injured party, and thus maintain 'plausible deniability' in the event
the pyramid scheme ever finally collapsed. It is clear Mr. Jaffe hoped
it would not."
"Maybe Mr.
Jaffe had no idea what Madoff was doing, I honestly find it hard to believe
Jaffe didn't think anything fishy was going on, I bet he just didn't care
since he was raking it in hand over fist and he (Jaffe) had the popularity
of a rockstar because of his Madoff connection."
"Robert Jaffe
made money the old-fashioned way; he married it. Then he became the middle
man in a giant Ponzi scheme. Does Giorggio Armani' make orange jump-suits?"
"You can bet
Jaffe knew what was going on. Madoff's investors were cut from the same
mold as Madoff himself. Arrogant, narcisitic and above the law. Many foundations
enabled a lot of good for a lot of people, but they were set up as preservations
of wealth to avoid taxes. The epitome of hypocritical political beliefs.
They fell for Madoff simply because they wanted to believe that they were,
in some way, superior to everyone else. Madoff simply exploited the basic
lack of values and ethics that he know too well."
"my point being,
many of Madoff's investors are as guilty as Madoff."
"If anyone
doesn't think Mr. Jaffe (or the two Madoff son's for that matter) were
not in this up to their eyeballs, well, I think that bridge in New York
is still for sale."
"Every successful
con needs a roper to find and steer the marks. That would be Mr. Jaffe.
Soon enough he will be wearing newer, even more cutting-edge clothes. Stripes,
with numbers on the back."
(update 1/13/09)
Has
Jaffe gone missing? Looks that way. He was subpoened to appear before the
Massachusetts Securities Division today (1/13/09) and didn't show. The
MA AG says they are prepared to enforce the subpoena.
(update 2/12/09)
"(MA AG)
Galvin’s complaint, filed with a state hearing officer in Boston, is aimed
at revoking (Jaffe's) Cohmad’s brokerage license in Massachusetts on the
grounds that it is refusing to cooperate with the state investigation
of the Madoff scandal. “We cannot tolerate licensed securities dealers
who refuse to assist in the detection and prosecution of fraud,” Mr. Galvin
said.
I think I read
somewhere the law is an ass (Google tells me its from Charles Dickens'
Oliver Twist). Can you believe the Cohmad Securities and (apparently) Fairfield
Greenwich still have securities licenses? I guess directing billions
of their clients' money into a ponzi for 20 years is no reason to
shut them down! No, the MA AG is trying to shut down Cohmad because Jaffe
won't answer his questions.
At first Jaffe
hid, then he claimed to be sick, and now he is taking Fifth (amendment
privilege). His lawyer, Stanley Arkin, says Jaffe 'had no knowledge of
the scheme', so why is he taking the 5th? Well his lawyer explained, it's
of course not that he is hiding anything (heaven forbid), it's just that,
and this is a direct quote, he hasn't had "adequate time to prepare to
testify". Bernie was arrested two months ago and Jaffe hasn't had time
to prepare! Do you suppose that maybe, just maybe, lawyers lie?
(NYT 2/12/09)
Jaffe is not
the only Cohmad employee refusing to testify. Marcia Cohn, an executive
with Cohmad Securities, failed to appear in court as subpoenaed on Jan
21, 09.
And this:
"Steven
Paradise, a lawyer at Vinson & Elkins who represents the firm (Cohmad),
disputed that view of Cohmad’s cooperation. “We have provided more than
20,000 pages of documents and answered two-thirds of the interrogatories
from Mr. Galvin’s office,” Mr. Paradise said." (NYT 2/12/09)
Hey what do
you want? We answered 2/3rd of the questions!
Another intriguing
tidbit in Galvin's filing is that Cohmad Securities paid $525,000 to Sonja
Kohn of Bank Medici (Vienna). This indicates that all the feeder funds
were not entirely separate, or that Cohmad was acting as an arm of Bernie,
or maybe they owed Bernie a (1/2 million) favor?
(2/15/09) MA AG court filing on Cohmad Securities lists
how Jaffe has respond to the MA AG subpoena in the last two months. He
claimed he needed a delay before he could appear for an interview because
(in order):
- His lawyer has a vacation scheduled
(heaven forbid we should inconvenience his lawyer!)
- He's switching lawyers
- He's sick
- He's switching lawyers again
- He's sick again
- He's switching lawyers for the 3rd time
- Subpoena is unconstitutional
The court document
commenting on this record gets almost poetic, "Jaffe's multitudinous and
often conflicting excuses delved deeply into the realm of the absurd."
Jaffe finally shows up on Feb 4, 2009 for an interview and he says nothing,
refusing to answer any substantive question about his business, Cohmad's
business, or his connection to Madoff Investments, taking the fifth amendment.
I found this
description of Jaffe by Palm Beach writer Laurence Leamer on the Boston
Magazine web site:
"At
another table this evening sat Shapiro's daughter, Ellen, and her husband,
Robert M. Jaffe. He was Ellen's greatest treasure, a sixtysomething peacock
in a black dinner jacket tailored to his tall, lean frame. He had an aging
gigolo's looks, with sleek black hair and a face that if not lifted by
plastic surgery nonetheless looked not youthful so much as the caricature
of youth."
"Jaffe didn't
have to sell; he didn't even have to promote—everyone already knew he could
grant access to Madoff, and that was all it took." (and of course he skimmed
a couple of percent for himself) (http://www.bostonmagazine.com, not dated,
recovered 2/16/09)
Jaffe's social life
What me worry (!),
Jaffe, a key and very rich Bernie bag man, apparently doesn't see why him
steering friends and associates into a ponzi scheme for the last 20 years
(and getting filthy rich from it) should interfere with his social life.
He showed up at a Dana Farber event and a benefit with Donald Trump after
Bernie is arrested. Below is an account from Boston Globe and Individual.com
(12/17/08).
"The local
Palm Beach Post reported a frosty exchange at a birthday party Saturday
night at Mr. Trump's ultra-exclusive Mar-a-Lago Club, where several furious
Madoff clients (including 78-year-old Jerome Fisher, founder of the upscale
shoe store chain 9 West, who reportedly lost millions with Madoff) confronted
Robert Jaffe, who not only invested heavily in the disgraced financier
but also received a fee for steering other clients to Mr. Madoff.
With Mr. Trump
looking on, Mr. Jaffe came close to a physical confrontation with
one particularly unhappy Madoff investor. "There were a lot of unhappy
campers there," Mr. Trump told the newspaper."
'I don't know
if it makes sense at all' to have the Jaffes chair the Discovery Ball (scheduled
for Feb 21, 2009), said Trump, the hotel and gambling tycoon, and a Dana-Farber
contributor who attended the ball last year. 'I don't know the level of
animosity or hatred, but I got a bit of it the other night.' According
to Trump, the two almost came to blows. Trump said in an interview yesterday.
Seeing Trump's comment (above) on the
Feb 09 Discovery Ball, I google it. Sure enough here is the invite to the
Ball as shown in Black Tie Magazine:
Turns out the
Dana-Farber Cancer Discovery Ball is a big deal (at least in Palm Beach)
with 350 very rich people in their best bib and tucker. The Palm Beach
press loves this stuff, here's a link
to
16 pictures taken at the ball, as published in the Palm Beach Daily News.
'Chair' Jaffe's ass is nowhere to be seen. In the article text it said
this:
Madoff?
What Madoff?
Howard and
Michele Kessler, honorary chairman and honorary chairwoman of the event,chased
the elephant out of the room when they took the microphone to credit
the evening's success to the absent chairman and chairwoman, Bob
and Ellen Jaffe.
Nobody booed.
Some applauded. And, after a second or two, everybody
applauded.
(Palm Beach Daily News, 3/7/2009)
(update 6/15/09)
Bernie's phony
blog has this tidbit:
(Try)
asking Bill Galvin why he's allowed the people from Cohmad to dissolve
their bank accounts and spirit away the millions they had on deposit before
we (Picard) could put our hands on it!
'I lost money too' defense
One commentator
to the Boston Globe article about Jaffe said, "If Jaffe has large amounts
of cash that were not invested with Madoff then he might have known that
the whole thing was a scam. If he lost everything with everyone else then
he's another dupe" I don't agree. The argument that 'I lost money
too' is virtually the standard defense for the insiders, offered as proof
that they didn't know it was a scam.
Let me offer
another viewpoint. CohMad securities, partly owned by Bernie, was formed
in 1989 to recruit investors for Bernie. I take this date as probably the
starting point of the scam, though it may have started even ten years earlier.
20 years is a very long time. Even if insiders were initially a little
scared about Bernie being a cheat, I'm sure these fears dissipated long
ago. Every thing had gone swimmingly for 20 years, Bernie had got this
down pat, it's never going to end, how can we pass up these juicy returns.
In other words after two decades of a beautiful
scam nobody could see it ever ending.
But wait, what
about Bernie's age? How can it go on forever when Bernie is now 70 years
old? Which leads me to the corollary (as mathematicians say). It must have
been understood by the insiders (maybe because Bernie told them?) that
the next generation would take over when Bernie retired. After all it didn't
take any great investing skill, Bernie had figured out the template. There
were plenty more investors in the world to tap. They had penetrated Europe,
but Asia and the Mid East were untapped, and even in the US they had really
only penetrated deeply into a few local enclaves.
Bernie's accountant
A one man
accountant firm, "Friehling & Horowitz", operates out of a tiny (13
ft x 18 ft) store front office, which according to neighbors was usually
empty. On paper it has three employees, but one is age 78 and lives in
Florida, one is a secretary, the last, David Friehling, appears to be a
real CPA. If David Friehling is really Madoff's accountant, why has
he not been arrested?
(update 3/18/09) Friehling was arrested today by
FBI. Also the SEC is suing to recover his audit fees and over five million
in investor withdrawals by him and his family over last nine
years! He is the 2nd person arrested in the ponzi (see 3/18/09 story below)
The background
story is that years ago, the now retired to Florida accountant, Jerome
Horowitz, 78 or 80, did work as an outside accountant for Bernie or his
firm. Friehling, 49, is his son-in-law and took over the firm when Horowitz
retired, which based on Horowitz's age was probably about 15 years ago.
Fortune magazine reports that Friehling & Horowitz have reported in
writing since 1993 to the accounting standards group AICPA (American Institute
of Certified Public Accountants) that they don't do audits! This
is important because it means their internal audit paperwork was never
checked by outside auditors, the procedure CPA profession uses to maintain
standards. According to Bloomberg news Friehling worked for much of the
last ten years as a tax accountant helping to sell mutual funds for an
investment firm in NJ (CJM Planning Corp), but that work ended in 2004
or 2005 when the NJ firm was sold.
Every news
story I have seen says that 'Friehling & Horowitz' is known to have
signed off only for year 2006 ( "statement of financial condition"
for Madoff Securities dated Oct. 31, 2006). What about all the other years?
What firm, if any, signed off on them? Would an audit of Madoff Securities
even include Bernie's (supposedly) separate money management business?
Did Bernie's money management business even release audited statement every
year? Was Friehling really Bernie's auditor?
(supposedly) Bernie's accountant, David Friehling
of 'Friehling & Horowitz' of Rockland NY
Markopolos
(see below) reports that when arab money considered a big investment with
Bernie, they wanted to send in outside accountants to look at his books.
Bernie refused saying he only allowed an accounting firm owned by his
brother-in-law
to look at his books. So is Friehling & Horowitz"
owed by Bernie's brother-in-law, or is this just Bernie bs?
(update 5/12/10) Friehling was not related to
Madoff. It's 'owned by my brother-in-law' was just Bernie's cover story
for why his accounting was done by a tiny firm, says Markopolos in his
book. (This makes sense.)
I have seen references
that Markopolos refers to this too (not checked), and it translates into:
Is Ruth Madoff the sister of Jerome Horowitz, in other words is her maiden
name Horowitz? (Nope, Ruth's maiden name is Alpern.) However, the
root of the story may be this: Ruth's father, Saul Alpern, was an accountant
and according to Bloomberg news (1/29/09) in the 1960's when Bernie was
just getting started Saul Alpern recruited investors for his son-in-law
Bernie in the Catskills and Miami Beach, so who knows maybe he did some
accounting for Bernie too. There's a good discussion from a CPA point of
view of all the problems in this audit arrangement here: 'Why
I'm Betting Madoff's Auditors Were In On The Scam'.
And what about
the audiors of the hedge funds and other entities that invested with Bernie?
For example, the auditors for Merkin's Ascot Partners LP were BDO Seidman.
"If the entire fund was invested with Madoff Securities, it seems logical
that an auditor would verify that the funds actually existed?" ('Cutting
Edge' article on Merkin, 12/22/08).
SEC
People for
over 10 years have written to the SEC telling them Bernie was a fraud.
The SEC now admits that some of these reports were "credible and specific".
Translation --- even though people were telling us what Bernie was doing
and that he was a fraud, we did nothing. Well, that's not really true.
In fact according to the NYT the SEC repeatedly called in Bernie as a consultant
and expert! I dug up this photo of Bernie, sitting next to a former
SEC chairman, testifying before a congressal committee in 1993.
Bernard Madoff (right), chairman of Madoff Investment
Securities,
sitting next to former SEC Chairman, David S. Ruder
(center)
appearing before the House subcommittee on Telecommunications
and Finance in Washington, May 13, 1993 file photo
(left, Richard Grasso, president, New York Stock Exchange)
(AP Photo reprinted in a online Houston Chronicle
(Chron.com) article on the fraud, 12/16/08)
Investigating
a Ponzi scheme is not difficult says a former SEC official. With Ponzi
schemes there won't be much in the way of assets. There is no investment
growth and much of the money that comes in is soon paid out. "The agency
can simply demand proof that the investment adviser holds the amount of
money he claims to hold." (see above for my thesis on how Bernie may have
figured a way around this by use of paper records, a fraction of which
are hidden)
Here is what
the SEC's memo of November 21, 2007 said following its investigation (of
Madoff Securities): "The staff found no evidence of fraud."
Yikes, TimesOnLine
is reporting that the new (Obama appointed) head of the SEC, Mary Schapiro,
previously appointed one of Bernie Madoff's sons (Mark) to a regulatory
body that oversees American securities firms.
(1/5/2009 update). The WSJ has long article today on eight
SEC's probes of Madoff over 16 years. In House hearing also today SEC probes
of Madoff were characterized by some committee members (simplistically
no doubt) as akin to asking a thief if he steals, and then taking his word
for it when he says no.
One probe (no
date given) says WSJ was triggered by emails obtained from a hedge fund
that described Madoff's business as "highly unusual". Published suggestions
of possible "front running for favored clients" appeared in 2001 in Mar-Hedge,
a hedge fund trade publication, and in a 2001 Barrons article. So in 2004
(!!) SEC opens a "limited inspection" into whether Madoff's firm is front
running. In 2005 SEC determines that Bernie is managing 8 billion (directly)
for 16 clients, so they require him to register because the limit without
registration is 14 clients.
(update 2/5/09)
Markopolos
yesterday in the Madoff House hearings made reference to a member of his
four man 'team', identified as a hedge fund manager I think, publishing
some of their Madoff concerns a few years ago. I think the above referenced
2001 Mar-Hedge story may be what Markopolos was referring to.
The WSJ article
has a little info that is maddeningly vague about whether Bernie was actually
trading, which, of course, is one of the key questions about Bernie's operation.
Article says SEC checked Bernie's trades for one day (Jan 20, 2005)
and this record agreed with what he had told them, which was trading was
done in Europe in the middle of night in USA. SEC says they also checked
customer records for four days, and they appeared to confirm the trading
strategy that Bernie told them he was using. Then the WSJ cryptically notes
the SEC report did not look at bank records or other records that
would have determined as to whether or not the trades (actually)
took place. (Wow, that was some examination!)
Many at the
House hearing indicated that when the SEC went in to probe Madoff, they
would just talk to him and take what he offered. If that is the case, then
he could easily have traded for just a few days and offered up the records
as 'proof' to the SEC. In 2006 SEC concludes that Madoff lied to them ("mislead
the agency") in 2005 about his money management trading strategy, and he
had "withheld information", but still they do nothing closing the
investigation. This SEC lack of action on this drove some committee members
at the Madoff House hearing nuts (to distraction).
Remember
checking on a Ponzi is not brain surgery and with Bernie's claimed trading
strategy it should have been trivial. Bernie claimed to go 100% to cash
at the end of every quarter, so all the SEC had to do to was verify at
the end of a quarter that he was sitting on a pile of cash that matched
his customer accounts. (But the SEC couldn't be bothered.)
Eric Swanson
It's very
curious that at the time the SEC avoids seriously investigating Bernie
a top SEC compliance guy, Eric Swanson, is dating Shana Madoff, daughter
of Peter and like many other family members works at the firm, in her case
as a compliance lawyer. Swanson works at the SEC from 1996 to 2006. When
the press found out soon after Bernie was arrested that his niece had married
a former SEC official, there was a brief flash of press, and then nothing.
However, I don't think it was recognized that Swanson, as Assistant Director
of Inspections, was probably in perfect position to protect his girlfriend,
later his wife, along with the whole Madoff clan. Here's an excerpt from
his self described bio:
Swanson's
bio
"(formerly)
SEC Assistant Director in the Office of Compliance Inspections and Examinations.
While at the SEC, he directed a staff of attorneys and examiners in conducting
routine and cause inspections of broker-dealers, investment advisors."
Eric Swanson, husband of Shana Madoff
formerly SEC Assistant Director in the Office of Compliance
Inspections and Examinations
Mrs
Panstreppon writing for TPM
blog (3/23/09) is suggesting that authorities look into the supposed
dates of when they became a couple. They claim to have met in 2003, but
not become romantically involved until 2006. She also points out that while
at this point it's just speculation to suggest he might have interfered
with investigations into Madoff Securities, it is known that he was earlier
directly involved in investigating the National Stock Exchange, which was
connected closely with Madoff Securities (It was directed by Peter Madoff).
"From
2002 to 2005, Mr. Swanson was involved in developing a case against the
National Stock Exchange. At the time, Peter Madoff was a director and Madoff
Securities was a significant investor in the company." - Stephen Laboton,
New York Times, 12/18/2008
New York Post on Swanson (update 7/2/09)
Washington
Post & New York Post have an interesting story (7/2/09), which may
be based on leaks from the SEC internal investigation. "Genevievette Walker-Lightfoot,
a lawyer for the SEC based in the agency's Washington office" who reportedly
had interviewed Madoff (or reviewed the case) for the SEC reported in 2004
via email that Madoff answers don't "make sense". She is told (supposedly)
to forget it and move on. Her boss's boss is Swanson!
The
agency asked Madoff to turn over reams of information — accounting statements,
trade confirmations and other documents — and told him to detail his strategy.
Walker-Lightfoot,
a staff lawyer, had previously worked at the American Stock Exchange, where
she developed an expertise in specialized trading strategies. When she
reviewed the paper documents and electronic data supplied by Madoff (she
was checking to see if he was front running), she found it full of inconsistencies,
according to documents, a former SEC official and another person knowledgeable
about the 2004 investigation.
Madoff
had told the SEC that all his accounts traded based on the same specific
conditions. But in her e-mail, which she copied to colleague Jacqueline
Wood, Walker-Lightfoot noted "significant differences between the Tremont
and Sway account transactions." The variation in the dates of trades seemed
to contradict a key part of his strategy and "does not make sense," she
wrote.
She
also flagged other doubts about Madoff's strategy. He was supposed to buy
and sell stocks and then trade options as a hedge against any loss. But
his financial records suggested that he often completed trades without
the corresponding hedges or hedged without completing the corresponding
trades. As she wrote, "the corresponding equity activity/or hedge restructuring"
didn't occur.
She draws up nine
questions to ask Madoff. The Washington Post says, "If pursued, these questions
may have led to discovery of the fraud." (7/2/09)
SEC says Swanson
was involved in a Modoff review in 2004, but this is three years before
his marriage to Shana. However, Swanson admits having met Shana in 2003.
The story put out by PR agents he hired, is that he doesn't start
having sex with Shana until 2006. Mrs Panstreppon is very skeptical and
has written about this several times. Swanson and Shana might very well
have been lovers during Lightfoots, bringing Swanson front and center as
maybe the guy who protected him inside the SEC.
A couple of
things seem odd about this story. Why report via email, this can't be standard
practice. My understanding is the NY SEC office was in charge, that's what
Markopolos said, and this is the Washington office of SEC. (Lightfoot's
papers did get shipped to NY office) Lightfoot is gone from SEC after filing
hostile workplace complaint, but she later turns up as a lawyer at the
Fed.)
Markopolos filing with SEC
Harry Markopolos,
who describes himself as a derivatives trader and expert (Washington Post
says he is a Boston accountant), submitted to the SEC a pile of documents
more than three years ago (Nov 2005) arguing that the derivative strategy
Bernie claimed to be using was nonsense and could not work. In his opening
letter he says he talked to the SEC in person (Boston office) about Bernie
as early as 1999, and that he has spoken with heads of various Wall St
equity derivative desks and says "every single one of the senior managers
I spoke with told me that Bernie Madoff was a fraud."
Markopolos
outlines a set of red flags that he says leads him to believe that Madoff's
returns aren't real and that Madoff (highly likely) is running the "world's
largest Ponzi Scheme", and if they are real "would almost certainly" have
been generated by "front-running customer order flow" (illegal) at Madoff's
broker dealer business.
Markopolos's
2005 SEC submission can be read on the WSJ site at link below. It's a good
bet a lot of people are now avidly reading this. (If it disappears from
the WSJ site, you can find it here.)
http://online.wsj.com/documents/Madoff_SECdocs_20081217.pdf
I've read it
and Markopolos had it exactly right, three years ago! He lays
out a compelling case listing 29 red flags and the names of experts for
the SEC to contact. Yikes, it's all laid out for the SEC in detail that
very likely Madoff is running a Ponzi scheme of gargantuan proportion (Markopolos
estimated 30 billion in 2005), and yet they do nothing! (Another
federal agency screwed up by George Bush?)
One
thing puzzles me though. How was Markopolos able to come up with such an
accurate figure ( 30 billion) for the size of the Ponzi. Currently
(1/5/09) the loss is estimated at 37 billion. Surely Bernie's private client
data was secret. Maybe by following Bernie closely for years he knew about
the holy trinity of Bernie bagmen: Jaffe, Noel, and Merkin (and others)
and just added up the size of their operations? But money came from all
over including a lot from Europe. Maybe just a lucky guess?)
Then there was
the (red flag) that Madoff was charging no fees other than trading
commissions: "The notion that something is fee-less -- which is what they
largely preferred -- is too good to be true." Markopolos asks in his SEC
complaint, 'How can it be that (based on his record) one of the world's
best hedge-fund like money managers is not collecting big fees for his
services, that the high fees go only to his salesmen, and he only gets
trading comminssions? It makes no sense.'
Here's how
the SEC characterized the 2005 letter from Markopolos in an internal January
4, 2006 memo: "The staff received a complaint alleging that Bernard L.
Madoff Investment Securities LLC, a registered broker-dealer in New York
("BLM"), operates an undisclosed multi-billion dollar investment advisory
business, and that BLM operates this business as a Ponzi scheme. The complaint
did not contain specific facts about the alleged Ponzi scheme..."
(What!! Did they even read it?)
A NYT op-ed
by Michael Lewis and David Einhorn (1/4/09) calls Markopolos' 2005 17-page
letter to the S.E.C "devastatingly persuasive", which it is. And the NYT
op-ed points out that Markopolos repeatedly contacted the SEC, for
example, calling the the new head of the SEC office of risk assessment
in April 2008 and sending him a copy of 17 page letter. More from this
NYT op-ed:
"As
Mr. Markopolos explained in his letter, Goldman Sachs was refusing to do
business with Mr. Madoff; many others doubted Mr. Madoff’s profits or assumed
he was front-running his customers and steered clear of him. Between the
lines, Mr. Markopolos hinted that even some of Mr. Madoff’s investors may
have suspected that they were the beneficiaries of a scam. After all, it
wasn’t all that hard to see that the profits were too good to be true."
"Some of Mr.
Madoff’s investors may have reasoned that the worst that could happen to
them, if the authorities put a stop to the front-running, was that a good
thing would come to an end.". (good point)
In a second
NYT op-ed by the same authors (on the same day) on how to restore the economy
and fix the SEC they suggest (tongue in cheek?)
"As
it happens, the most critical job, (SEC) chief of enforcement, now has
a perfect candidate, a civic-minded former investor with firsthand experience
of the S.E.C.’s ineptitude: Harry Markopolos."
Markopolos at Boston College seminar
My SEC posting
"Markopolos
estimated the size of the ponzi in his detailed 2005 SEC complaint at 30
billion (!) to which the SEC responds today, “(we) simply did not have
the resources to fully investigate every tip” Give me a break!
How about the truth — like, ‘we don’t even read complaints,
or if we do, they are read by totally untrained people, and even if we
find a complaint credible, we have no way to prioritize it.’"— Posted by
Donald E. Fulton (NYT Live Blogging Madoff Hearings post 1/27/09)
Harry Markopolos's book and interviews (3/1/2010)
Harry Markopolos
has written a Madoff book, 'No One Would Listen' released March 2010
and is traveling around promoting it. CNBC TV interviews with him and his
boss are interesting. They discuss how senior investment people and risk
managers who knew of Madoff's returns, and Madoff was well known because
his firm had at one time handled 9% of New York Stock Exchange order flow,
had for years strongly suspected that his returns were not legitimate,
were not real market returns.
Here are two
short (2-3 min) March 1, 2010 interviews by CNBC's Mary Thompson with Madoff
whistleblower Harry Markopolus and his former boss Frank Casey. Both at
the time well respected members of the Boston financial community.
In this interview Casey and Markopolus make the point
that it was widely and strongly suspected by senior managers on Wall Street
that Madoff's returns were not legitimate market returns.
http://www.cnbc.com/id/15840232?video=1428094776&play=1
In this interview Markopolus makes the point that rich
Europeans were investing "dirty money" with Madoff
http://www.cnbc.com/id/15840232?video=1428090550&play=1
--------------------------------------------------------------------------------
Markopolos has another coup (Oct
2011 update)
Harry Markopolus
is confirmed as a hero by a non-Madoff front page WSJ story Oct 12, 2011.
State AGs and Justice Dept are suing two large NY banks (NYC Mellon, State
Street bank) for blatant, systematic, illegal price manipulation to benefit
themselves in currency trading.
The
claims is the banks routinely abused what they called their "dumb" clients,
like public pension funds (hence the AG suits), during currency trades.
The 'dumb' customers, who the bank knew never checked these things, were
not charged the actual (dollar) trade price, but a price near the max (or
min) for the day with the bank pocketing the difference. The suits seek
2 billion in damages.
Big scandal,
again revealing banks are totally unethical and will abuse and cheat their
customers at every opportunity.
What has this
got to do with Harry Markopolus? It turns out that the information for
the law suits was obtained from a "mole" at Mellon bank. And the mole was
installed and 'run' by fraud investigator Harry Markopolus (working in
a parnership with two lawyers)! While the story is only coming out in 2011,
this bank fraud work goes back to 2006. This is what Harry was doing long
before the Madoff scandal broke! In my book Harry is a real hero, and a
huge plus for America.
Harry in 2006
says he got the whiff something didn't smell right from a single line in
the the Yale investment manager (David Swensen) book, something about unpredictable
trading costs. In 2007 he worked to contact bank insiders (at both banks)
and turn them into informers. The lawyers Markopolus has teamed with are
Michael Lesser (Boston, partner at Thornton & Naumes LLP, heads the
firm’s False Claims Act / Whistleblower litigation section) and Philip
Michael (New York). As whistleblowers, they could potentially receive 25%
of the money recovered.
--------------------------------------------------------------------------------
Reading Harry Markopolos's book (update 5/26/2010)
I am reading
Markopolos's book now. It is very well written. It lists four authors,
one of whom is Markopolos and another is Casey. Casey in his Amazon
review of the book (an author is allowed to submit an Amazon review??)
credits the books ghost writer.
SEC incompetence
What is really striking
from the book is the depth of Markopolos interaction with the SEC shows
how really incompetent the SEC was (or is). Markopolos does not just mail
in his complaint(s). He is a quant, a derivatives expert, working in the
Boston financial community. He is (past) president of a 4,000 man professional
financial organization in Boston. He knows people in the Boston office
of the SEC because they regularly audit his firm. Top officers of the SEC
in Boston office know and respect him. When his files him complaints, he
is invited into the SEC to make presentations about them. He describes
spending literally hours in the SEC offices up at a white board answering
a million derivatives questions from a Boston SEC man guy who wanted to
understand exactly what he was telling them. When nothing happens after
a while, the SEC in Boston contacts him and encourages him to file again
because there is a new guy (in Washington) who understands numbers.
Meaghan Cheung at NY SEC
Boston SEC could
not get Washington SEC to do much, and the New York SEC who were responsible
for investigating Madoff were just not interested at all. Meaghan Cheung
(see photo below), the Yale and Fordham trained lawyer of NY SEC, was branch
chief and responsible for following up on Markopolos complaint. When whe
was tracked down by the NY Post, she claimed she was being scape-goated.
But that's not how Markopolos tells it. Whereas the Boston SEC guy asked
questions for hours and eventually understood the technical points Markopolos
was making, Markopolos says Cheung never asked a single question.
She would take Markopolos' phone calls, but it was clear to Markopolos
at the time she had no interest in following up, which has now been confirmed
by the SEC's inspector general's report. She is not being scape-goated,
her financial/mathematical incompetence (a typical lawyer) was responsible
for people losing billions.
Some tidbits:
Madoff monthly returns from Rene
-- Markopolos &
Casey first hear about Madoff and get a look at his monthly returns from
a guy they know who works a small financial firm who has Madoff as one
of their managers. It turns out this firm's CEO is the famous Rene-Thierry
Magon de la Villehuchet, who will later kill himself when the ponzi is
exposed. He and Casey are pals, both sailors, both salesmen. Rene's money
all comes from European royalty. Casey tells Rene years before Madoff is
exposed that Madoff is a fraud. Rene says he can't be and they don't talk
about it anymore. Maybe this is one reason he kills himself. Unlike most
other Madoff investors he had been warned that Madoff was a fraud, but
he did nothing and continued investing his and his friends money with Madoff.
Design a product to compete with Madoff
-- Casey wants Markopolos
to design a competing product to Madoff so Rampart can get some of Rene's
business (earning Casey a fat commission). Markopolos says initially exposing
Madoff as a fraud was just to get Casey off his back, because what he was
asking for couldn't be done.
SEC presentations
-- Markopolos
does not go to the SEC blind. He knows two SEC people professionally and
socially from the Boston SEC office. They audit his firm. He's knows another
because they are both officers in a professional society. When he first
approaches SEC in 2000, Markopolos first calls one of his friends there
and says he has a big story. The guy sets OK and schedules an interview
a few weeks from then.
Presenting to SEC in Boston
Markopolos when writing his first 8 page/6 flag SEC report in 2000 already
knows he will be presenting it at a scheduled SEC Boston meeting to people
he knows. One of these Boston SEC guys is a numbers guy and he takes Markopolos
seriously. He sets up a meeting at SEC headquarters in Washington with
a numbers guy he knows and he travels with Markopolos to the Washington
meeting. The Washington numbers guy walks in and says he can't come to
meeting because he is leaving the SEC. The SEC replacement team is exactly
one guy, an SEC lawyer who knows nothing about finance, and both Markopolos
and the Boston SEC guy know he doesn't understand a word of the (quite
simple) presentation! Oh, yea!
Flaws in split-stricke
-- At this time
Markopolos says he did not know what Bernie Madoff looked like. He finds
the split strike strategy on paper is poorly designed. Madoff only buys
35 stocks, but is hedging with S&P 100 options, so he is picking up
some single stock risk. Analysis of his returns shows only a 6% correlation
to S&P 100. It should be 30% to 80%. In a split strike strategy when
the market has a losing month, your probably going to lose money that month
too, because the stocks you own go down. Over 17? years the market has
26 down months and Madoff has 3 down months.
Options market too small
Another red flag
they discover early on is that the S&P call/put market is too small
for the 5-7 billion they think Madoff is running. Even if Madoff bought
over the counter (too expensive), his counter parties would lay off the
risk in the derivatives market. The market is too small and experts do
not see any fluctuations which they know would have to be there, because
when they buy much smaller amounts they see them. And his returns are just
too danm steady month after month for years. No financial strategy ever
invented is this good.
Meet Ocrant by accident
-- The Madoff
story in the hedge fund publication comes about because Casey and its editor
by chance share a cab at a European derivatives meeting. Michael Ocrant
is the editor, and he is guy who writes the famous 2000 or 2001 story about
the unknown Madoff hedge fund. Ocrant later joins the Madoff investigating
team consisting of Markopolos, Casey and Neil Chelo at Rampart securities
in Boston. It turns out that Ocrant is the guy who broke the story of Hillary
Clinton running 1k to 100k trading cattle futures by as she claimed "reading
the WSJ" while Bill Clinton was governor of Arkansas. Oh, yea!
Ocrant knows all the hedge fund managers
Markopolos says
only a handful of hedge funds at the time were running more than 2 billion,
and Ocrant says he knew most of the big hedge fund managers personally.
Casey tells Ocrant they know a guy who is running what they think is 7
billion like a hedge fund, but technically it's not set up as a hedge fund,
which are partnerships. Until that day (around 2000) Ocrant, while he like
everyone in Wall street knows of Madoff Securities, he had never heard
that Bernie Madoff was running money.
Ponzi or front running?
-- Almost from the
beginning Markopolos, who's a quant, thinks it's a ponzi, but Casey, who's
basically a marketing guy, thinks it's front running. What puzzles them
all is motive. Madoff owns Madoff Securities. He's rich. Why would he risk
going to jail? They do know that the OTC shift from 1/8th to decimals
a few years earlier has cost firms like Madoff's a bundle and their profits
are down 92%. (12.5 cents quantization allowed Madoff Securities to pay
2 to 3 cents for order flow.) Another problem they suspected Madoff Securities
might be having was capital. Most other market makers Madoff's size had
been acquired by much larger firms leaving Madoff Securities pretty much
alone. Casey thinks Madoff may be 'borrowing' the capital he needs to do
his front running from his investors paying them 15% for it.
Talking to Fairfield Greenwich risk manager
-- A couple of years
before Madoff is exposed the Markopolos team get to question in depth a
big Madoff feeder fund. Neil in his job has hundreds of millions to invest
in hedge funds and Fairfield Greenwich wants his business, so they offer
to let him talk with their risk manager. Fairfield Greenwich Sentry fund
is 100% Madoff and at its peak has 7 billion invested with Madoff, his
biggest feeder, more than 10% of all Madoff's money. Neil calls Markopolos
before the call to see what questions he should ask, and Markopolos jots
down about 80 questions. Neil spends 45 minutes on the phone with this
guy.
How much money?
-- Neil asks him how much money Madoff is managing and
he says he doesn't know. (Neil is incredulous).
In and out of market
-- When asked how Madoff gets such steady returns with
his split-strike strategy, Fairfield Greenwich has a pat answer. Madoff
has a proprietary model that tells him when to go in and when to get out
of the market. Client records show Madoff typically goes into the market
6 to 8 times a year (buying a basket of 35 S&P 100 stocks + collar
options) for varying lengths of time and the rest of the time (& always
at end of year) is in Treasuries.
Monthly volatility
A point Markopolos
briefly makes, which I haven't ever seen discussed, is that Madoff's Fairfield
Greenwich split-strike monthly returns would have to show a lot of volatility.
Madoff claims to go into the market about 6 to 8 times a year for varying
lengths of time and the rest of the time is in treasuries. Say he is in
the market about half the time, then his monthly gains have to add up to
16% (12% to customers + 4% to feeders). For each of six market entries
he has to 'earn' an average 2.25%. So some market months should show gains
like 2.25% while a month in treasuries would be about 0.4%. This is a x5.5
monthly variation.
Perfect market timing, says Fairfield Greenwich
-- Neil says to
him, "Are you telling me that Bernie basically has had perfect market timing
every month for the last 17 years!" The Fairfield jerk doesn't answer.
Neil then points out to him that if his market timing is that good, a split-strike
strategy makes no sense. He could make a lot more money with just options.
Fairfield Greenwich due diligence
-- For their "We don't
give a shit" level of due diligence" Fairfield Greenwich, in spite of telling
the customers just the opposite, at [20% gain + 1%] was collecting
about 280 million dollar/year on their 7 billion with Bernie!
--------------------------------------------------------------------------------
Aksia
warned off clients from Madoff feeder funds
Aksia looks
to be a NY (Lexington Ave) eight person firm does due diligence research
on hedge funds. On the day Bernie was arrested Aksia released a letter
that detailed the seven (strong) red flags they had previously found year
when reviewing Madoff feeder funds. These red flags had led them to advise
clients to stay away from Madoff feeders. According to an investor suit
against Fairfield Greenwich, Aksia had warned clients about Madoff feeders
in 2007. A CNBC article (12/12/08) about Aksia says they had found a 2005
letter to SEC (are these public?) about Madoff running a ponzi (almost
for sure this is Markopolos's letter), so this made Aksia's research pretty
simple!
Aksia -- due
diligence for hire. All the holy trinity of Bernie Bagmen and other feeders
had to do to to check up on all the blatant weirdness of Bernie's operation
and his investment strategy was to was hire Aksia (or someone like them)
to do some checking for them.
Bernie's so-called returns
I have seen
very little in the way of specifics about Bernie's so-called returns. But
I found this in an article on Time magazine online ("How I Got Screwed
by Bernie Madoff", By Robert Chew, 12/15/08). He says his wife's family
had invested with Bernie for decades (!) and had gotten (annual) returns
of 15% to 22%. (List of Madoff losers show Robert Chew losing 1.2 million
and the Chew family losing 30 million.)
Markopolos
has data on Bernie's returns. He has an attachment that shows Bernie's
monthly returns going back to 1990 as reported by Arden Asset Management,
which was one of Bernie's collection boys. His 2005 filing says Bernie's
return to customers (after costs) for 15 year period, 1990 to 2005, varied
from a low of 6.23% to a high of 19.98% with an annual average of 12%.
Markopolos figures if these returns were real the return before costs would
need to be something like 16%. From 1990 to 2005 Bernie reported a losing
month only once every two years on average, and then the loss would be
small (worst monthly loss 0.55%)!
Bernie Madoff's 15 year client 'returns'
(2005 is for partial year, extrapolates to 6.048%
for full year)
source -- Markopolos 2005 SEC filing, posted on WSJ
online
A 2008
update --- Bernie thru Nov claimed to be doing great in 2008. Customer
Nov statement showed 8.26% YTD. Wow, when virtually every investment (except
Treasury bonds) in 2008 is in the toilet, Bernie is having a better year
than 2007. Is this any reason to be suspicious? Nah, apparently not for
Bernie's bagmen and other investors.
Rye Select Broad Market Fund, which had all their
money with Bernie, reported an 8.26 percent gain
according to an investor statement YTD as of Nov 30,
2008
Markopolos'
filing says two (hedge) Fund-of-Funds managers in Europe who invested with
Bernie told him that they didn't believe it was possible to only lose money
1 month out of 24. They figured that, contrary to what Bernie reported,
he must be massaging the returns and/or subsidizing down months. This is
very telling, because it means that even some of Bernie's own investors
didn't believe he was honest.
Was Bernie trading??
A huge question
that no article ever mentions is whether Bernie was actually trading. With
a Ponzi scheme there is no need to trade, in fact trading would both cost
him money and increase his risk. If he wasn't trading, then it was obvious
to the whole back room of his firm who had to fabricate false trading statements
monthly that a fraud was going on.
According to
WSJ statements sent clients monthly would show them being traded into and
out of large company stocks. WSJ says one investor noticed in months when
his statement showed he owned large blocks of stocks that declined his
statement showed he still made money, and he said he never understood this.
(update 12/19/08) I found this story from Bloomberg news,
confirming what Markopolos argued, that there was no way that Bernie could
have been using options to hedge his positions on S&P 100 stocks as
he claimed:
"The
total number of S&P 100 options outstanding is enough to guard against
losses in only $3.25 billion of trades (far too small to hedge Bernie's
alleged 17 billion dollar portfolio), data compiled by Bloomberg show.
“It was never
done,” Michael Schwartz, chief options strategist at Oppenheimer &
Co. in New York and a trader since 1965, said of (Bernie's) strategy. “If
he did it on an exchange, we would have heard about it, and if he did it
over the counter, the person he bought it from would have hedged it on
an exchange.”
How did Bernie get caught?
Short answer:
2008 economic crisis. The conventional wisdom is Ponzi schemes always collapse
and generally pretty quickly as the pool of (so-called) investors gets
used up. But Madoff's Ponzi was very different. Compared to most Ponzi
schemes his payouts were low. His 11-13% payout from 1993 to 2001 had been
scaled back to 6-9% in later years, so he only needed fairly modest growth
in funds under management to stay in business. Bernie was 70 years old,
so he might have figured he would be dead before it was discovered. And,
hey, he could continue his 'big cheese' status at the Palm Beach Country
Club (see Madoff
scheme hits Palm Beach country club hard, Associated Press 12/17/08),
where it cost 300k just to join.
Early reports
were he barely made (or didn't make, reports conflict) a 7 billion redemption
before giving up. (Bernie after his arrest has supposedly said his cash
was down to 200 - 300 million, and this he tried to give away as bonuses
to his staff before confessing.) Like many hedge funds in late 2008 his
net fund flow probably turned negative. That's bad news for a Ponzi scheme
because new funds are needed almost continuously (depending on reserves)
to maintain payouts. NY Post reports that Bernie near the end tried to
stay afloat by demanding more investment from his key distributors (salesman):
Jaffe, Sharpiro and Walter Noel (of Fairfield Greenwich). Bottom line ---
economic crisis did him in.
How many investors did Bernie have?
Probably a
lot, many more than have made the press. Yes, there were some big institutional
investors, but there must have been many thousands of individuals. The
trustee/liquidator has sent out 8,000 forms, but I suspect there were a
lot more.
Let's work
some numbers. Let's assume the total was 50 billion and as a guessimate
let's say 60% (30 billion) was large institutions (endowments, charities,
pensions etc) and 40% (20 billion) were individuals. It takes 1,000 investors
at 1 million each to total 1 billion, so that's 20,000 investors at one
million each!
|
average investment
|
# of investors
|
|
10 million
|
2,000
|
|
1 million
|
20,000
|
|
100 thousand
|
200,000
|
At 100k each
were talking really huge numbers, 200,000 investors. Were there 100k investors?
Well certainly in the 1990's there were. A NYT
(1/17/09) front page article (by Alex Berenson) describes just one
small Madoff sales organization, Avellino & Bienes, operating in NY
and Florida, which the SEC shut down in 1992. This one small fry organization
had rounded up 3,200 clients for Bernie with investments totaling only
441 million, an average (in 1992) of 137k each.
Bernie was (is) a high living bastard
Bernie had
three (or four) residences: NYC at Park & 64th (penthouse of course),
summer house in Hamptons (beachfront of course) and small villa overlooking
Cap d’Antibes on the French Riviera. The WSJ has him also owning a house
Palm Beach FL and shares in two private jets. And he kept three
(or four) yacht so there would always be one handy: one in NY, one in Florida,
and one in the Mediterranean (NYT reported he had one in Bermuda too).
He belonged to half a dozen golf clubs. Did this guy ever spend any time
in the office? Hey, its not my money, so let's really go first class. (Zero
reporting on how his sons or his brother live, but I found pictures of
his brother mansions, see below.)
Two weeks ago,
Bernard L. Madoff stopped by the Everglades Barber Shop in Palm Beach for
the usual (totally $177): $65 haircut, $40 shave, $50 pedicure (got to
keep those little piggies looking good!) and a $22 manicure. (Palm Beach
Post and Bloomberg news, 12/21/08)
Bernie also
gave 238k to political candidates, mostly Democratic, since 1991, according
to the Center for Responsive Politics. Do you suppose they are going to
return any of this! Apparently their response is, 'Too bad suckers,
we spent this money, it's gone.'
"Madoff took delivery of this £20 million jet
in March last year" (UK Daily Mail 1/3/09)
"While in London,
Madoff always stayed at the Lanesborough Hotel, one of the most expensive
in the world, where suites cost up to £8,000 a night and guests are
provided with a butler who is on call 24 hours a day throughout their stay."
He left clothes at the hotel so he would not have to pack! "'There is still
a trunk full of his clothes there,' said Mrs Fenwick, for 8 years manager
of his London office (UK Daily Mail 1/2/09)
133 E64th & Lexington Ave
Bernie's apartment
building looks like hundreds of others in the upper east side. It's about
12 stories, and he has the penthouse (front half facing 64th). Some roof
greenery shows from the street.
Bernie's apattment building 133 E64th & Lexington
Ave Google (Earth street view)
Here's the
floor plan of his 4 bedroom, 5 bathroom, penthouse, 8 million? apartment.
.
Here's a link
to a NYT slide show of 12 images of the Madoff apartment. It appears to
show the inside fully furnished, and a roof top terrace too. The impression
given is that this is how it was furnished by Madoff, but maybe it's been
fixed up for sale (only 9 million).
http://www.nytimes.com/slideshow/2009/09/17/realestate/0920-scapes_index.html
A few of Bernie's investors
Tufts Univ
investing via Ascot Partners LP hedge fund said it lost 20 million, roughly
2% of its endowment. Tufts made this investment in 2005 and now say they
knew
at
the time of the Ascot's association with Madoff. Tufts claims that prior
to making the investment they did due diligence including a "full
review of the fund's investment strategy". Pretty amazing because everyone
else says Bernie returns came out of a 'black box', and he refused all
outside access to his books. All that's on record is from the early 90's
when he wrote he was using a simple option collar (split-strike strategy)
to limit losses. Nobody knowledgeable about options think this could ever
produce anywhere near the returns he claimed.
A bunch of
geniuses ---- "A hedge fund group (Rye Investment Management, part of Tremont)
owned by Massachusetts Mutual Life Insurance Co of Springfield, has lost
all
of its clients' money (ever hear of diversification?) - more than 3.1 billion
- to Bernie and his ponzi scheme. Forbes.com put it this way: "Rye Investment
Management is toast" When Tremont spokeman was asked (by Forbes),
who was responsible for Rye's investment strategy -- "which, essentially,
consisted of giving Madoff all the money" -- the Tremont spokesman
refused to say, but the genius here seems to be Robert Schulman, who retired
in summer 2008. According to news reports in summer 2008 "Schulman was
responsible for directing Tremont Capital Management single manager products
group, Rye Investment Management." WSJ profiled Schulman (12/27/08) as
one of the five top Bernie bagmen. He marketed Tremont's fund invested
with Bernie this way:
"hedged,
market timing stategy with defined risk and return parameters." (Total
nonsense from a lying sonofabitch)
According to the
WSJ (12/27/08) in 2007 Schulman put up a web site (ForeDestine.com)
for a new investment firm that he was going to run when he left Tremont.
Its web site is still up, and here is what I found on its home page:
"We are
an investment management firm focusing on unique and difficult to acquire
assets with extraordinary performance characteristics. Insight and Access
are the pillars that support successful investing. Cognizant of that reality,
we combine access to ordinarily unavailable managers, (he means
Bernie!) a keen sense of macro investment trends, and a strong commitment
to transparency-based client service to create our value proposition."
(Total gibberish with the not so subtle message -- for a fee --- we can
get you in, to what we're not saying. Are richies really this stupid?)
According to Forbes
it looks like Mass Mutual, which is a huge company (Mass Mutual owns OppenheimerFunds)
with 500 billion in assets, "does not seem to contemplate
any recovery
by aggrieved Rye investors." (Mass Mutual 3.1 billion loss places them
3rd on the list of Madoff loser with Fairfield Greenwich Group first at
7.5 billion)
"In
a letter to clients Friday, Rye Investment said, "Needless to say, our
level of anger and dismay over the apparent betrayal by Mr. Madoff and
his organization of his 14-year relationship with Tremont is immeasurable."
We are supposed to believe in 14 years working with Bernie Tremont
they never noticed something wasn't right?
Good news? ---
Shapiro, Jaffe family, one of Bernie's biggest salesman/distributors, is
reported to be a major loser. A family spokesman confirmed that the family
had "made an additional, significant investment in recent weeks
with Madoff's firm" (attempting to keep him afloat). Supposedly they had
$400 million invested with Bernie plus a $145 million charitable foundation.
According to the Boston Globe, Carl Shapario, identified as a Boston philantropist,
was a generous donor to institutions such Beth Israel Deaconess Medical
Center, Boston Museum of Fine Arts, Brigham and Women's Hospital,
Boston Symphony Orchestra, and Brandeis University.
Bernie's NY bagman
J. Ezra Merkin,
who along with Jaffe and Noel, is part of the holy trinity of Bernie bagmen.
NYT reports that J. Ezra Merkin of Ascot Partners had given over nearly
all of its clients 1.8 billion to Bernie. (His total loss was 2.4 billion,
because he had 25% of his two other funds invested with Bernie too.) Here
is the NYT on Merkin, who is a Harvard Law graduate, a significant partner
in Cerberus Capital Management, which when they bought 51% of GMAC (auto
loans) installed him as GMAC chairman, "(Bernie) could not have had
a more effective recruiter than Jacob Ezra Merkin, a lion of
Wall Street who would be president of the Fifth Avenue Synagogue."
(NYT front page article, 12/20/08).
Some
'lion'... Merkin made a lot of his money the old fashioned way, he inherited
it. NYT notes his father, Hermann Merkin, "made a fortune" in the shipping
business. He ran GMAC into the ground (bailed out by the government because
it finances GM cars). As head of the investment committee of Yeshiva Univ
he directed their money in his own hedge fund taking a fat commission.
Much of his hedge fund money was shoveled to Bernie, who worked real cheap
allowing Merkin to get even richer and live like a king (40 million/yr
from fees alone according to NYT). (But J. Ezra now knows nothing! Yes,
he too is shocked, shocked ...)
Financial Week
in an article on Merkin (1/12/09) says he was trustee of Carnegie Hall,
lives in palatial duplex (18 rooms!) at 740 Park Ave, and owns a 150 million
dollars of art (a dozen Mark Rothko paintings). There's actually a 600
page book about the building Merkin lives in (“740 Park: The Story
of the World’s Richest Apartment Building” by Michael Gross). Jacqueline
Kennedy grew up in this building and John D. Rockefeller once lived there.
Merkin sought
out money to invest presenting himself as a skilled, conservative, value
investor, but "As it turned out (notes Financial Week) much of Mr. Merkin’s
(investment) success sprang from a single source: his close relationship
with Mr. Madoff." They quote Gary Tobin, president of the Institute for
Jewish and Community Research, who says, “My guess is he's going to be
ruined.” (I certainly hope so, because he was up to his eyebrows in this
massive fraud and probably should go to jail.) I searched for a picture
of Merkin and up popped below.
J. Ezra Merkin (right) 55, manager of Ascot Partners
LP, a hedge fund
with Israeli leaders Ariel Sharon (left) and Ehud
Olmert (center) in Jan 2006 (NYT)
According to
an article
about Merkin in the 'Current Edge', an investor (in Merkin's hedge fund)
had asked him directly whether he had invested funds with Bernie Madoff.
His answer was reportedly “no.” So on top of everything else, it
appears that Mr. Merkin is a lying sonofabitch.
Note GMAC,
which is General Motor's financing arm, is struggling (as of Dec 08) to
restructure its financing to stay alive, and its chairman of the board
is none other than J. Ezra Merkin, who shovels the money he manages to
Bernie. Turns out Merkin was installed as chairman by Cerberus Capital
when they bought a 51% controlling interest in GMAC from GM in Nov 2006.
I see calls for Merkin to resign from GMAC, but as of Dec 26 he had not,
though there is a story saying he probably will (at some point) resign,
because as one observer put it, "He’s lost all credibility." Gee
I wonder why?
Merkin
lawyer's statement --- "Like the other victims and the entire financial
community, Mr. Merkin is shocked by these events." (Is that shocked by
the scam or shocked by its public disclosure?)
An extended
Merkin statement is this: "Mr. Merkin and his family are personally among
the largest victims of the massive crime confessed by Bernard L. Madoff
(good). Like the other victims and the entire financial community, Mr.
Merkin is shocked by these events. He intends to defend this lawsuit (New
York Law School, one of his investors, is suing him) vigorously while seeking
redress for himself and his investors from whomever perpetrated
this fraud." (from 'whomever' perpetrated this fraud! What do you suppose
Merkin means by this, like maybe, it's more than just Bernie?)
(update 1/5/09)
In NYT Dealbook
column on the GMAC federal bailout the 'Merkin Factor' is discussed. The
terms of the bailout required Cerberus to reduce its GMAC holdings to 14.9%,
so by March the column says Merkin will likely be gone from GMAC. But as
of now:
"By all public accounts, J. Ezra Merkin is still
(as of 1/5/09) a member and chairman of the GMAC board."
Merkin, Bernie and Yeshiva Univ
Below is from
a long article
published by official newspaper of Yeshiva Univ & its Business school
(The Commentator, article online is dated 11/25/08, which is clearly incorrect,
it's probably 12/25/08). It has much info on Merkin (one of Bernie's bagmen)
and his conflict of interest in heading the Yeshiva Univ investment committee
and putting 200 million of their money into funds he himself managed. Merkin
only resigned from Yeshiva's board the day after Bernie was arrested. Curiously
the article focus is almost entirely on Merkin and the effect on the univ
of the 110 million endowment loss with almost nothing about Bernie himself,
who was chairman of the board of its business school. (12/26/08)
"Some
sources (at Yeshiva) were particularly troubled by Merkin's tactic of directing
substantial amounts of YU's endowment to a fund that he himself managed.
Figures ranged for how much money was invested with Merkin, but it appears
the best estimate is that roughly $200 million was invested in Merkin-managed
funds. (Yeshiva later reported the loss at 110 million, 8% of its endowment)
Kenneth Reed,
director of research and policy analysis at the National Association of
College and University Business Officers, called this tactic "a definite
conflict of interest." Mr. Reed explained that endowment investment committees
customarily provide guidelines to ensure a healthy degree of diversification,
but do not set more specific details for where and how to invest.
Numerous professionals
in the hedge fund and endowment world felt there was both an ethical and
management problem with the setup at Yeshiva. One declared that it was
"not only a major ethical problem" but also felt that it led to a situation
where Mr. Merkin became only answerable to himself. "He eliminated all
the checks and balances."
"One source
close to trustees alleged that Merkin took a full management fee and did
not give YU any discount for the size of their investment."
(article quotes
one hedge fund manager saying) "If this fund (Merkin's Ascot Partners)
was just a pass-through so less connected investors could get to Madoff,
YU could have gone to Madoff directly - he was the treasurer of their board,"
he emphasized. "For what exactly was Merkin earning his fee from YU here?
And for what was YU paying him?" (Exactly!)
(interesting)
"One manager of a small Jewish nonprofit which placed the majority of their
endowment, $1 million, in Ascot Partners told The Commentator that these
characterizations seemed too harsh. "It's true we didn't know that he was
pretty much exclusively invested in Madoff," she said. "But Merkin made
it clear that Madoff was a significant investment vehicle for him -
he said that Ascot was invested in either Madoff or Morgan Stanley." (This
kind of undercuts Yeshiva's claim that Merkin didn't tell them anything)
(very interesting)
"In particular, Mr. Merkin is known to be a significant investor in Cerberus
Capital Management, a major private equity firm that privately owns several
companies, most prominently Chrysler and GMAC. Through his substantial
investments, Mr. Merkin is the chairman of the board of GMAC."
(update 1/15/09)
NY AG (Andrew
Cuomo) has begun an investigation (issuing subpoenas) inquiring whether
Merkin defrauded universities and charities who invested with him. Apparently
Merkin used the same dodge in his Ascot fund documentation that Fairfield
Greenwich used (see slides below). Merkin listed Madoff not as money manager,
but merely as broker, in fact one of two brokers the other being
Morgan Stanley. The Times adds because "Mr. Merkin is a general partner
in his funds, his assets are now at risk." (NYT 1/15/09) (more good news)
(update 4/6/09) NY AG files civil suit
against Merkin for fraud
Breaking news
today is that the NY AG, Cuomo, has filed a civil suit against (big
shit) Merkin, who for some reason (historic?) the NYT characterizes
as "prominent New York financier", accusing him of "deception and
fraud". Link
to 54 page court filing
"The
lawsuit, filed under state charity and securities laws, claims that Mr.
Merkin improperly collected more than $470 million in fees from his clients,
who included more than a dozen nonprofit organizations, by “falsely claiming
he actively managed their funds” when in fact he simply handed their
money over to Mr. Madoff, without adequate investigation or oversight."
(NYT 4/6/09)
I saw a
CNBC rebroadcast a Jan 09 sidewalk interview with Merkin's lawyer, who
says Merkin "lost tens of millions of dollars of his own money in the scam,
so he is a victim too". (Where have I heard that before) Cuomo's complaint
says Merkin "collected hundreds of millions of dollars in (fraudulent)
management fees from his clients — fees which dwarfed Mr. Merkin’s
personal losses in the Madoff fraud", so that must mean, either
a) Merkin's lawyer is totally ignorant of the facts in the case, or
b) Merkin's lawyer, in portraying him as a financial loser in this affair,
is
a lying sonofabitch! (Do lawyers lie?)
In released
interview transcripts Merkin says he met Bernie in late 1980's or 1990,
and Cuomo says Merkins's Ascot fund was set up in 1992 for the sole,
but
undisclosed, purpose of acting as a feeder fund to Madoff. There
is a confluence of dates of around 1989/1990 (Cohmad & Fairfield Greenwich),
so this is clearly when Bernie's scam went big time.
Soon after
Bernie confessed, Merkin issued a statement that said he would be "seeking
redress for himself and his investors". Tzvee's
Talmudic Blog in April comments on Merkins actions since Dec:
"Now,
any investment manager with an iota of responsibility for his profession,
with a scintilla of concern for his fellow human being, would have by now
made some attempt to reach out to his investors -- ordinary people,
universities and charities -- and say to them that he will work the rest
of his life
to make them whole on their investments, that he will sell
his apartment, his house, his paintings, whatever it takes,
to provide for them
restitution for their losses."
"Stop
laughing. Yes I know that this notion is about as far from reality as Jupiter
is from the sun. J. Ezra Merkin is the absolute lord of greed and self-interest
whose only assurance to his clients after the news of Madoff's confession
and since then was the undocumented claim that he has lost his own money
too -- as if a single sentient being would care about or believe that utterance."
(Tzvee's Talmudic Blog, 4/5/09)
Mekin's defense
seems to be if the SEC couldn't figure it out, how do you expect I would,
even though I've known and worked with Bernie for 20 years.
Noel's defense
seems to be if the SEC couldn't figure it out, how do you expect I would,
even though I've known and worked with Bernie for 20 years.
(update 5/7/09) 500 million Merkin clawback
Trustee Picard
files a civil suit against Merkin, available here
thru NYT Dealbook. They want Merkin to cough up "immediately" 500 million
dollars, which are the amounts withdrawn in the last six years, which seems
to be the clawback limit being used under the bankruptcy code. (It's not
clear to me if this is to come from Merkin personally, or from his funds'
clients. Obviously a huge point. Payment is demanded from the defendants,
which are listed as Merkin and his three funds. )
Here are some excerpts:
-- Merkin "knew
or should have known" Bernie was engaged in "fraud" (not ponzi).
Additional supporting information provided is that hundreds (over 500)
of trading tickets Madoff supplied to Merkin are incorrect with the trade
price outside the daily range for that day. (What this means is that Bernie's
fabricating back room was incompetent!) Option volume reported to Merkin
for his funds was sometimes beyond the days trading volume, in one case
by a factor of x20. An accountant for one of Merkin's funds had advised
him the trading tickets appeared to be fraudulent.
--- In Jan
2008 SEC filing Bernie reported he was managing 17 billion dollars for
23 clients. The trustee says the actual numbers at that time was 68 billion
for 4,900 clients.
-- Merkin's
Ascot fund had only 4 negative months out of 144 (12 years). "Too good
to be true" says the trustee.
-- Bernie's
controller was based in Bermuda. (who is this")
-- Teicher
told Merkin "he was certain Madoff was altering trading confirmations".
The suit says "other highly regarded wall street professionals warned"
Merkin that "Madoff did not appear to be legitimate". (This is exactly
what Markopolous wrote in 2005. How come this news escaped the eagle eye
of the SEC?)
According to
a NYT dealbook April 8, 09 article a Wall St 'legend' who repeatedly warned
Merkin is identified as Jack Nash, former chairman of the investment giant
Oppenheimer & Company and a pioneer of the modern hedge fund industry,
and his son. Jack Nash had invested with Madoff briefly in the 1990's,
but grew suspicious and took his money all out. Joshua Nash served with
Mr. Merkin on the investment committees of several charities, including
Carnegie Hall and the UJA-Federation of New York.
What does Merkin's lawyer have to say about this suit?
In an e-mail, Andrew J. Levander of Dechert,
who represents Merkin, vowed to vigorously defend his client, saying the
complaint failed to offer "any support for the contention that Mr. Merkin
should have detected Madoff's fraud." (Did this turkey read the filing?
No support? Are lawyers really this stupid, or do lawyers lie?)
Here's my NYT Dealbook posted comment to this article:
Hundreds
of trade confirmations provided to Merkin with prices outside the daily
trading range tells us something very interesting — Bernie’s fabricating
back room was sloppy and incompetent. This fact is another nail in the
coffin of Noel and Tucker of Fairfield Greenwich, Jaffe of Cohmad, and
other feeders who claim to have had no clue Bernie was engaged in fraud.
— Posted by Donald E. Fulton (5/7/09)
Another poster to the same article has this nice little Merkin
poem
Is there any doubt J. Ezra Merkin,
His fiducial duties was shirkin’,
Too astute, not to know
T’was a pure Ponzi show,
And flies in the ointment were lurkin’.
— Posted by Larry Eisenberg
Merkin's downhill slide (5/22/09)
Considering
the damning evidence presented in the court filings by the AG of NY against
Merkin it is surprising to me that his downhill slide has been so slow,
nevertheless it continues downward:
-- He has been ousted as GMAC chairman
-- He is gone from Yeshiva's board
-- He is being sued by the NY AG to return 470 million he earned in fees
-- He has made a deal with AG of NY to place his remaining (non-bernie)
hedge funds into receivership
-- He is gone from his leadership post at the Fifth Ave Synagogue
However, there
have been no reports of Merkin preparing to sell his estimated 100 million
in art or to move out of his very expensive NY apartment, or in fact to
return any of the fees he took to his investors.
The recent
reaction of the synagogue members has been surprising to me coming after
the AG's Merkin court filing and considering the estimated one billion
in loses that was suffered by members of the Synagogue investing in Bernie
through Merkin. NYT reports (5/21/09) that at a meeting where he said he
was quitting he gave a talk to 100 members (of 300) and was "warmly applauded".
At the same meeting he was (apparently) about to be nominated to be chairman
of the synagogue’s board of trustees, but he declined the nomination.
Merkin files response to NY AG suit (7/4/09)
Merkin says
a lot of his investors knew Ascot was invested with Bernie. He quotes a
reasonable number of letters that show some investors knew he was offering
access to Bernie. The AG has letters too showing some didn't.
Merkin's argues
his offering documents laid out the split strike strategy (so what).
Like most offering documents the language is (intentionally) pompous mush
that has no real meaning. For example Merkin points to "Arbitrage of Related
Securities" and says undoubted this is what the split strike conversion
(?) strategy was. What! And he points to "diverse portfolio of securities"
involved with "index arbitrage" with "third party managers using managed
accounts", and then says this language "precisely" describes the "world"
understood to be the split-strike conversion strategy. (give me a break)
The AG alleges
breach of fiduciary duty. The Merkin response: hey AG, you have no standing
to charge me with breach of fiduciary duty. And this: "AG breach of fiduciary
duty claims against Merkin ... should be dismissed because it is well settled
that the investment manager does not owe any fiduciary duty directly to
the shareholders of a Cayman Island corporation" (take that AG, the old
Cayman Island shield!)
Yeshiva's return and real loss
Very strange
announcement by Yeshiva Univ. According to Bloomberg news 12/30/08, Yeshiva
Univ now reports their Bernie loss, which previously they reported at 110
million, is really only a net loss of about 14.5 million, the other
95.5 million were what they now characterize as "fictitious profit."
But there's
something a little weird about these numbers: 14.5 million to 110 million
is a huge multiplier and needs some explaining! Now either they can't calculate
at Yeshiva, or they have been invested with Bernie for something
like 20 years (since Bernie other clients report profits average about
12% over the last 20 years), or maybe, just maybe, Yeshiva's interest
rate was much higher than 12% reported by other clients!
A higher interest
rate than other Madoff clients is an interesting possibility that Yeshiva
is silent about. A higher interest rate shortens the time line to be more
in agreement with known association of Bernie and Merkin with Yeshiva.
After all, Yeshiva was a favorite of Bernie's (& Merkin's), so why
not report to them a really good return!
Yeshiva is
claiming a multiplier of 110/14.5 = 7.58. Suppose the full 14.5 million
investment with Bernie was made in 1996, then an annual gain of 18.3% (1.183^12
= 7.5) in 12 years would grow to 110 million. Since they were apparently
paying a per cent or two to Merkin, this would mean Bernie was reporting
(round numbers) to Yeshiva a 20% annual gain. No wonder why they loved
Bernie.
However, in now claiming their real loss (net loss) to Bernie to
be only 14.5 million, Yeshiva is being less than candid because they are
ignoring the time value of money.
(update 4/6/09)
NYT in its
article about Cuomo's suit against Merkin says that Merkin's father had
contributed millions of dollars to help build Yeshiva Univ, and his father
was a founding member of the 5th Ave Synagogue. There is a 450 seat Merkin
Concert Hall near Lincoln Center (129 West 67th Street, between Broadway
and Amsterdam Avenues) probably financed by his father too since it was
built in 1978 when Ezra was only 24. This helps explain why Merkin was
on the board of Yeshiva and (is still) president of the 5th Ave Synagogue.
The NYT article says that not only did Yeshiva Univ invest with Merkin,
head
of
its investment committee, but Bard college, where Merkin sat on the board,
invested with Merkin too.
Stanley Chais, Bernie's LA bagman
Time magazine online
has an article about a wiped out investor (Bob Chew) who says he recently
found out he had been playing in the "Bernard Madoff Investment Securities
LLC Fantasy Financial League" He now says he had never heard of Madoff,
but had entrusted his money to a genius named Stanley Chais of Los Angeles
who handed the money over to Bernie.
According to
an article in LA Times (12/21/08) Stanley Chais is being sued for 250 million
by unhappy LA & Hollywood types for his Madoff connection and for "false,
misleading, unlawful, unfair and fraudulent acts and practices". The LA
Times comments, "Whether Chais was merely a victim is the $250-million
question". He claims to have lost "a huge amount of money" (more good news
if true) and the Chais Family Foundation, which in 2007 reported assets
of $178 million, was wiped out and has shut down (not so good). A
little googling shows Chais lives in Beverly Hills, and I found this quote
from him (in years past) "all Jews are responsible for each other". (Sure,
Stanley sure)
Stanley Chais (age 80) & wife Pamela (2006)
(update 5/1/09) Court filing shows Chais was not an
innocent victim. Picard lays out the case that Chais had to know Bernie
was crooked.
Maybe the
'Holy Trinity of Bernie Bagmen' should be expanded to the 'Holy Quadrinity'
(if that's a word). Following on the heels of the suit against NY bagman
Merkin we have a suit by Irving Picard (court appointed trustee) against
LA bagman Stanley Chais and his whole clan. The court filing is very interesting
and tells us a lot about what the insiders knew.
Picard says
Bernie paid out different returns to different people. The favored insiders
got higher returns than the unwashed, no10-12% a year for them! Why not,
it was small potatoes to Bernie to pay extra to a favored few, especially
if it kept the money coming in. (I sure would like to see the returns Bernie
paid to his favored Yeshiva Univ, but of course, the university has never
released them.) Chais must have really been favored. Look at what Picard
says:
"The case
is the first time Mr. Picard has asserted that a supposed victim of
the fraud got such preferential treatment that Mr. Madoff’s misconduct
should have been obvious. Similar complaints will be filed against other
beneficiaries of the fraud scheme, said David J. Sheehan, a lawyer for
Mr. Picard.
The
complaint said that Mr. Chais was a primary beneficiary of that Ponzi scheme
for
at least 30 years, reaping annual returns on his family accounts
that
averaged 40 percent and were sometimes as high as 300 percent.
It cited 35 times between 1996 and 2007 when Chais family accounts had
annual returns of more than 100 percent, and 125 times when the returns
exceeded 50 percent. In 1999, one trust fund had profits of more than 300
percent, it said.
It also asserted
that some tax losses reported by various Chais family accounts over the
years were fictitious, the product of backdated transactions. (Translation
-- Chais was a tax cheat)
The trustee
also asserted that Mr. Chais and members of his family withdrew more than
$1 billion from their Madoff accounts since 1995 and “untold additional
funds” in previous years." (NYT 5/1/09)
So here we have
Picard saying, as I have long suspected, the scam has been going on for
much longer than a decade ("at least 30 years"). In other words Bernie
has probably been a crook from virtually the day he started managing money.
It's likely Picard has targeted Chais early because he had made big withdrawals
(one billion at least!), and Picard wants that money back. I'm sure he
sent Stanley a nice letter asking for it back and Stanley stiffed him!
If Picard's
allegations are true, we see than Stanley Chais is a real slimeball. He
had obscene returns far in excess of anything reasonable (averaging 40%
for at least a decade!!) and far in excess of what his clients were getting,
and this was apparently all fine with Stanley. Based on this Picard says
Chais had to know that Bernie was running some sort of a scam. The evidence
also says he's almost for sure a tax cheat (why else would you want phony
investment losses). He recently moved away from his long time home in LA
to NY. Is this maybe because he thinks someone will kill him if he stays
in LA? A not so innocent victim is unmasked. His defense?
"Lawyer
for Mr. Chais, Eugene R. Licker said, however, “it is important to understand
that Mr. Chais and his family have suffered astounding and ruinous losses
from the Madoff scheme.” (In other words I am a victim too. Apparently
big time lawyer Licker is unable to do math. He brings up Chais's 'astounding
and ruinous losses', when a simple ballpark calculation shows that at 40%
returns for a decade money grows by an incredible factor of x28.9 (= 1.4^10),
so probably 97% or more of Chais so-called Madoff investment would be just
his phony returns.)
Unfortunately
Stanley Chais to probably too old (age 82) to be made to pay a price, but
at least we can bankrupt his family. (Well maybe not, since Picard has
given them five months to hide funds in Switzerland and other havens.)
The NYT was not specific, but this appears to be a civil suit. Again I
ask, why is this not criminal? There is strong circumstantial evidence
he was a tax cheat, and Chais has helped defraud LA people out of billions.
I posted this comment to the May 1, 09 NYT story on Picard's
suit against Chais.
There is a lot of new information in this story.
Picard is saying Bernie paid out different returns
to different people. The favored insiders got higher returns than the unwashed,
no 10-12% a year for them! Why not, it was small potatoes to Bernie to
pay extra to a favored few, especially if it kept the money coming in.
Bernie was on the board of Yeshiva University for years, I sure would like
to see what returns they were getting. Will the university tell us?
Picard here says the ponzi has been going on
for “at least 30 years.” Tranlation — Bernie’s money management business
has probably been a fraud from day one.
The article appears to say Chais got phony tax
loss statements from Bernie. This is consistent with what Frank DiPascali
has reportedly told investigators, that he sent out phony tax loss statements
upon request. Of course any investor who made such a request is almost
for sure a tax cheat, and he knows for a fact that Bernie’s operation is
not honest.
Chais’s lawyer, Lick, talks about his client’s
“astounding and ruinous losses”. This is ridiculous in light of the fact
that Picard says Chais’ investment gains averaged 40% over the last decade.
A little math shows that money growing at 40% a year will grow an astounding
x28.9 in ten years (1.4^10 = 28.9), so virtually all of Chais’ so-called
losses are just his phony returns.
— Posted by Donald E. Fulton
-------------------------
Testimony by Avillino of the first feeders Avillino and Bienes in 1992
indicates Bernie must have been a crook from day one. Below is from (p66)
of the 477 SEC IG report on the SEC's failure to discover Madoff issued
Aug 2009.
Avillino
in 1992 tells the SEC that in 30 years, meaning back to 1962 notes the
report, in thousands of transactions with Madoff we never had a
loss!
-------------------------
(update June 22, 2009)
The SEC is
piling on and has also sued Chais (complaint here).
Some points from the SEC filing:
-- Chais for
40 years portrayed himself as an "investing wizard" who executed complex
trading strategies. His investors were grouped into a number of limited
partnerships, whose partnership agreements would state the purpose was
"arbitrage business". (In the early days Bernie's claimed strategy was
"riskless arbitrage".) In fact the complaints says he knew little
about investing that he just shoveled the money to Bernie. He was just
a sexy salesman. He had three funds which all invested most of their money
with Madoff. And he had 40 (!) personal accounts with Bernie.
-- Chais has
been a friend of Bernie's since "at least" the 1960's. Chais formed his
first funds in 1970 for the purpose of investing with Bernie. (The evidence
keeps piling up that Bernie has been a crook from day he started his investment
business.)
-- Chais "with
assistance of his accountant" prepared returns statements for his clients
based on info he got from Bernie. (So who was his accountant?).
-- Wow, was
Chais a favorite of Bernie's?
Chais's
fund returns to his clients for many years (apparently) ran consistently
20 to 25%, never less than 10% back to at least 1995.
-- or blackmailing
him?
For
the last 13 years Chais funds had more withdrawals than deposits. The three
funds cash in was about 160 million and cash out was 570 million, net withdrawal
of about 400 million. In one fund the cash in was only 9.5 million and
withdrawals were 96 million! (In 12 years at 22% interest an account will
grow more than a factor of ten 1.22^12 = 10.9). There was still 920 million
in the three fund accounts as of Dec 11, 2008.
In his personal
(& Chais foundation) accounts Chais puts in 12 million and withdraws
343 million in the years 1995 to 2008! He withdraws x28 times the amount
he invested over 13 years!! Yikes!
(There's a strange disconnect here. Was 700 million
peanuts to Bernie, so he could afford to do his friend favors? On the other
hand this 700 million outflow wiped out the cash in from maybe 200 or so
small accounts.)
*** Never a trading loss (Here's the red flag of all red flag to
Chais's clients. The SEC suit calls it a "glaring red flag" not only to
Chais, but to all his investors!)
There's
this amazing revelation in the SEC complaint. In mid 1990's Chais gets
concerned about the shift from arbitrage to split strike conversion and
'asks' (demands?) that Bernie never show a loss on any equity
trade. And Bernie does as asked. A review of Chais's account statements
for the last ten years (1999 to 2008) shows not a single loss on
the thousands of purported equity trades listed!!
Note again,
I suggest blackmail. The 'no loss' demand in effect doubled the works that
Bernie's fabricating back room had to do. To support the no loss demand
a different set of investments had to be fabricated different from those
reported to other customers, who were told the strategy was split strike
conversion.
-- As I read it, Chais's partnership agreement it appears to guarantee
a 10% profit. I quote from Chais's fee arrangement as shown on page 9 of
the complaint: (Chais gets 25% of any return above 10%), "but in
no event shall the amount accruing limited partner (most investors with
Chais) be less than 10% of the limited partners invested capital"! If this
is right (it may not be because I have not seen it reported anywhere),
it taint's a lot Chais's LA investors.
When
you combine the (above) return guarantee with never a reported loss
in thousands of equity trades over ten years (including four very bad years
in the market), it makes (in my eyes) all his LA investors look like they
wanted in on (some sort) of scam.
-- Chais's skimming 25% of returns above 10% yielded him 270 million is
fees over the last 13 years, that's an average of 21 million a year folks
for doing basically nothing.
-- 'Long strategy' -- We learn here that Bernie purported to have another
strategy beside split strike, this was the 'long strategy' (lower taxes!)
that Chais had in some of his accounts. Supposedly it held equity positions
with no option hedging.
-- Chais lied to his investors. He told them he formulated and executed
the funds trading strategy. And for this 'service' he charged the funds
fees of 270 million over 13 years. (Like Jaffe, a friend of Bernie's and
another slimeball)
-- In June 2008 Chais sends a letter to his investors that he is seriously
ill and recommends that his son should take over as his role as General
partner. (What does this say about his son?)
-- SEC wants him his to "disgorge his ill-gotten gains", and maybe pay
a fine too. (Isn't he a criminal?)
I posted this on 6/23/2009 in NYT Dealbook article with
link to the SEC Chais complaint.
There
are amazing revelations in the SEC Chais filing that casts Chais’ LA investors
in a whole new, and very unflattering, light. For ten years (1999 to 2008)
Bernie reported to Chais “thousands” of equity trades in a “long strategy”
(can’t have the LA crowd paying short term capital gains taxes, can we!),
which Bernie apparently used only for Chais’ clients.
Here
is the amazing part. Never once, repeat never once, in thousands of trades
was a single loss reported to Chais, and Chais passed this reporting on
to his clients says the SEC. The complaint underlines that not a ’single’
loss in ten years and thousands of equity trades was ever reported. The
SEC complaint calls this a “glaring red flag”. I would say this is gross
understatement. It was flashing red beacon to all of Chais’ LA investors
saying ‘Fraud’!
I
find the relationship between Chais and Bernie very strange. Consider:
a) In the last 13 years Chais’ accounts had huge
net cash outflows, which is the last thing a ponzi needs.
b) Chais’ clients consistently got much higher
returns (20% to 25%) than other Madoff clients. Chais’ client agreement,
extracted in the SEC complaint, appears to guarantee at least a 10% return.
c) (big one) Workload on Bernie’s back room was nearly
doubled, as they had to fabricate a whole different set of ‘long strategy’
records just to meet the ‘no equity trade loss’ requirement that Chais
demanded.
So
I ask, Was Chais blackmailing Bernie?
In
June 2008 Chais reported to his clients that he was ill and recommended
that his son take over. What does that say about his son?
— Posted by Donald E. Fulton
(poster following above, addressed me and said she smell
blackmail too)
More on Chais (update 6/22/209)
"Chais sat
on the boards of the Technion - Israel Institute of Technology in Haifa,
the Weizmann Institute of Science and the Hebrew University of Jerusalem,
and his son Mark lives in Israel, where he heads a venture capital company,
according to the Jerusalem Post." (Reuters 6/22/2009) (I believe his son
who Chais recommend in his June 2008 should replace him was identified
as running a venture capital company.)
-------------------------
Chais Family Foundation weird records
The 990-PF
tax records of the 178 million Chais Family Foundation look extremely suspect.
The foundation closed almost immediately after Bernie was arrested saying
it was fully invested with Madoff and had lost all its assets. The Chais
Family Foundation does appear on the master victims list. The latest Chais
Family Foundation 990-PF that I was able to find is for the year ending
May 31, 2007. (Note their reporting year runs June 1 to May 31.) Two things
immediately jump out upon reading it.
One, there
is no mention of Madoff! (Others in the press have noted this) Almost all
the money is shown invested (as of May 31, 2007) in a list of large company
stocks, running to over a page in length. Is this this the kind of reporting
Bernie made clients during his so-called 'buy' periods? But the gross sale
of all assets is shown as only 75 million, so it's not all consistent
with Bernie's reported investing that went to cash every quarter. Also
only 15% of the reported capital gain is short term, whereas with Bernie
supposed stategy it would be all short term. Or is Bernie here tailoring
claimed investments to suit his clients??. The whole thing looks like a
fiction. The accountant is Halpern and Mantovani, Encino CA.
Second,
the net investment income is very poor, just 5.3 million (2.3 mil in div
& interest + 2.99 mil in cap gains) earned on 178 million in assets.
This is a return of only 3% (and 'adjusted' net income is only 1.5%). This
is totally inconsistent with Picard's claims that Chais in his various
funds and investment was receiving returns averaging 40% per year for a
decade with many years over 100%. The breakout of the capital gains show
a long list of US treasuries plus 3 or 4 stocks. Almost all the stocks
are sold at a loss (!) with the capital gains coming from the treasuries.
There's a good
story hiding here.
(update 6/4/09)
Chais sends
a letter to the court whining that he has no liquid resources and wants
his bank account unfrozen. He reviews his assets in the letter and curiously
forgets to put in a single number! He whines his LA apartment has been
for sale since Jan without a single bid (you think maybe the price is too
high?), and he can't sell his NY appartment (no doubt worth millions) because
he lives in it (ever hear of a reverse mortage?).
(update 12/11/09)
Prosecutors confirm that a criminal probe against Chais is underway (started
"shortly" after Madoff was arrested) in a court filing asking for the SEC
civil case against Chais be delayed until June 18, 2010 to give them time
to finish the criminal probe. Possible criminal charges are: federal laws
against conspiracy, mail fraud, wire fraud, schemes to defraud in connection
with securities, conspiracy to commit securities fraud, money laundering
and securities fraud.
Other bagmen
Tremont Capital
Management of Rye NY, who billed themselves "a leading manager of fund
of hedge fund portfolios" is another of the 'shovel the money' to Bernie
crowd. (Not as bad as some others, Tremont had only 189 million
of their 2.7 billion with Bernie.)
WSJ (12/2708)
headline story was on five of Bernie's bagmen, all of them made filthy
rich by Bernie's scam: Jaffe (Boston and Palm Beach of Cohmad), Schulman
(NY of Tremont), Chais (Los Angles), Tucker (he hooked up Fairfield Greenwich
to Bernie in 1989), Piedrahita (Spain & London, he is son-in-law of
Noel of Fairfield Greenwich).
After Bernie
was arrested not one of them, not one, would talk directly to the press,
nor say what they had done in the way of due diligence.
Victim zipcode map
WSJ has taken the huge victims list and mapped out # of USA victims by
zipcode. The main surprise here is the big concentration at Denver. Who
was the Denver feeder? There are also signficant clusters at San Francisco,
Chicago,, Orlando and Tampa. Massachusetts is not visible under the NY/NJ
complex. Don't know the map scaling, but Palm Beach Post reports that more
than 1,000 of the 13,500 names on the victims list have addresses near
Palm Beach.
source -- http://s.wsj.net/media/WSJ-P1-AO616E_Madoff020509.gif
European bagwomen, Sonja Kohn
NYT (1/6/09)
has a story of a bagwoman for Bernie, Sonja Kohn, operating out of
Austria. Sonja Kohn ran Bank Medici.a 16 person shop with $2.1 billion
invested with Bernie. For a long time she ran a small brokerage business
in NYC and is said to have known Bernie for decades. She recruited a lot
of money from Russia. Now in fear for her life from her Russian investor/thugs
she and her husband went into hiding soon after Bernie was arrested.
Bernie bagwoman, Sonja Kohn of Bank Medici, Austria
(update 5/28/09)
News today
is that the Austria authorities pulled the license of Kohn's Bank Medici.
Very interesting is the Austrian press is reporting (based on news from
investigators) this may have been the biggest of Bernie's feeders x2 to
x3 bigger than reported previously (first reports were 2.1 billion, by
mid Jan the figure was 3.1 billion). The amount being discussed now is
5 to 8 billion, however, the Bank says this value is too high. Kohn owned
75% of the Bank, the other 25% by a bank, originally the Bank of Austria.
Until a year ago she owned a home in Monsey, NY, which the NYT describes
as "an ultra-orthodox community about an hour north of Manhattan", and
like some ultra-orthodox she wear a wig to cover her hair.
She's a classic
Bernie feeder. Bank Medici is a European Cohmad, a Bernie only sales organization.
("Medici was more of a fund-sales platform than a bank,” said chief executive
officer at the bank 06 to 08.) She's described as a long time friend of
Bernie. She gets started in business (according to record posted by Mrs
Panstreppon) about 1990 and went over to Austria in 1994. Here is another
of Bernie's feeders starting up in 1990, this is clearly when Bernie went
big time. They had three funds all of which invested almost entirely with
Bernie. ("She used the promise of entree to an otherwise unavailable investment
as her key selling point" NYT 1/6/09), yet Bernie's name was not used in
their literature.
Austrian investigators
say for years they received a 900k quarterly payment from Bernie. This
agrees nicely with the Vanity Fair June story by Bernie's secretary
who says their quarterly payments were always at least 800k MA AG
found that Cohmad records shows Cohmad directly made payments (splitting
commissions?) to 'SK' or 'Sonya Kohn' in the amount of $87,792 a
year for six years. In mid Jan she responded to questions vie email saying,
"Madoff’s firm “was not an obscure hedge fund; it was a 48- year-old, highly
visible firm with approximately 200 employees and over $600 million in
capital.”
What's the deal with Noel Levine?
Madoff Securities
address and tel # are shown left. But amazingly if you do a reverse telephone
lookup on the number shown (212) 230-2424 what comes up is not Madoff
Securities, but a company called Troon Management owned by the man on the
right, Noel Levine. That's right, Noel Levine's Troon Management has exactly
the same telephone number and address as Madoff Securities! What' going
on here? This curious relationship between Levine and Bernie has gotten
almost no press. The first mention of this I saw is in this TPM
blog (12/28/08).
. 
.=>. 
Noel Levine and wife Harriet
Levine's Troon Management has exactly the same address
and tel # as Madoff Securities
Below shows
ties between Levine and Troon Management extending over 14 years. The first
is a 1995 Federal Election Commission donation. record. The second from
the web site of a new bank in Greenwich Ct where Levine is an investor
and director.
Bank
of Greenwich site
"Director:
Noel Levine is President of Troon Management, a real estate and equity
management company, located in New York City. Mr. Levine was formerly the
Chairman and CEO of Associated Products"
Who is Noel Levine?
Levine is
clearly very rich, lives on Park Ave, a major photo collector, and big
time donor to museums. Recent stories tell of him giving 14 million dollars
to an Israeli museum, and the Metropolitan Museum and Museum of Modern
Art in New York both have photo galleries named after him. A Noel
Levine, who I presume is the same guy, is Chairman Emeritus of National
Symphony Orchestra, donated over 10k to Merce Cunningham Dance company,
and on one form he listed himself as owner of Sorrel River Ranch in Utah.
Levine's ties to Bernie
It's a good
bet that Bernie wasn't sub-leasing space in his office for chump change.
The only thing that makes sense is that Bernie and Levine must be buddies.
With Troon (perhaps) little more than a shell at this point Bernie probably
offered to do his friend a favor by sharing his address and telephone #.
Within the
last year Noel Levine (& others) have started from scratch a new bank.
And where is this bank, why it's in Greenwich Ct, the very same town that
housed the largest of Bernie's so-called 'feeder' funds, Fairfield Greenwich.
What are the odds! Was Bank of Greenwich headed toward becoming another
Madoff feeder organization like the Westport bank in Ct? I have seen a
news story saying, "Harriett and Noel Levine are reported to have lost
a substantial amount with Madoff".
Bernie's lawyer
What does
Bernie's (undoubtedly high priced) lawyer Ira “Ike” Sorkin, of Dickstein
Shapiro (a huge firm with 400 attorneys), have to say?
Sorkin, Bernie's lawyer
Dickstein Shapiro partner
Ira Lee Sorkin is the co-leader of the Firm’s Securities—Litigation,
Regulatory,
and Compliance and White Collar Criminal Defense &
Investigations Practices
"This
is a real tragedy," said Mr. Madoff's attorney, Ike Sorkin after his arrest.
To which one
commentator replied, "That’s an understatement." Also notice the double
edged nature of Sorkin's statement. Is Sorkin saying this is a 'real tragedy'
for the investors, or does he really mean it's a 'real tragedy' for Bernie,
who (he hopes) is going to pay him?
Look at this
tidbid from Sorkin's bio --- "From 1984 to 1986, Mr. Sorkin was the Director
of the SEC’s New York Office, where he supervised approximately 195 staff
members, including lawyers, investigators, examiners, accountants, and
clerical personnel." Bernie's being defended by a former SEC official!
And this ---
"Dickstein Shapiro has an active and varied pro bono program, the
focus of which is to provide legal services to members of the community
who cannot afford to pay for those services." Does this include Bernie?
Ira thinks this is funny?
At Bernie's
jail appeal hearing the NYT reports this Q&A between the judge and
Ira:
"When
asked (by judge) whether his client was a danger to the safety of others,
Mr. Sorkin responded, “Never, except to the safety of the financial community.”"
(NYT 3/19/09)
Update on Ira Lee Sorkin (6/28/11)
NYT did an
article on the Madoff judge explaining his 150 year sentence. I posted
comment below (6/28/11).
Ira
Lee Sorkin sits beside Madoff while Madoff lies through his teeth, telling
officials soon after his arrest that he did it 'alone' (pretending he don't
know nothing about a team of account fabricators on the 17th floor). Later
Sorkin writes the judge that Madoff deserves a short sentence because he
has taken “full acceptance” of responsibility for his crimes. All I can
say is lawyers are a piece of work.
The sitting beside
Madoff while he claims to have done it alone is from the new NYT Madoff
book by NYT reporter Diana Henriques, where she describes the proffer hearing
on day he is arrested. She said everyone in the room knew Madoff was lying
when he claimed to have run a 50 billion dollar ponzi without help. (On
its face this claim was totally absurd. For one thing he was out of the
office in France for two months at a time during summer and monthly statements
had to go out.)
Trying to recruit Ben Stein
We get a first
hand account of how access to Bernie was peddled from Ben Stein. Ben Stein
is a well known NYT financial columnist, actor, TV commentator, etc. I've
read a couple of his financial books. He wrote a NYT op-ed about the Bernie
sale pitch he got.
Well it turns
out that a couple of years ago a delegation of so-called wealth management
people from a major (unnamed) investment bank tried to convince him to
invest with them. They said that a large chunk of his money would be managed
by a "money manager of stupendous acumen" (our boy Bernie). "This genius,
so they said, never lost money." He used a strategy of buying stocks
and hedging with options. (Ben
Stein NYT column 12/26/08)
Ben
protested that he had never heard of an entity that could make money in
all kinds of markets consistently, year in and year out, and also that
a perfect hedge would not allow making any money, because money
made on the one side would be lost on the other. Not to worry, "they assured
me that this genius had found a way to spot market inefficiencies and,
indeed, to make money off a perfect hedge", which, of course, is nonsense.
And for access to this genius Ben need only pay the bank 2%!
No thanks said Ben.
One bagman takes responsibility (sort of)
At least one
of Bernie's bagmen has some integrity. Unlike Jaffe, Noel, Merkin and nearly
all the other filthy rich Bernie bagmen, he didn't scream, 'I don't know
nothing', and point the finger at Bernie. NYT reports (1/1/09) that before
he killed himself French hedge fund manager, and Bernie bagman, Rene-Thierry
de la Villehuchet, wrote this to his brother,
“If you ruin your friends, your clients, you
have to face the consequences."
then the Times sarcastically notes,
"Mr.
de la Villehuchet’s attitude appears to be rare. So far, the leading players
in Mr. Madoff’s case have maintained a stony silence, studiously avoiding
apologies or statements of responsibility."
Of course, it
may be a little easier to admit responsibility legally when you are about
to kill yourself! In the same article we get another peek at how much the
bagmen were skimming off. One of his funds charged 5% upfront, 0.8% a year
and 16% of the profits. Before Bernie dropped the big one, was having a
ball sailing and spending lavishly restoring his large family chateau in
France.
Rene's firm
had 26 employees and their marketing documents claimed Philippe Junot,
former husband of Princess Caroline of Monaco, was a partner in the firm.
Access International Advisors, had been shoveling the money to Bernie for
five (or ten) years. Initial reports were a 1.4 billion loss, but later
reports say Bernie was managing 75% of their 3 billion under management
implying a 2.25 billion loss. Yes shovel the money to Bernie, after all
his returns are so much better than other hedge funds, and he works cheap!
Flordia Bernie bagman gets creative
(1/1/09) NYT
reports today a new twist in Madoff story. Some money invested with Madoff
was held in 'custodial accounts' at a Federally managed bank, Westport
National Bank, in Ct. "A couple in Florida told their lawyers that they
had always believed their money was being held and invested by the bank.
They received regular statements from the bank showing deductions for “custodial
fees” and “record-keeping fees” that totaled 4 percent a year. The bank,
however, says, the bank was mealy a custodian and did not control investments.
The NYT obtained a letter FedExed to the couple Dec 12 (the day after Bernie
was arrested) saying, “Dear Custodial Services Customer.” It stated
that the couple had given “full discretionary authority” over their custodial
account at the bank to the Madoff firm.
It looks like
what going on here is revealed by these two tidbits from the same NYT story.
"They had been solicited to open an account at the bank by a promoter,
whom the lawyers declined to name." and "January 2005 (statement) showed
that the custodial fee had been paid through the sale of “5.3 shares of
BLM,” while the record-keeping fee, paid to the promoter, had required
the sale of “31.26 shares of BLM.”
The NYT doesn't
draw any conclusions, but it's pretty clear what's going on here. One of
Bernie's Florida bagmen has camouflaged an investment with Bernie by having
statements flow through a bank custodial account. The rubes can be told
the bank is managing their money, but, of course, the small print gives
investment control to Bernie, who is BLM. Of the 4% total fees the bank
charged to the account [31.26/(31.26 + 5.3)] x 4% = 3.4% went into the
pocket of the promotor and 0.6% to the bank.
Bernie was even handling 401(k) money!
(12/15/08)
Interesting story by a financial journalist, Robert Powell of MarketWatch,
whose wife lost both her 401(k) and her job because of Bernie. She worked
at Robert I. Lappin Charitable Foundation in Salem, MA, and they
had the charity's assets and the employees' 401(k) invested with Bernie.
Powell reports a couple of years earlier he had tried to find out how his
wife's 401(k) money was invested and describes what her 401(k) statements
looked like, saying
"I
(Powell) tried to learn more about her employer's 401(k) plan provider,
the Bernard L. Madoff Investment Securities LLC. Unfortunately, I found
little information about the firm on its Web site, nor on the Securities
and Exchange Commission and Financial Industry Regulatory Authority (FINRA)
Web sites. So, I dropped the matter."
"Like most
401(k) statements, it listed employee contributions, employer contributions,
amount vested, percent increase over the previous period and total value.
But what the statement didn't contain was any footer with the usual legal
mumbo jumbo, no mention of SIPC insurance, or the broker-dealer through
which securities are cleared, or anything that is normally found on 401(k)
statements. Nor did the statement contain the names of any listed securities
or mutual funds." (In other words it was the proverbial 'black box'.)
For Bernie to
be managing 401(k) plans means (I think) a big commitment of time and effort
by his firm to legally set this up and follow reporting guidelines. To
me this is another indication, and a strong indication, that Bernie had
within his firm a large legal and financial staff supporting his (so-called)
money management business.
How many boards did Bernie sit on?
Wikipedia
in its Madoff article notes that Bernie sat on the boards of several boards
of nonprofit institutions and many of them "entrusted his firm with
their endowments". The Wikipedia article calls Bernie a "prominent
philanthropist", but I think that's a stretch since he was giving away
essentially other peoples money!
* Bernie's son on Lincoln Center board (apparently bought with
Bernie's money)
* Madoff and his wife Ruth run the Madoff Family Foundation,
a $19 million
operation
* Yeshiva Univ board since 1996 and chairman of their business
school board
* On the board of New York City Center
* In 2003, Madoff served on the board of the Picower Institute
for Medical
Research and Picowers' North Shore-Long Island Jewish Health Systems
Graduate School of Molecular Medicine in Westbury, N.Y., according to
tax records.
"The Picower
Foundation, one of the largest philanthropic organizations in the nation
and a major contributor to a host of local (Palm Beach) causes, has announced
that its assets once totaling nearly $1 billion were wiped out in the alleged
investment scheme run by Bernard Madoff, and they will be closing down.
One of its largest gifts, $50 million, went to the Picower Institute for
Learning and Memory at the Massachusetts Institute of Technology. Picower
foundation also contributed to New York public library and Metropolitan
Museum of Art."
AP 2002 story
-- The MIT grant from the foundation of Florida investor Jeffry Picower
and his wife, Barbara, will provide the center with $12 million for
four endowed professorships, a new $30 million building (opened 2005, now
building 46), and $8 million for a research endowment. MIT President Charles
Vest said the funding creates "a wonderful opportunity for MIT."
Picower's
history --- Forbes 2002 article 'Unaccountable'
Here's a link
to the Forbes 2002 article, titled Unaccountable, on the suspicious
goings on at the Jeffry Picower charities. It also has some history of
Picower's shady dealings over the years. Article sub heading --- What government
enforcers keep tax-exempt institutions responsive to the public interest?
Often, none--witness the goings-on at Jeffry Picower's charities.
http://www.forbes.com/forbes/2002/1014/068_print.html
I don't pretend
to understand the medical discovery case discussed by the Forbes article,
but the crux appears to be (an allegation) that Picower by in effect negotiating
with himself may have paid less than fair market value for a valuable medical
discovery made by one of the scientist at (or funded by) the Picower foundation.
Why is this a problem? Because Forbes say "the tax code decrees that no
profits from tax-exempt outfits may wind up in the pockets of individuals."
Apparently
the Forbes article is built on original investigative piece that was in
the St. Petersburg Times in 2001 written by Mary Jacoby . Here's an interesting
follow up story by Mary Jacoby (May 2009), "Alleged Madoff Accomplice Operated
In Open View":
** http://www.mainjustice.com/2009/05/18/alleged-madoff-accomplice-operated-in-open-view/
Here's a link
to the ProPublica article by Jake Bernstein that summarizes and follows
up on the trustee suit against Picower:
http://www.palmbeachdailynews.com/news/content/news/2009/06/24/propublica0624.html
Jeffry & Barbara Picower @ MIT groundbreaking
2003
Picower Foundation Arts Education Center on the second
floor of the pavilion includes a dance studio in Palm Beach
Picower Foundation donated $2 million toward
its construction (Palm Beach Post)
(update 4/25/09 Madoff 'victim' Jeffry Picower
-- Not so innocent?
Frank DiPascali
reportedly is telling investigators that Madoff Securities was sending
out false tax loss statements to favorite customers, one of whom was Jeffry
Picower, age 67. Clients would call and say they needed a 'tax loss' statement
for a certain amount, and DiPascali would sent it out. Picower is a NY
lawyer who seems to have long operated on the edge of the law. He got rich
selling tax shelters. He's had run ins with the SEC. Forbes had a long
expose article on him in 2002 titled 'Unaccountable'.
(update 5/13/09) Picower looks like a real crook
Court filings
today by Picard contain serious inditements against Picower.
http://www.scribd.com/doc/15282761/Madoff-Trustees-Suit-Against-Picower
More and more
he is looking like a real crook, maybe one of the biggest tax cheats
of all time. Why else would he request (& receive) from his buddy
Bernie billions (billions!) in phony tax losses. Picard is suing to recover
5.1 billion that he withdrew from Madoff accounts over the last decade.
(However, as I read the filing, while it repeatedly talks about 5.1 billion
net withdrawals over last 13 years, I see only that Picard is asking
for return of 2.4 billion, so-called 'six year transfers', which are withdrawals
in last six years.) Here is what the NYT story has to say:
"In
1999, for example, one of Mr. Picower’s accounts posted an annual profit
of more than 950 percent, the suit said. That account was one of two that
reported annual returns from 1996 to 1999 ranging from 120 percent to more
than 550 percent, the suit said.
In
other accounts, backdated transactions generated billions of dollars of
fictional year-end losses and one account grew by 30 percent in just two
weeks in 2006 — thanks to trades that purportedly occurred months before
the account was even opened." (NYT 5/13/09)
Picard says these
phony gains and losses Madoff reports to Picower are nothing more than
payoffs for “perpetuating the Ponzi scheme. Surprise, surprise Picower's
lawyer, a William D. Zabel, says Picower was a victim too, he lost billions
and is "totally shocked" by Bernie's fraud. (Translation --- Picower knew
Bernie was a crook, but he didn't guess Bernie was running a ponzi so he
didn't realize his capital was at risk, so he therefore is 'shocked'.)
Footnote -- More tax cheats to come
The May 2009
Picard filing (below) says Picower was one of a "handful" who had "special
access" to Bernie. Translation --- There are bunch of other crooks &
tax cheats on Bernie's victims list, hopefully to soon be named, who were
also requesting what returns and tax gain/loss statements they wanted.
Footnote #2
Note this
phrase in the trustee's filing: "high returns reported on Defendants' accounts
were a form of compensation by Madoff to Picower for perepetuating the
Ponzi scheme". Here Picard is effectively saying Picower was blackmailing
Bernie!
(update 7/16/09)
Mrs. Panstreppon at TPM has reviewed the recent IRS 990 filings of the
Picower Foundation and finds the equity investments replete with inconsistencies.
When looked at carefully, the Foundation investment record virtually shouts
fraud. The one 990 I looked at says the Books are in the care of Jeffry
Picower and wife Barbara Picower signed the form. Here's the link to the
TPM posting, and it has links to the 990's.
http://tpmcafe.talkingpointsmemo.com/talk/blogs/mrs_panstreppon/2009/07/bernie-madoff-anomolies-in-the.php?ref=reccafe
(update Aug 6, 2009) Picower files a rebuttal to the
trustee's May filing (motion to dismiss)
I kept reading short news stories about Picower rebuttal filing, but it
took a long time to dig up the actual filing. It's 68 pages mostly on legal
points. It's filed by William D. Zabel, whom I have seen referred to as
a Picower loyalist (flunky?). Here it is filing as archived on the WSJ
site:
http://online.wsj.com/public/resources/documents/wsj-2009-0731-picower.pdf
Comments as I read through Picower's filing
p12
* Invested "huge sums" "much of his fortune" with Madoff because
he trusted, "whom he - and the world - believed to be a brillant
trader.. (nothing like being pompus, I though Bernie was smart and
so did the 'world')
For Barbara Picower "the consequences of Madoff fraud was immeasurable
as it caused the closure of the Picower Foundation, which Mrs. Picower
had nurtured and to which she had devoted herself over many years."
p 13 "Rather
than recognizing Mr Picower (& other defendants) as victims
of the Madoff fraud, the Trustee instead casts them as villains
in history's largest Ponzi scheme."
Casting them as villains is consistent with the trustee favoring new investors
over old investors and the "trustee hopes to limit the defendants own recoveries"
(which it is pointed out their "pro rata share" of the recovery would be
"enormous" since they lost billions.
Madoff for the defandants "was pursuing a 'buy and hold' strategy".
p14 "The trustee's allegations
do not make sense. The defandants were not perpetuating Madoff's ponzi
scheme by withdrawing billions from their BMIS accounts." (The trustee's
filing does appear to litterally say this, but it is I believe just a poorly
worded sentence. The filing was trying (as I read it) to imply that there
was an element of blackmail in Picower large withdrawals, and in this sense
they perpetuated the ponzi.)
"If anything, such large withdrawals would have placed an extrordinary
strain on the scheme, forcing Madoff to raise billions of dollars elsewhere
on short notice."
** "There is no rational
reason why Madoff would have compensated Picower for making his scheme
more difficult." (How about 'bagman or blackmail' --- I would
suggest Picower might very well have been stashing away money for Bernie
in tax havens, after taking a cut, or maybe he was blackmailing Bernie.)
** Had Picower "known (not
suspected or thought, but 'known')Madoff was running a ponzi scheme"
he would not have left more than half billion dollars in his wife's and
foundation accounts (funny it was reported as close to a billion) there.
"Rather Mr. Picower would have accelerated withdrawals from the defandants
BLMIS accounts." (Rather revealing, probably unintentionally. If had 'known'
it was a ponzi, he would not report it, no he would 'accelerate his witdrawals'
because with the economy faltering the ponzi might collapse it says.)
p15 Picower was taken in
by the "professional, timely and superior service" BLMIS provided
(like tax loss statements on demand!), and "strong returns", and "the fact
that respected business people were clamoring to invest with Madoff"
"had no reason
to know that Madoff was engaged in a massive ponzi sheme" (Yea, I though
maybe he was front running!)
p17 Barbara
Picower is Executive Director of Picower Foundation, a tax-exempt charitable
foundation established in 1989. But Jeffry Picower is the principal donor
to the foundation and he makes the investment decisions for
the Foundation. "Virtually all the assets of the Picower foundation
- totally one billion at one time-were invested with BLMIS."
In 1991 Picower Institute for Medical Research was established with 40
scientists and staff. It was dissolved in 2002 with scientists and assets
transferred to North Shore University Hospital, part of Noth Shore-Long
Island Jewish Health System.
p18 Picower began investing
with Bernis in 1970's. His statements reflected investments "mostly in
blue chip corporate equity securities and low risk securities such as short
term US Treasury Bills or money market funds. (And from this he made billions!!)
No options traded in years referenced.
p19 Defendants statements
did not just reflect gains, in years when the market turned bearish, "some
of their statements showed losses." (Well what do you know Picower says
at least one or two monthly statments actually showed a loss over the years.
Could we have a little more detail please!)
(The man) "that the world at large perceived - was a man of intelligence
and integrity..."
p20 "It was inconceivable
that Madoff's trading prowess and vast market making capacity were not,
in fact, used to conduct trades for BLMIS investors including the defandants."
(Bernie told some people he did not handle his trades, which of course,
never made any sense, since he claimed he only earned fees from his trading
commissions.)
p21 Picower/Zabel complain that
trustee seeks return of principal (I don't think so). That he is going
back too many years (six max they say)
** p22 (& later)
(Real hutzpha) Picower wants the value shown on his last the account statements
to determine his 'net equity' loss. "entitled to recover ...reflected on
their las BLMIS account statement . He wants his claim on the estate, which
pro rata will be huge (as his filing earlier says). (The trustee's paying
out only on net funds in/out it wrong you see.)
Trustee explains why net equity in some other
cases does not apply here
On Oct 16,
2009 the Madoff Trustee filed a Memorandam of Law to explain why cash in/out
is the fair way to figure 'net equity' in the Madoff case. He nicely summarizes
why the Madoff ponzi is different from a case called the 'New Times' where
customers invested in mutual funds, which were never actually purchased,
and payment was based on their final account statements.
http://graphics8.nytimes.com/packages/pdf/business/Brief.pdf
The Trustee
says in New Times "net equity was based upon profits that investor would
have achieved in the market, but for the fraud." In contrast, "the
objecting claimants (in the Madoff case) desire their net equity ot be
based upon profits they 'earned' only as a result of the fraud."
Yea!
p23 Complaint
vilifys Picower "in order to justify the pursuit of funds from the Defandants."
p25 Two excess return
numbers in complaint are challenged. One that Decions #2 account earned
over 950% in 1999, and that Decisions 3 &4 earned over 100% for years
1996 to 1999. Picower in the first case says returns was 38%, the second
case he say only that neither account earned 'over 100%' in any year. (The
latter is not exactly a strong rebuttal of excess returns!)
p 26 Complaint says
defendant earned 22% in years 1996 to 2007. The rebuttal is to list gains
of Geroge Soros, Warren Buffet & a few others. (This defense is total
nonsense. Buffet buys companies, others are speculative hedge funds, yet
a few pages earlier it was explained that Madoff's strategy for Picower
was to buy and hold a few blue chip stocks and with some treasury bonds
and MM funds mixed in.)
p27 The issue of
backdating of trades is addressed. Picower must have been "aware of Madoff
scheme" because of backdated trades (says Picower). (The defense here appears
to be how do you know we aware of the backdating? )Therefore these are
"groundless conclusionts" and are "rank speculation" that "madoff was running
a ponzi scheme." (Note trustee usually is careful to say defendantshould
have been aware of 'fraud', but here Zabel appears to be setting up a strawman
that backdating would have informed Picower it was a 'ponzi'!)
p28 "Madoff's impeccable
reputation prior to Dec 11, 2008" (What world does Picower live in!)
p31 Picower is hiding behind
the 'coporate veil' of his various corporations. (Picower is not responsible,
his wholely owned corporations are!)
**
Picower is arguing the Picower Foundation was not a 'sham' (which means
it probably was!). It gave away 164 million in six years (2002 to 2007),
including probably the 50 million to MIT. (This is only 2 to 3% (annual)
of a one billion account supposedly earning an average of 22% a year!)
p 62 "Defendants' SIPA claims should
be allowed" (no dollar figure given, but presumably this claims is huge.
5.1 billion of 'other peoples money ' isn't enough for Picower he wants
another half to one billion more and argues he is due!)
p 66 Trustee
claims Picower's income tax refunds on fictitious profits during
the course of the scheme. (It this what the tax loss statements were for
to generate 'tax refunds'!)
----------------------------------------------
William D. Zabel and Rich Zabel
Fake Bernie's
blog, which is generally has good inside Madoff info, on 10/10/09 has an
interesting tidbit. It's about the Zabels, father and son. William
D. Zabel is Jeffry Picower's lawyer (lead author of Picower's reply to
court) and long time trustee of the Picower Foundation. According to Fake
Bernie William D. Zabel's son is Rich Zabel, "Chief of Criminal Division,
U.S. Attorney's Office, Southern District of New York" and winner of "US
Attorney's Award For Distinguished Service". Some excerpts:
"Madoff Affair Becomes A Family Affair
OK, so it might
seem a bit odd to some that I've (Rich Zabel) been elevated to the head
of the same US Attorney Criminal Division that's overseeing the Madoff
prosecution, while my esteemed Dad has been the long time consigliere to
Jeff Picower, one of the most prominent beneficiaries (and perhaps even
a "person of interest") in connection with Bernie's scheme.
I've both excused
and recused myself from the Madoff case. I think you're out of line when
it comes to insinuating that I would even contemplate comparing notes with
my Dad, or otherwise provide any type of update that might inspire Mr.
Picower to re-locate to the same neighborhood as Marc Rich" (fake Bernie's
blog 10/10/09) (Marc Rich after indictment for income tax evasion did not
return to USA and was for years on the Justice Department's Most Wanted
International Fugitives list.)
William D. Zabel (Board Chair) & son Richard Zabel
@ Human Rights First event
--------------------------------------
11/4/09 email to MIT
William Zabel's amazing effort to save Picower's ass
If Jeffry Picower
can be said to be the benefactor, or 'father', of the Picower Institute
(ignoring for the moment the regrettable fact that nearly all the wealth
the Picower Foundation showered on MIT came from an illegal ponzi scheme),
then William D. Zabel is the Picower Institute's 'godfather'. William D.
Zabel, age 73, is not exactly a legal unknown. Zabel, Harvard Law School
cum laude and Princeton Univ BA summa cum laude, is a name partner of a
350 lawyer NYC law firm (Schulte Roth & Zabel) founded in 1969, trustee
of 100 million dollar Soros Charitable Foundation, trustee of New York
University, trustee of The New School, chair of board of directors of Human
Rights First, and many other honors. He even wrote a book, "The Rich Die
Richer and You Can Too", by William D. Zabel, 1996. And Zabel and Madoff
were both trustees of the Picower Institute for Medical Research.
Zabel in his
personal legal work has long specialized in working with the super rich.
He did George Soros' divorce (Soros is the 29th richest person in the world
says Forbes) and is a trustee of Soros' charitable foundation. And of course
Zabel has been closely associated with Jeffry Picower for at least 20 years,
some call him Picower's consigliere. Zabel and his firm wrote the Picower
defense to Madoff Trustee's 7.2 billion clawback lawsuit. William D. Zabel
filed the papers in 1989 establishing the Picower Foundation and has been
a trustee of the Picower Foundation for all its years. Statements released
to the press by the Picower family at Jeffry Picower's death came from
Zabel, who identified himself as Jeffry Picower's personal lawyer.
In an 9/29/09 email
to me from Sam Cooke (& indirectly Prof Bear) of the Picower Institute
for Learning and Memory it was suggested that Jeffry Picower should be
considered innocent until proven guilty. But I say look at the facts, including
Picower's 60+ page reply to the court that doesn't even attempt to rebut
or explain the detailed allegations of fraudulent account manipulations
leveled against him by the Irving Picard, the court appointed Madoff Trustee.
Consider the following, which is either the most amazing coincidence or
a demonstration of the kind of legal protection you can buy when your a
billionaire.
Amazing lawyering
Consider the amazing feat
of lawyering Picower's lawyer Zabel just pulled off. Zabel managed or helped
(for details see articles by Mary Jacoby at MainJustice) to get his own
son, Richard B. Zabel, appointed in early Oct 2009 by U.S. Attorney (Preet
Bharara) to head the Southern District of New York Criminal Division. That's
right Zabel, whose client Jeffry Picower is facing indictment as one of
the Madoff insiders and main beneficiary of the ponzi, manages to get his
own son (!) appointed to head the prosecutors office that is running the
Madoff investigation and is responsible for issuing Madoff related criminal
indictments!
Is this unbelievable lawyering
or what? Maybe it's a first. Billionaires just do not live in the same
world as the rest of us folks. Of course, Richard Zabel recused himself
from the case because his father is Picower's lawyer, but somehow I remain
skeptical. As a little side benefit William Zabel gets some protection
for himself too, because as trustee of the Picower Foundation he had a
responsibility to see to it that foundation's assets were prudently invested.
(And he kind of screwed up on that one.)
And how does Jeffry Picower
reward his long time lawyer for this incredible lawyering? He drops dead
two weeks later! You can't indict a dead man, so all of Zabel's incredible
lawyering is wasted. I wonder if Jeffry mailed the check to Zabel for 'services
rendered' before going for his last swim.
Picower Institute's 'godfather',
William D. Zabel, has been looking at the Picower Foundation's 990 fabricated
portfolios for 20 years! These portfolios with their too good to be true
gains and inconsistencies were a revealing and unique window into Madoff.
Zabel was in the perfect position to see these red flags. If he didn't
see them, maybe it's because lawyers often make it their business not to
'see' certain things that could be troublesome. A lot of Madoff insiders
and hangers on in their quest to get filthy rich apparently decided it
was better not to know exactly what Madoff was doing, even though it was
probably clear to most of them that Madoff was running a scam of some sort.
William D. Zabel, Picowers' lawyer
Zabel in his
70's is a big time NYC lawyer, founder of the 450 lawyer NYC firm, Schulte
Roth & Zabel LLP. I list some of his achievements above, and as of
2011 Board Chair of Human Rights First, an apparently well know organization
with connections to Caroline Kennedy, a lot of theater people, and Kenneth
Feinburg, who was Special Master of the government 9/11 Victims Compensation
fund and a Vice Chair of Human Rights First. Wikipedia says Human Rights
First was originally called the 'Lawyers Committee for Human Rights', which
probably explains why it seems to be dominated by lawyers!
William D.
Zabel, assisted by Susan C. Frunzi, has long been the lawyer for Jeffry
and Barbara Picower. Jeffry Picower left Zabel 200k in his Will. William
D. Zabel for nearly 20 years was a trustee of the Picower Foundation, benefactor
to MIT and many other organizations. According to Jeffry Picower's Will
Susan C. Frunzi, also of Schulte Roth & Zabel, is to replace Zabel
as the (legal) Trustee of the new Picower Foundation to be formed with
remaining Picower wealth after the 7.2 billion settlement with the Madoff
Trustee.
William D. Zabel, Picowers' lawyer
William Zabel
as a Trustee of the Picower Foundation for nearly 20 years was in a perfect
position to notice that something was not quite right with its (Madoff)
'investment' portfolios included with its annual, public, IRS filings.
As the report I wrote documented, over many years newly acquired stocks
always went up in the first year, 27 of 27 stocks with an average gain
near 50% in just a few months! Somehow neither Zabel nor his team seemed
to notice the nearly billion dollar Foundation's short term investment
returns were absurd. Or if he did, he apparently never let it interfere
with his position as lawyer to one of the world's richest men, nor did
he inform the authorities about possible investment fraud.
For nearly
two decades Zabel was in a rare, almost unique, position to see into the
Madoff fraud. Madoff had (sloppily) crafted for Picower (and maybe a small
group of insiders and family) a special 'buy and hold' portfolio. As far
as I can determine, Picower was the only Madoff insider who included this
information about the Madoff fabricated investment portfolio in his annual
(public) IRS charity filings. Zabel in his posting describes Picower as
an extraordinarily successful investor. He is one of a handful of Trustees
of the Picower Foundation since its founding in 1989, and it has grown
into nearly a billion dollar portfolio. He is a friend of Picower's. I
would find it incredible in these circumstances that he would not be very
curious as to how Picower is investing, and this would lead him to (carefully)
review, and maybe track, how his friend Picower invests and with what result.
Schulte Roth
& Zabel LLP web site has an announcement (here)
about the 7.2 billion Picower settlement. It is quite curious. We find
that Jeffry Picower was a multi-billionaire not because he bled the Madoff
ponzi nearly dry, ending up with a huge fraction of the billion in cash
it ever collected, but because he was "an extraordinarily successful private
investor"! Strangely it includes info about Jeffry Picower's private
investments through Goldman Sachs, where he was one of their biggest, if
not the biggest, of their private investment clients, using for capital
what turned out to be (in effect) a 7.2 billion interest free loan from
the other Madoff investors. And with this interest free billions in cash
he got from Madoff over 30 years he actually managed to increase it by
2+ billion. Wow!
Some excerpts
Schulte Roth & Zabel announcement (SRZ SETTLES PICOWER CASE FOR $7.2
BILLION, Dec 17, 2010):
--
(Settlement) allows Barbara Picower, the executor of her husband's estate,
to return all monies her husband received from the Madoff Ponzi
scheme and donate the vast bulk of his remaining fortunes to charity.
-- Mr. Picower,
who died suddenly in his pool of a massive heart attack in the fall of
2009, was a businessman and an extraordinarily successful private investor.
-- When the
settlement was announced, Goldman Sachs acknowledged that Mr. Picower,
a client of Goldman's investment management division for nearly three decades,
had generated investment returns in excess of two billion dollars
through primarily self-directed investments in public securities.
Additional Zabel statements from Palm Beach Post (4/26/2011)
The "What
we think he meant" comment below is quite extraordinary. The Trustee statement
upon the 7.2 billion settlement with Barbara Picower clearly does not
retract the serious allegations of wrong doing by Jeffry Picower. Picard
merely says the 7.2 billion is a "business solution". After all, his primary
goal, probably his only goal, is to recover as much money as he can for
Madoff's net losers.
-- "Jeffry Picower was neither complicit in nor
did he know of Madoff's Ponzi scheme," Zabel said. "Madoff is pointing
the finger at someone who never was charged with wrongdoing, no longer
is living and can't defend himself. His widow, Barbara, generously entered
into a global settlement, well beyond what the law required, to give back
every cent of the money received from Madoff."
-- "In the spring of 2009, the records available led us
to allege that Mr. Picower might have or should have known of Mr. Madoff's
fraud. With the benefit of additional records, I have determined that there
is no basis to pursue the complaint against Mr. Picower, and we have arrived
at a business solution instead." (Trustee's statement)
-- "What we think he meant," Zabel said, "was
that there was no illegal conduct by Mr. Picower or knowledge of the Ponzi
scheme."
Zabel distorts the Trustee's position
Look at the last
statement above, how Zabel distorts the Trustee position ---- "What we
think he (Picard) meant," Zabel said, "was that there was no illegal conduct
by Mr. Picower or knowledge of the Ponzi scheme." The Madoff Trustee
said no such thing, there was no retraction of all the serious, and detailed,
allegations against Jeffry Picower in his filings. Zabel in negations I
bet wanted Picower to say this as a condition for the 7.2 billion return,
but Picard didn't. The Trustee only says, "I (Picard) have determined that
there is no basis to pursue the complaint against Mr. Picower, and we have
arrived at a business solution instead."
-----------------------------------------------
Picower's Palm Beach shack
Picower's
Palm Beach address is given in the filing as 1410 south ocean blvd, palm
beach, florida. Here's a picture of his house (center), on the water naturally
(I confirmed with Google Earth this picture is of the address given in
the filing and for fun I measured his pool: 42 x 17 feet)
(center) Jeffry & Barbara Picower's winter house
at 1410 south ocean blvd, palm beach, florida
Picower clawback is a shocker!
Here is the
Picard complaint against Jeffry Picower (& his wife Barbara)
http://www.scribd.com/doc/15282761/Madoff-Trustees-Suit-Against-Picower
It says at
least 5.1 billion of Picower's withdrawals since 1995 is net!
This is an extraordinary number. Bernie total accounts couldn't have averaged
much over 10-25 billion over the last 13 years. Why would Bernie pay out
such huge amount to Picower? Does Picard have this right? Was Picower
blackmailing Bernie? On top of these cash payout in cash Bernie paid Picower
huge returns and providing him with millions (probably billions, the document
is unclear) in phony gain/loss statements (gains for his foundation &
probably personal tax losses). (One number given is a 2.5 billion
loss in one month, supposedly from short selling.)
A 5 billion
net payout over 13 years is huge! This could have been a substantial fraction
of Bernie working capital during this period. It's likely his average account
values over these 13 years were in the 10 to 25 billion range, and Bernie
probably only carried 1/3rd of this in cash. Was Picower bringing more
cash than he took out, then Bernie would have no beef? There has been no
discussion that he was in any way a feeder or brought in other cash. However,
he probably had very rich friends and may have gotten some of them to invest.
Still 5.1 billion (!!!), that's an awful lot of cash. It makes Sharpio's
500 million look like peanuts.
April C. Freilich
Another name
in the tax cheating picture emerges: April C. Freilich, Armonk NY. She
is identified in the trustee's Picower complaint as Picower's agent.
(In an old 1991 SEC document that I stumbled across April Freilich is identified
as the president of a company Picower owns.) She is the go between who
often contacts Bernie to request a phony tax statement or even to specify
how much return they want on their next statement. For some reason she
is not named as a defendant in the complaint. Why? Is she cooperating to
hang Picower, or she has no cash. I was able to find out almost nothing
about her in a Google search only that she shows up on the list of Bernie's
'victims' with about ten accounts.
(see also Who is April C. Freilich? far below)
Since Freilich
would apparently call DiPascali to arrange for billions in phony
tax loss statements, how come both of them have not been arrested? After
all Leona Helmsly went to jail for tax fraud for an amount that is peanuts
(a million or so for house remodeling) compared with what's coming out
here.
My NYT Dealbook post (5/19/09)
The
list of ‘victims’ that Picard delicately refers to in his court filing
as having had “special access” to Bernie is growing. In plain language
evidence is now emerging that surrounding Bernie were a bunch of crooks
and tax cheats.
The
press always seems to focus on what insiders knew about Bernie’s operation,
but what jumps out at me is that several of them are ordering up tax loss
statements. Records show Picower’s agent, April Freilich, calls Bernie’s
boy, Frank DiPascali, and requests “billions” in tax losses (court filing
show a 2.5 billion loss entered into his account in one month), and, of
course, as a little favor Bernie delivers.
Why
do you suppose Picower is requesting phony tax loss statements if he is
not a world class tax cheat? Why don’t I see the IRS involved in this investigation?
— Posted by Donald E. Fulton
Bernard L. and Ruth Madoff Foundation -- Income
x10 assets?
When Bernie
was first arrested, there were stories like this one in the NYT titled:
"Standing Accused: A Pillar of Finance and Charity". Bernie
you see is a "Pillar of Charity" according to the Times. Except for the
little problem, that he was giving away other's peoples money. (That must
make being a charity guy so darn easy!)
Googling to
find out about Bernie and Ruth charity foundation, here is a screen capture
of the very first listing I found of it. Notice anything strange? Assets
of 19 million and income of 182 million! Maybe it's a mistake and
maybe it's not.
source --- http://www.implu.com/nonprofit/133934626
The Foundation
address is Bernie's firm in NY. Bernie is listed as the President and Ruth
as the Secretary/Treasurer. Below is another listing from a different site
with different numbers, but with the same weird pattern, small assets,
huge income. This listing is very interesting because the souce of the
numbers is identified as "IRS record" The source of these numbers is an
IRS form 990-PF filing by a charity, which appears to be a public document
should be available online (there is a Google entry), but it does not appear
to be. Bloomberg.com lists only 95,000 in grants by the Madoff foundation
based on 2007 tax returns.
source -- http://activecause.com/nonprofit-profile/bernard-l-and-ruth-madoff-foundation/id/3b383f343d3b262324
Is it possible
Bernie and Ruth are stashing away stolen funds here?
Madoff Family Charity Form 990-PF
Form 990-PF
appears to be a required IRS reporting form for (private) charities. I
finally found a Link
(if dead, try Here)
to form 990-PF for the 'Madoff Family Foundation' for 2007. I have
never looked at charity forms like this before, but it looks very interesting.
The 150+ million dollar numbers shown in the listings above may be mischaracterized
as 'income', but there is a similar huge dollar item in the 2007 form.
Here's a quick summary of the numbers (rounded) from the 2007 form: (I
also found son Andrew Madoff's charity form
for
year 2004)
Assets bought & sold
182 million
Assets (av monthly) of the charity
18 million
Income (generated by assets)
2.1 million
Charitable giving
0.095 million (95k to four charities,
including 50k to NYC Public Theatre)
The most interesting
thing about this is that Madoff appears to running huge amounts of money
though his charity. Is he laundering money? The 182 million is some unspecified
asset bought and sold at unspecified dates, with a cost basis of 180.6
million and sale price of 181.9 million generating a capital gain for the
charity of 1.35 million. In the form where the asset is to be described
it just says,
"B.L.
Madoff - Info upon request" (do you think anybody at the court will
bother to ask??) and the bought and sold dates are left blank. (Description
of 182 million dollar asset bought and sold in 2007)
------------------
(update 3/5/09) Huge funds slosh through Madoff Family
Foundation
Long after
I wrote above someone else noticed the 182 million capital gain in the
Madoff Family Foundation. A 2/25/09 "Exclusive" story from www.thesmartasset.com
is
headlined "Madoff stashed $182 million in his nonprofit foundation as tax
ploy". He correctly points out that it has gotten no coverage, and thinks
he is the only one who has noticed it (wrong!), but (like me) he doesn't
know what it means. The story title is misleading, it was not 'stashed',
since it went in and out in the same year, sold for a small capital gain.
He checked the records for previous years and found the same suspicious
pattern of large funds going in/out in 2006 (164 million), but not in 2005.
------------------
Bernie is
supposed to be a big charity guy, but this shows that the Madoff Family
Charity annual gifts of 95k are only about (1/2)% of the charity's 18 million
assets and less than 5% of its annual 2.1 million income! (I did
read that in 2006 the foundation gave away more than one million.) Bernie
is listed as the only contributor, but the amount contributed is left blank
(meaning I think no contributions in 2007). Aside from the 1.4 million
capital gain, the charity got 719k in dividends on its 18 million in assets.
The low return (0.719 million/18 million = 4%) is apparently because all
18 million is in US treasuries.
The charity
foundation paid taxes of 42k, which is only 2% of its 2.1 million dollar
income. The form is signed by Ruth Madoff. The foundation is audited and
the 990 form prepared by a firm on Park Ave with 13 CPA's, Konigsberg
& Wolf. The signature on the form is hard to read by it looks
like principal, Paul J. Konigsberg.
Paul J. Konigsberg, CPA, of Konigberg & Wolf auditors
of Madoff Family Foundation
I have seen
no info on Bernie's income or how much he paid in income tax. Do you suppose
he lies? Will they also get him on income tax evasion?
(update 3/11/09) Konigsberg in NYT Madoff accounting
story
Konigsberg
is featured in a story about Madoff accountants, the select few to whom
Bernie outsourced his year end tax accounting for clients. Madoff directed
business to Konigsberg. He did the accounting for Carl Shapiro's Madoff
investments. Turns out Konigsberg is a Madoff insider, part owner of Bernie's
London office. He and his wife were part of 13 person group that went on
a Madoff organized Swiss skiing trip in 2004. Surprise, surprise we get
the standard defense, to wit: "Charles A. Stillman, the lawyer for Mr.
Konigsberg, said that his client engaged in no wrongdoing and, in fact,
lost money as well."
(update 4/28/09) Konigsberg Wolf files libel suit against
Lucinda Franks and the Daily Beast
"The accounting
firm of Konigsberg Wolf today announced that it will aggressively pursue
a libel lawsuit against blogger Lucinda Franks and the Daily Beast following
their publication of a digital column by Ms. Franks that falsely alleges
the company was a knowing accomplice of jailed Ponzi con man Bernard Madoff."
(business news story 4/24/09)
Frank's in
her story make the point that accountants Konigsberg-Wolf were being paid
30k a month (to advise Bernie's London office) vs Bernie's NY store front
accountant ( Friehling) who was only being paid 14.5k a month (for his
rubber stamping services). This suit by Wolf against Franks is referenced
in Bernie's (phoney) blog. Here are links to the Frank story that likely
brought about the suit and Bernie's (phoney blog) discussing it.
http://www.thedailybeast.com/blogs-and-stories/2009-04-23/madoffs-london-money-laundering-scam/full/
http://bernard-madoff-scam.blogspot.com/
(entry 4/28/09)
"Lucinda
Franks is a Pulitzer Prize-winning journalist and author who was on the
staff of the New York Times and has written for the New Yorker and the
New York Times Book Review and Magazine. Her latest book is My Father's
Secret War, about her father, who was a spy for the OSS during World War
II. " (Daily Beast 4/424/09)
Bernie's (phoney)
blog intimates Lucinda Franks is "the wife of the Manhattan District Attorney!",
and the blog suggests that Konigsberg, as a Bernie insider and part owner
(0.4%) of the London office, is nuts to bring this suit.
(update March 9, 2009)
Some new information
about Konigsberg is available online in a suit (here).
Some guy named Steven E. Leber, who lists his occupation as 'entertainment
producer' (Konigsberg estimated his net worth at 8 million in 1998), had
a charitable remainder trust with a few million invested with Bernie. He
is suing Konigsberg for not doing due diligence on his Madoff investment
and wants Konigsberg to pay him the full 4 million his account statement
had at the end. The suit alleges Konigsberg may not have done due diligence
because his relationship with Bernie created conflict of interest. Leber
wants a jury trial.
It appears
Konigsberg is a Madoff feeder. Leber says Konigsberg recruited him ten
years ago telling Leber he should invest all him money (couple of million)
with Madoff and that he would personally due due diligence. A couple years
into the investment Konigsberg used Bernie as leverage to get Leber's accounting
business, saying the account with Bernie would be threatened if Leber did
not change accountants. Attached letter shows that when 2.6 million goes
in 1998 at Konigsberg instructions it goes to Frank DiPascali.
Leber say he
found out about the ponzi in Jan 2009! What does he live under a rock!
I did a Google on Steven E. Leber producer and find only that in 1990 he
produced a movie, "Teenage Mutant Ninja Turtles: Coming Out of Their
Shells Tour" and produced a tour of US in 1990 of the Moscow Circus.
Konigsberg lives in Greenwich Conn. Konigsberg's response to the suit is
here,
but there's little of interest just legal hair splitting: you weren't specific,
it was over four years ago, we may only bear limited liability, etc.
How were tax statments prepared? (3/11/09)
The Times
story (3/11/09) says Madoff in-house prepared no year end tax statements
for clients, it was all outsourced. The key question is what source material
were the outside guys using to document the trading. I have seen no publication
of such an inside record and also almost no customer trading records either.
If the outside guys were not fabricating trading records themselves (who
knows maybe they were, but it seems unlikely because it's awfully messy),
then Madoff must have provided them with detailed, and of course we now
know totally fabricated, trading records, otherwise they would not be able
to prepare year end capital gains statements. Maybe customers were just
provide with a single capital gains # with no underlying trade data. This
would simplify the accounting tremendously, but I would think it would
look suspect to an honest client, and I assume lots of complaints.
It's hard for
me to believe that this trading material, if it was totally fabricated,
would not in some ways have looked to professional accountants suspect:
perhaps in format, delivery mode, accuracy, or detail. If so, in addition
to the feeder salesmen who were willfully blind, do we also have a group
of accountant that were willfully blind? The corollary is that if the trading
records were so well falsified as to pass for real it argues that Madoff
must have employed a skilled team of falsifiers.
Did Bernie steal his own charity fund?
Curiously
and interestingly lists of Madoff losers (like this
NYT list) show 'Madoff Family Foundation, 19 million', basically all of
the foundations assets. The IRS filing of the foundation show that in 2007
all the foundation's 19 million in assets were invested in US Treasuries,
which is why the return was so low (about 4%). Did Bernie reach into his
own charity foundation in 2008 to scoop up the cash to stay afloat? Bernie
at the end probably needed billions and compared to this his foundation
had peanuts, 0.019 billion, so you would think if Bernie had any honor
he would leave his own charity foundation alone. But apparently he didn't,
so that tells us a little more about Bernie and his honor (or lack thereof).
I suspect strongly
Bernie could not legally take this money, because the only way the government
is going to lower the tax rate to 2% is if the money is legally committed
to charity, though maybe Bernie was free to chose an investment other than
treasuries (still investing with himself looks very questionable legally).
And upon thinking about this, I wonder who would have reported the Madoff
Foundation's 19 million loss? Maybe the auditors, the principals are only
Bernie and his wife.
Bernie's connection to Modern Orthodox Jews
An interesting
article in NYT (12/27/08) points out the connection between Bernie and
the "small and tightly knit community of Modern Orthodox Jews in America,
perhaps 275,000 in number." "How exactly Mr. Madoff earned entree to the
Modern Orthodox community, especially in Manhattan, remains unclear. By
most accounts, he is not Orthodox himself." Bagman Merkin, however, of
Ascot Partners, is a "fixture of the community — descended from a prominent
rabbinical lineage, the president of Fifth Avenue Synagogue." It
is from the this Orthodox community that a lot of Bernie's money came.
"Among
the institutions that lost millions and tens of millions of dollars invested
with him were those at the very heart of Modern Orthodoxy — Yeshiva University,
the Kehilath Jeshurun synagogue, the Maimonides, Ramaz and SAR day schools.
Individual members of another Modern Orthodox congregation, the Fifth Avenue
Synagogue, collectively lost $2 billion, according to a report in The New
York Post."
"The conspicuous
fact remains that no institutions explicitly, or even implicitly, affiliated
with Reform, Conservative or Reconstructionist Judaism had investments
with Mr. Madoff." ('Trust and Exploitation in a Close-Knit World' By Samuel
G. Feedman, Dec 27, 2008)
SEC investment advisor registration for 2008
Here's an
SEC
link
to a many page Madoff Securities SEC form (signed Jan 2008) that appears
to register Madoff SEcurities as an investment advisor (very easy to read
because all entries are in red). Has some useful info including an exactfigure
(to the dollar) that agrees with other published references saying Madoff
was managing 17 billion, and 17 bil was referred to often in the House
Madoff hearings. It also shows the firm has been found guilty of trading
violations in the past by the SEC and have paid 7k and 8k fines.
*** 17,091,640,696
(discretionary) assets under management for 23 clients
* 51-250 employees, but only 1-5 do investment advisory
* have discretion to buy and sell
* advisory clients (11-25) are hedge funds (> 50%), high net worth individuals,
pension funds and charitable org
* compensated (only) by commissions
* Bernie's SEC investment advisor file number: 801- 67134
* BERNARD L. MADOFF signs as investment advisor
This form is
important in checking up on what others at the Madoff firm knew. It puts
into the public record that the money management arm of the firm
is managing 17 billion in assets as of Jan 2008. Bernie's
(claimed) trading strategy is well known , described to clients of Fairfield
Greenwich and other feeder funds, as going to cash at the end
of every quarter. How could other managers of the firm, including all
his family members, possibly not notice that this huge pile of cash
doesn't exist! (or did it? see above) Didn't they ever look at a statement?
If they never looked, is there maybe a reason they never looked, like plausible
deniability!
Madoff Securities
SEC claim to only have 23 advisory clients! Important, because if true,
the paperwork task is greatly reduced. (And perhaps more importantly, see
below, it may have helped conceal from the SEC how large were the claims
on Madoff assets) Is this at all consistent with reported losses? It would
be in Bernie's interest to keep direct clients to a minimum, but is 23
at all reasonable? Don't know. Certainly most people reporting losses say
they come in via some feeder hedge fund that was providing them statements.
But Bernie was also doing 401(k)'s and IRA's how did that work?
(update 1/9/08)
NYT has a running list of Bernie losers, which is now up to a 100 or more.
While this list has a handful of individual investors, it's mostly institutional
clients like hedge funds and pension funds. So it's likely that this NYT
list is of clients that dealt directly with Bernie. That makes his
claim of 23 clients in his last SEC regulatory filing total hogwash.
Or, or , there's
another possibility, the 17 billion does exist!
Well capitalized ponzi?
It occurred
to me (on 1/15/09) there is perhaps a totally different explanation for
the 17 billion. Maybe the 17 billion was not missing on Jan 2008! Maybe
Madoff Securities in Jan 2008 had 17 billion in the bank (so to speak)
exactly
as they told the SEC.
Let's look
at the numbers: To date the known loss is about 37 billion with only 1
billion recovered. Suppose, just suppose, that the total customer assets
(Jan 2008) were 54 billion (just about what Bernie claimed) and to support
this he carried cash of 17 billion. He would be leveraged x3.2. He had
a cash balance of 31% (17/54 = 0.31) of total assets to handle withdrawals.
Look at the
advantages:
* Bernie has no short term worries about balancing inflow and outflow with
a 17 billion cash pile. Only need be concerned long term. No wonder is
always smiling, no worries.
* No SEC problem. You tell them you have 17 billion and if they come calling
you do have 17 billion. All you need to is hide some customer records from
them, so they don't know there are 54 billion in claims on the 17 billion.
And maybe this is the beauty of paper records, which is an otherwise
unexplained weirdness. Now it makes sense. With paper records hiding some
customer records is easy!
* Consistent with hiding customer records is the Bernie tells the SEC he
only has 23 clients, when it appears from the list of losers that he had
a 100 or more direct clients. And the 23 clients he tells the SEC about
will have (you guessed it) claims on 17 billion in assets, so the books
balance.
* With a 31% (17 billion) in reserves he probably was confident he could
ride out any surge in withdrawals, but the 2008 economic crisis overwhelmed
him. Withdrawal in 2008 may very well have drained his 17 billion dollar
kitty to near zero in spite of efforts he made to replenish it. The famous
7 billion withdrawal (which he either did or did not make) at the end was
just the last straw.
I think this
thesis makes a lot of sense. I would bet this is what happened.
==============================================================
Little tidbits
--
Five
years ago a major bank had looked into investing with Bernie and after
attempting to backcheck his investment strategy (which didn't check out),
they put him on a 'forbidden' list, forbidding anyone at the bank from
doing business with him and discouraging their wealth clients from dealing
with him. Complaints about Bernie were filed with the SEC
9 yearsago.
Very telling is that 14 years ago (1994) an investment committee
of a Long Island charity considered a 20 million investment, but did not
invest because Bernie refused to provide any information about what he
was doing.
Lot of Madoff articles at a site called SECLaw.com
http://seclaw.blogspot.com/2008/12/madoff-funky-account-statements.html
-- "More Lawyers
Set to Feast on Madoff Meltdown" (Law.com)
-- "Thank
You, Bernie Madoff! In the Biggest Alleged Fraud in Wall Street History,
There Will Be Lawyers" (American Lawyer.com)
-- Madoff &
family owned a business in UK with 28 employees now being liquidated. UK
paper reports that are the UK office had 167 million in "Madoff family
money". What does this mean?
-- Andrew Madoff
(Bernie's son) and his wife making the front page of the New York Post
on Monday (12/22) after being photographed on a holiday shopping spree
in SoHo.
-- Records
at Madoff’s apartment suggest a “hybrid fraud,” Steve Harbeck of the Securities
Investor Protection Corporation told the Observer in London. (translation??)
“We do not seem to be dealing with a traditional Ponzi scheme alone,” he
said. What's a hybrid ponzi, does this mean Bernie was trading?
-- Madoff 10
million bond to keep him out of jail was supposed to have four co-signer.
The story is reported as no one would co-sign, not even members of his
family. So terms were changed with him putting up as collateral several
of his homes.
--- Bernie
is paying for private security at his apartment who are supposed to contact
the FBI at the first sign of "harm or flight." So private security guards
who
work for him are the only protection that public has that he won't
flee. Does this seem absurd to you as it does to me? After the jewelry
mailings, the reported cost of his private guards is 7,000 a day, which
is totally ridiculous. Smells like he has inflated the cost x10. (Sorry
investors you can't recover cause it's 'spent'!)
-- Background
story on Markopolos --- By 1999, he was working for Rampart Investment
Management Co. and charged with doing competitive research on Bernard L.
Madoff Investment Securities, which was using a similar investment strategy
as his company, but far outperforming it. Part of Markopolos's research
included a visit to diBartolomeo, whom he knew from his professional circle.
diBartolomeo in 1999 had mathematically analyzed Bernie collar approach
and concluded no way he could make such high and consistent returns with
it. Markopolos took what he had found to the SEC in 1999. When SEC did
nothing, Markopolos in 2005 wrote up 20 page's on Bernie's operation listing
dozens of red flags.
-- "The silver
lining for the rest of us: Soon they (Bernie's investors) will be trying
to drink each others' blood as those who got money out early will be hunted
by the ones who didn't. In terms of entertainment value, it should fall
somewhere between the Giants winning the Super Bowl and being duct-taped
to the couch during a marathon of What Not to Wear." (article on Portfolio.com,
12/24/08)
-- "Madoff's
creditors might claw your profits—and even your original investment—back
from you under an obscure legal doctrine called fraudulent conveyance....
Let's say that a member of your family operates a Ponzi Scheme. He
then gives you $100,000 without disclosing the fact the funds are the proceeds
of a fraud. Under fraudulent conveyance laws in effect in all 50
states, that $100,000 isn't rightfully yours, even though you knew
nothing about the Ponzi Scheme. The victims of the fraud can thus sue
you to reclaim the assets for an extended period—four to six years in most
states. " (Avoid a Ponzi Scheme—and Get Sued!, by Mark Nestmann,
journlist & lawyer, 12/24/08)
-- (12/20/08)
"The current suggestion from investigators is that the fraud began some
time in the late 1980's, with Madoff simply lying about his phenomenal
returns and using money from new investors to fund any withdrawals." (from
TimesOnLine.com) This would mean that Jaffe and many other bagmen
have been in on the scam from the beginning.
-- The Tuft's
student newpaper (12/22/08) reports
that a Tufts univ spokesman confirmed to them by email that the univ
knew all along that Bernie was managing their money invested with Merkin's
Ascot Partners: "according to Director of Public Relations Kim Thurler.
“I can confirm that the university was aware of the extent to which Ascot
Partners was invested in Madoff Securities at the time of the investment.”
-- Forbes asks in a 12/23/08 article
why the scam was not uncovered by the SEC in 1992, because at that time
the SEC closed down a Bernie bagman in Florida:
"In
late 1992, the agency filed suit against a Florida investment firm, Avellino
& Bienes, accusing it of selling $440 million of unregistered securities
to 3,200 investors. Avellino & Bienes funneled the investments to a
single manager and promised clients a curiously steady 13.5% to 20%
annual return, the SEC said at the time, but the scrutiny didn't go
any deeper. The Avellino firm was shut down in 1993, and the money was
tracked down and returned to investors. Turns out, Madoff was the sole
manager who took in the Avellino & Bienes money."
-- From an article in
Market Watch (12/18/08) --- "One red flag was that Madoff didn't charge
any fees to feeder funds like Fairfield Sentry, Kingate Global and Tremont's
Broad Market vehicles. Instead, his market-making unit earned commissions
from doing all the trades for his investment operations. That is a conflict
of interest because, in theory, a manager could churn his portfolio to
earn more commissions."
-- I haven't read
the 2001 Barron's article on Bernie, but according to an article in frontpagemagazine,
a reputable financial publication in 2001 was speculating in print that
Bernie might be front running --- "Barron's reported that Madoff competitors,
and some former investors had also likewise determined that his (split
strike) strategy did not compute. They speculated that, as a trader,
Madoff probably profited by front-running his customers – buying
stocks before them, at lower prices, and quickly selling at slight markups."
-- Authorities
are still looking at whether family members aided the fraud, the Wall Street
Journal reported on Friday (12/26)
Another little scam
-- (From an article
in Palm Beach Post, 12/16/08) Local resident who had their investments
with Bernie may only have left, the paper says, just their (multi-million
dollar) homes and (multi-million dollar) life insurance policies. The paper
explains:
"In
cases like this, people scramble to raise money," said John Pankauski,
an estate attorney in West Palm Beach. For formerly wealthy investors,
that means selling a life insurance policy. People who are worth millions
often buy large life insurance policies as a way to reduce estate taxes.
A policyholder with a life insurance death benefit of $5 million could
sell the policy to an investor for $250,000 to $1.5 million, depending
on the policyholder's age and health and other factors, said Michael Silver,
a financial planner in Boca Raton."
There's just one
thing wrong with this little story. If you buy life insurance to reduce
the value of your estate (Ed Slott the IRA consultant talks about this
a lot), this only works if you give away all ownership rights to the policy.
If you own it (in any way), it's still in your estate. If you don't legally
own it, you can't sell it. (Of course, the policy owner might be
a family member, so the money could be somewhere in the family.)
-- from an
article 'Madoff wasn't acting alone' in "Jewish World" by Rabii Levi Brackman
on ynetnews.com (12/26/08)
"In addition, many people are not concerned whether their investments make
money in an ethical manner. People are happy to invest in companies that
have questionable practices. As long as they are getting a piece of the
pie they don’t worry it.
For many investing
with Madoff meant consistent double digit returns. If he (Bernie) had to
steal in order to achieve that they did not want to know about it, nor
did they care."
-- UK TimesOnLine
comments (12/28/08) on the auto bail/banking bail out giving money to the
likes of Bernie's bagman, J Ezra Merkin
"GMAC’s
chairman, one J Ezra Merkin, also happens to be head of a hedge fund which
put all – repeat, all – of its investors’ cash into Bernard Madoff’s
gargantuan Ponzi scheme. Of course Merkin was merely a dupe of his old
friend Mr Madoff; but it is remarkable that the US authorities are so
desperate to do GM’s bidding that they would enable the taxpayers’
billions
to be handed over to J Ezra Merkin’s brand new 'bank'."
-- Palm Beach
skeptic ---- Great story in Palm Beach Post 12/27/08 about a "Tel Aviv
money manager Laura Goldman", who met Bernie in Palm Beach in 1990's. Bernie
tried to convince her to bring her clients to him, but would say nothing
about how he invested, which she found off-putting. She then made some
phone calls to option traders she knew and was told they did no business
with Bernie, "which she found curious, given his huge portfolio."
In 2001 she
copied the skeptical 2001 Barron's article about Madoff's returns and "Goldman
mailed copies to members of the Palm Beach Country Club." "The reaction
wasn't what she expected. 'Those people were so hostile to me,' Goldman
recalled. 'They said I was jealous. They said the publications were anti-Semitic.
Jews had more faith in Bernie Madoff than they did in God.' "
-- I've always
had high respect for my congressman Ed Markey, but he's been drinking big
time at the Madoff trough according to this report by PAM MARTENS in CounterPunch
12/22/08:
"In May 1998, June 1999 and June 2004, a total of seven members of the
Madoff family (all living in New York) decided to enrich the coffers of
the Ed Markey Committee to the tune of $30,000. Mr. Markey does not
represent New York. He is a Democrat who has represented the 7th
Congressional District of Massachusetts for more than 30 years. What
could have been the motivation? "
-- “I Knew Bernie
Madoff Was Cheating, That's Why I Invested with Him” was one of the quotes
from a very knowledgeable investor."
-- Here's a
nice tidbid from the Smart Money site (12/23/08). Most reporting on Cohmad
descibes it as just a sales organization for Bernie. Founded in 1989 (20
years!) and 20% owned by Madoff. Smart Money reports that the New York
office of Cohmad was "On the 19th floor, a few feet from the trading
desk, where Mark and Andrew (Bernie's sons) sat." Yet Bernie's sons make
this unbelievable claim about Cohmad:
"A
spokesman for Mark and Andrew Madoff said the pair knew Cohmad only
as a retail brokerage operation through which they would occasionally place
trades to the floor of the New York Stock Exchange because the firm was
not a NYSE member. While Mark and Andrew knew Cohmad was one of their father's
ventures, "if [Cohmad] had a role with asset management it was not anything
they knew about," the spokesman said."
Yup, they don't
know nothing! But this denial by the sons is bizarre. They appear to be
so trying to distance themselves from their father's money management business
that they are now saying they didn't even know about the existence of one
of its major sales arms, even though
a) it was run a best buddy and neighbor of their father and had been for
20 years
b) it was partially owned by their father
c) it had a office a few feet from their desks
If you believe this denial, there's a bridge you might
be interested in!
-- Washington
Post has an article (1/4/09) arguing that 1% per month steady gains (like
Bernie delivered) are very heady and intoxicating. People fall in love
with them. I can say from my own experience that this is true. I was in
such an investment, TIAA real estate. Always a good performer, but for
a couple of years at the end of the real estate bubble it rose steadily
1% (or more) per month, month after month. Very seductive, I took to charting
its monthly gains (but stopped this year, when it went into reverse).
-- Trustee
(Irving Picard) says, 8,000 claim forms have been mailed to possible Madoff
investors.
-- As of Jan
5, 09 the Madoff losses are now being reported as 37 billion.
-- We learn
from one of Bernie's bagmen (Littaye) that Bernie was a funny guy. Littaye
has taken over the French firm, Access International Advisors from
his partner Villehuchet who recently killed himself. In the article Littaye
is quoted as saying , "“Access isn’t a deep pocket now.” (Translation --
we're not worth suing)
"Littaye
also appreciated Madoff’s self-deprecating humor. Madoff liked to tell
a story about the day in 1998 when he stepped in to protect his firm’s
interests after his sons told him one of its traders had lost $200,000
investing in an Internet business, Littaye said.
'“What?
$200,000? That’s out of the question. Stand back, the old man is taking
over,’ Madoff says,” according to Littaye. “His sons pull on his
jacket to try to hold him back, shouting ‘No Dad!’ An hour later and $2
million poorer he says ‘All right, let’s get out of this crap.’” (Bloomberg.com
1/5/09)
Littaye says that
not only did he and his partner Villehuchet invest all their own money
with Bernie, but that he borrowed substantially to up the leverage. (If
true, this smells to me like someone betting big when he knows a game is
rigged. Hell, Bernie is 70, these returns are basically guaranteed because
Bernie is running some sort of scam, so let's get as much as we can while
we can.)
Authur Levitt Jr
-- Aurthur Levitt
Jr. is generally considered one of the good guys in Washington. (I read
one of his books.) However, he has a big problem since he was head of the
SEC from 1993 to 2001. All during this time Bernie's scam was going on,
and his tenure includes 2 to 3 years when Markopolos was trying to get
the SEC's attention. Today (1/5/09) at the House hearing on Madoff
Barny Frank said he talked to the SEC people in Boston, which is where
Markololos first went in 1999, and Frank says they took Markopolos seriously
and forwarded the information to Washington. (Thus pointing the finger
at Levitt's Washington SEC.)
Levitt has
an op-ed in the WSJ today (1/5/08)
In
it he admits that he "knew Bernie Madoff and had no reason to believe
he was not a legitimate market maker." He adds that at the time no one
knew that Bernie was acting as "an advisor to outside investors."
This is a very curious statement, "an advisor!" Bernie was a money manager
and from what I can tell he was given carte blanche to invest the money
as he saw fit.
Levitt claims
in eight years " I never saw an instance when credible information
about misconduct was not followed up by the agency."
At the House hearing
today a couple of members asked if maybe the problem at the SEC was that
'investigators', who may just be kids out of school, weren't loath to stick
their necks out attacking a big cheese like Madoff, who was on the SEC
advisory board and (as Levitt now admits) was known to the chairman.
-- It's reported
that Susan Blumenfeld, who is a buddy of Bernies and a richie poo in her
own right with her own foundation and a husband (Edward Blumenfeld) who
shares ownership of an airplane with Bernie, is a "self taught designer"
who designed Bernie's office and reportedly picked out clothers for Bernie
wife. Below was apparently obtained by CityFile, New York from Blemenfeld's
design site before it was removed.
Bernie is a no socks kind of guy
Edward Blumenfeld
Edward Blumenfeld
is Long Island real estate developer, described in the long Mar 2009 Vanity
Fair article as the best friend of Bernie. His bio say he attended Hofstra
University, which is where Bernie went, and he looks to be about Bernie's
age, so he and Bernie probably go a long way back. It's reported that he
had dinner with Bernie the night before Bernie 'confesses' to his sons.
He joinly owns a plane with Bernie, he invests with Bernie, and Bernie
invests in his real estate deals. His wife, Susan, is the designer of Bernie's
office. (And I sure they claim they don't know nothing, we're just
victims too.)
Edward Blumenfeld, Madoff business partner and friend
Kristof's list of tax exempt foundations invested with
Bernie
Nicholas Kristof
of NYT put together a 14 page list of tax exempt foundations that invested
with Bernie showing the amount (obtained from form 990). This list shows
Blumenfeld foundation had 2.6 million with Bernie, and curiously, I notice
that the accountant is Konigsberg, the same accountant that Bernie uses
and who is part owner of the London office. Here is a link to the Kristof
list (searchable):
http://www.nytimes.com/packages/pdf/opinion/madoff_exposure_6.pdf
I scanned the
list looking for other Konigsberg accountant entries, because these are
likely Madoff insiders, and here's the complete list:
Edward Blumenfeld foundation
2.6 mil
Carl J. Shapiro foundation
199 mil (323 mil total)
Levy foundation
31 mil (244 mil total)
Madoff family foundation
19 mil
Schlichter foundation (Peter Madoff executor)
1.6 mil
Westlake foundation (Paul Konigsberg pres)
0.75 mil
Richard L. Hirsch foundation
2.6 mil
Mark Lederman family foundation
1.2 mil (2 mil total)
The only unfamiliar
names (to me) above are Richard L. Hirsch and Mark Lederman.
A quick Google
shows Richard L. Hirsch in 1999 joining the board of the Syms School of
Business at Yeshiva Univ (Bernie was also on this board), and he is a founding
member of the Fifth Ave Synagogue, where Merkin was/is a big cheese. He
is probably pretty old, since he became president of a cook manuf Welbuilt
in 1967. Since 1990 he has run an investment company called Concurrent
Industries Group, LLC.
The Lederman
family foundation appears to be Mark (T.) and Carol Lederman of Southhampton
(this is one of the Hamptons on LI). All I could find is that Carol Lederman
is a doctor and their picture shows up at society events. I found no connection
with Bernie.
Julia Fenwick talks
-- The office manager
of Bernie's London office for eight years, Julia Fenwick, has been talking
to the UK press and telling
tales of Bernie. She was a real insider, a friend of Bernie's niece
Shana, had been at a lavish Bernie party at his LI home, and in 2008 was
with him on a golfing trip to Mexico (where the picture Ruth Madoff with
Bernie was taken). Curiously Fenwick describes the function of the London
office this way:
"The
London operation, which employed 28 people, was run as a 'proprietary trading
house' that invested the Madoff family's private wealth. In 2007,
it boasted assets of £113 million." (1/3/09 UK Daily Mail)
The Madoff family
wealth
was invested in London? In what? Apparently not in Bernie's operation!
Very interesting, but no other details.
(3/25/09 update) Bad sign
More than
three months after Bernie's arrest Fenwick reports the UK fraud people
do not appear to be doing a serious investigation of money laundering,
because the have not interviewed top people at the London office, even
though some have written letters asking to be interviewed!
"Former
office manager Julia Fenwick says the SFO (UK Serious Fraud Office) has
not been in contact with any of the directors at Madoff Securities
International (MSI) since launching its investigation back in January.
She says the directors have written to the SFO offering to be interviewed
but have received no response. (Yikes!)
She adds there
is a paper trail for every single transaction in the UK. "For the SFO and
liquidators Grant Thornton to go through all the UK accounts and work out
exactly what was going on would be extremely simple. But they have not
done anything," she claims. (Interactive Investor, 3/25/09)
-- (from above
Fenwick article) "His employees (whose employees?) boasted that the character
of Gordon Gekko, the ruthless schemer played by Michael Douglas in the
1987 film Wall Street, was based on Madoff."
-- Another
interesting tidbit from UK Daily Mail (Dec 31, 2008) Henry Kaufman,
81, "a director of Lehman Brothers and chairman of Lehman board's finance
and risk committee before Lehman's collapse." Invested his own money
with Bernie for five years and reportedly has lost several million. However,
in other reports, Kaufman is quoted as saying the loss is of money
he had at a brokerage account at Bernie's firm, which I believe
is totally different. SPIC ensures brokerage accounts from fraud to the
tune of 500k. And Kaufaman says the loss was only a couple of percent of
net worth.
-- WSJ (1/2/09)
has another 'investigators believe' story -- "investigator believe" Madoff
has funds squirreled away in one or more offshore accounts in tax havens
or places with robust privacy laws.
================================================================
live blogging the House Madoff hearings (Mon 1/5/09)
Committee introductory statements
Hearing is
'informal' because old congress has disbanded and new congress is not sworn
in until tomorrow
Chaired by
Paul Kanjorski, D of Penn. Minority lead is Spencer Bachus, R Alabama
Because of
this one committee member showed up dressed informally and wanted it put
in the record that all the other committee members appeared overdressed.
Everyone has a big laugh to start the hearing!
Markopolos
is not going to appear today, but Frank says he is hopeful markopolos will
appear later. He apparently wrote a letter to committee withdrawing saying
he was concerned about his legal status
Markopolos in intro
is described as the "hero" by Barny Frank
Barny
says in intro working personnel of SEC should not be blamed. (What, I want
the guy who wrote the SEC letter describing Markopolos complaint fired)
Frank says
he talked to people in Boston office of SEC and they took Markopolos seriously
and forwarded the complaint to Washington
committee
members repeatedly refer to "thousands" of Madoff investors
Brad Sherman
of Calif in intro says he has spoken to SEC. They tell him that Berie's
broker
business (not his asset management business!) filed annual statements with
SEC that were grossly off. The statements said they had 17 billion in assets
and they had a one man accounting firm. Sherman says this "on its face"
the annual SEC statements showed the fraud, but no one at SPIC or SEC read
them.
Garrett in
intro claims several hedge funds were "victims" of Bernie. He is critical
of Frank for saying before the hearing that SEC personnel are not responsible.
Only one committee
member calls Bernie a crook, another a confidence man
Klein, committee
member, Ft. Lauderdale, West Palm Beach, says he is a former securities
lawyer
First panel --- Two Witnesses
A) David Kotz,
SEC inspector general for one year.
two minutes
into his testimony and he as not mentioned Madoff
he is leading
investigation as to what happened internally with SEC & Madoff
they will talk with Markopolos "later this month" (apparently no need to
hurry)
issues they
will review:
1) response of SEC to Madoff complaints
2) conflicts of interest with SEC and madoff family
3) how SEC investigated madoff's firm
4) whether madoff's connections with SEC (on panels, as consultant,
and personal ties) affected SEC actions, his "stature and reputation"
--------
(update 6/19/09)
SEC inspector
general, Kotz, visited Bernie in jail for three hours today. He says he
will issue a report on his SEC Madoff investigation shortly.
--------
B) Stephen
Harbeck, SPIC, provides protection to investors broker-dealers. Government
chartered
Potentially can provide 500k of insurance protection to investors, but
they have almost
no assets (1 billion line of credit).
SPIC is liquidating
Lemhan brothers broker dealer ship. 142 billion of broker's accounts have
been successfully transferred.
Madoff is
different from Lehman, Madoff is "theft, plain and simple"
They won't
know the claim on SPIC resources for some time
They have
claim forms online for Madoff investors
Effects
of Madoff case on SPIC will be "profound"
Questions
Kanjorski
says he doesn't want these investigations to take two years. How long is
this going to take and how can it be speeded it up? SEC ans: months
not years
Can SEC deal
with former SEC employees. Ans: no subpoena power!
SPIC guy says
best source of money in/out is customer records!
Ackerman North
Shore of Long Island, NY is really mad and he attacks both witnesses. He
argues that integrity of US investments and economy is what is at stake
here.
How much assets
did Madoff reveal, he asks? Ans: don't ask me, both witness tell him. Will
it be made public he asks? SPIC says if we (ever) get the report we will
give it to congress. (Later he recants, saying this is bankruptcy controlled
by court, so he can only give report to congress