Does Bernie have his own blog?  Could be, it's a riot.
         http://bernard-madoff-scam.blogspot.com/

Here's my scenario
        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.
--------------------
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 (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

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)

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 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

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 Picard 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)

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 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.

        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 (2/23/09) 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.

        “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)

(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

Enrica Pitz
        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.

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.

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.

(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

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!)

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.
---------------
(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?

        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)

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 its 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?).

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?

Ira Lee 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)

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, Rene 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!

        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'.)

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."

Forbes 2002 '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

(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)

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 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!

    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.)

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.

        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

        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.

        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.

        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)

        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.

        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)

(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)

        *** 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 years ago. 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.”

        "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."

     --   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."

        -- 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."

        "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'."

        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? "

        -- 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."

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)

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."

        -- 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.

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.)

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)

(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)

        -- 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 if the court approves.)  What about clawbacks, he asks, says a lot of his L.I. investors are terrified?  Ans: trustees duty to recover if  "many more times more than he put in"  No time frame is mentioned. Are investors protected up to 500k. Ans appears to be possibly, yes.
        Someone asks SEC guy what a 'split strike strategy' is all about. Ans: well he hopes someone at SEC does, but it's not him.
        Brad Sherman, D. CA --- Hammers home that legally all of Madoff's firm, all its floors, is one legal entity. SPIC loss will be conservative, 500 million to 1 billion, says sherman (why so low?). Therefore all US investors have no real protection, because  SPIC, he argues is an insurance company that is grossly under capitalized. Sherman asks if all US investors should be advised of this, since SPIC sticker is on the door of every stock broker. SPIC net worth is less than 1 billion, yet they have insured one trillion in accounts. SPIC guys says Madoff is an outlier. In 38 years, they have never had to use their 1 billion line of credit.
        SPIC does not insure about market loss. So is Madoff loss market loss? SPIC guys these are missing assets", but this answer is vague. When can people get reimbursed, matter of weeks? Vague answer.
        How large was Madoff's firm, how many employees? Ans: SEC guy says, I don't know. (He says he doesn't know because he wasn't involved in investigating Madoff!   At this point he doesn't know anything, but not too worry, he is going to find out)
        Lynch of Boston, says Madoff was on the "SEC advistory board". Do you think this intimidated SEC investigators right out of school? Were SEC people overmatched, he asked?
        SPIC says a lot of Madoff loss is "inflated profits", he quotes as an example that Yeshiva Univ only put in 14.5 million while their reported Madoff assets were 110 million.
        One house member asked if maybe the problem isn't that the SEC is "over lawyered", in other words nobody there knows anything about investing!

Summary
        SEC witness seems serious and competent, but just says over and over that the investigation is starting and we will look into that. The SPIC witness says very little. No clear cut statement by him of what coverage investors have or what they can expect (if any) in way of recovery or SPIC insurance funds. The investigation is a joke in this sense, they can't subpoena ex-SEC employees. The can only 'invite' them to talk. A joke, since probably everyone in the loop will be long gone.

        Already Markopolos has fingered a key SEC incompetent he dealt with, Meaghan Cheung, who was head of SEC enforcement in NY. Markopolos said (in effect) she was too stupid mathematically to understand what he was telling her. The NY Post tracked her down and talked to her. Surprise, she's a (Yale) lawyer! And she has left the SEC.

        Cheung testified in the SEC's IG Madoff investigation, and her statements to the IG indicate she had so little financial knowledge that Madoff's incredible consistency, 7 down months in 14.5 years, meant nothing to her. When Madoff explained his consistency came from a gut feel for the market, she and "each member of the enforcement staff" accepted this explanation at face value. (What a bunch of useless/nitwit lawyers!) Here is a link to the full 477 page SEC's IG Madoff report.

    http://sec.gov/news/studies/2009/oig-509.pdf

NY Post photo of NY SEC enforcement head Meaghan Cheung who refused to act on Markopolos complaint 1/7/09

        "Delivering 20 percent every year for 30 years would have been too hard to believe (and pay out) while 5 percent would have sent most people searching for more elsewhere. Returning 10 to 12 percent year after year was a stroke of genius: it was within the realm of possibility, if just barely." (NYT 1/6/09)

        "THE 10 PERCENT RULE  --- The saddest Madoff stories are the ones about life savings lost. These were people who had, say, $5 million in one of his funds and now have nothing. Honestly, the people themselves need to bear some responsibility for this. The most basic book on investing will tell you never to put more than 5 or 10 percent into any one investment, particularly one meant to preserve wealth.... Mr. Madoff’s returns were too good to be true, but no one wanted to believe that ... As much as the steady returns were enticing, Mr. Madoff’s investors wanted to bask in the glow of being part of such an elite, select group."

        "Oh did they mention he was a BIG TIME democrat donor? Including $100,000 to the Democratic Senatorial Campaign, thousands to Charles Rangel (D, NY), Charles Schumer (D, NY), and $6,000 to the Securities Industry and Financial Markets Association. Madoff also gave generously to Senator Frank Lautenberg (D, NJ) who runs a charitable foundation that invested with Madoff. Hat tip to Newsbusted.

        -- Link to a long technical 2006 memo from the Securities Industries Association in Washington DC cosigned by Shana Madoff (with her email address at Madoff Securities)

        -- A posting on the New Republic site, reposted from AlwayON site, lists many excellent point by Bill Burnham, who when he was a Wall St analysis knew Bernie by reputation and who now manages a hedge fund. His point #3:

        "What makes this fraud truly genius is that everyone on the street, including I suspect most of his investors, assumed all along that Madoff was a crook, in fact that’s why they invested with him in the first place!  The rumor was always that he made his money by front running the order flow from his market making business so if things didn’t add up people must have just figured, “Well of course they don’t add up, wink wink nudge nudge, because we all know this whole split strike strategy is just a lie to cover up the fact he is screwing his order flow customers”.

        -- Tzvee's Talmudic Blog (1/13/09) wonders, "J. Ezra (Merkin), why are you reaching out to an auditing firm in the Cayman Islands?"  Interesting, perhaps an indication that Merkin knew more about Bernie than he now lets on, that he had a good reason for not wanting a close inspection of Madoff's investments?

        -- Front running
                There appears to be good reasons why many investors suspected Bernie and Madoff Securities of being less than honest. Firstly, Madoff Securities for many years advertised that they would pay for order flow. While defensible, it appeared to many likely that they were employing various shady practices to enrich themselves at the expense of the trading client. Second, look at the NYT article below tying Peter and Bernie Madoff  to National Stock Exchange, which the SEC found was allowing brokers to front run about a decade ago. (As of 2006, Peter Madoff remained on the board of the National Stock Exchange.)

        "From 2002 to 2005, Mr. Swanson (SEC official, later Bernie's step-nephew) was involved in developing a case against the National Stock Exchange. At the time, Peter Madoff was a director (of National Stock Exchange) and Madoff Securities was a significant investor in the company. The case, which was settled in 2005, was unusual in that it was one of the few to name a top executive of the company as a defendant. It accused David Colker, the exchange's founder and chief executive, of violations. Mr. Colker is a close friend of Peter Madoff. The commission penalized the exchange and Mr. Colker for failing to enforce investor protection rules from 1997 to 2003. The commission concluded that the exchange had failed to properly monitor a rule that prohibited dealers from trading for their accounts ahead of customer orders. (NYT 12/18/08)

        -- Tip offs
                    Have seen a couple of stories about people possibly being tipped off early. One is in the NYT story about the small fry Madoff recruiters (supposedly) shut down by the SEC in 1992. The story goes one of them had invested 200k of his housekeepers money. She had asked from months for him to get the money back and he stalled., then 10 days before Bernie's arrest he told her her money was lost.

                    Second story is from Spain. Banco Santander, who are buying USA Sovereign Bank, had 2.3 billion invested with Bernie.

        "Investigators are reportedly looking into why Santander Chairman Emilio Botin sent his head of risk management operations to visit Madoff weeks before the scheme fell apart and whether several people who managed money at Santander funds were aware of problems at the Madoff funds". (Boston Business Journal, 1/13/09)

-- 7 billion Dec withdrawal(s)?
            The Dec 11 court filing, which is probably based on talks with Bernie's sons, tells of 7 billion in withdrawals pending in the first week of Dec (08), adding that Bernie says he thinks he can meet it, but it will be tough.

        There's been a ton of press about a guy who put in 10 million a week or so before the collapse. Here we have 7 billion going out a week or so before the collapse and virtually zero press. What no leaks?  There's a good chance the story of 7 billion requested is true because it explains the reasons for the ponzi collapse. 7 billion is a huge withdrawal (or group of withdrawals) about 15% of the paper assets and 40% of the real liquid assets Bernie had (I think) at the beginning of 2008, as indicated in his SEC filing. The liquidators have found less than 1 billion in assets, so if Bernie had 7 billion in early Dec, he paid all or most of it out, or maybe, just maybe he squirreled it away.

        Which course of action he took probably depended on whether or not he thought at that point he could keep the ponzi going. The latter means no more billion dollar withdrawals, because he was basically out of cash and cash comes in slowly in small chunks (millions, 250 million from Shapiro was huge). But with the economy going into recession/depression at this time, he couldn't have been very optimistic that withdrawals would taper off. Hence I am drawn to the 'squirrel it away scenario' at the end with the last few billion as having a reasonable probability!

               * Who got this money?  Anyone? Zero press on this one. No one even seems to ask. I'm sure all the clawback people would like to know.
 

                            1) "Overview of the Madoff Investment Fraud"
                            2) "Investor Litigation"
                           3) "Clawback Litigation"
                           4) "The Role of the SIPC"
                            5) "The Tax Issues"
                            6) "Offshore Funds"

        I wonder if Ira is coming?

Help out the guy with the 8 acre spread!
        -- Help out the rich? Look at this weird food web site asking (at bottom) for donations for a vegetarian and author John Robbins. I found this link from an article in the Santa Cruz Sentinel newspaper about Robbins, saying he is a Madoff victim too.

        One commentator to this article hit the nail on the head, saying "Once I can afford to move out of my studio apartment, I'll consider helping somebody who has an 8 ACRE spread in the Santa Cruz Mountains! What a joke."

http://www.foodrevolution.org/ linked from Santa Cruz Sentinel

Short term taxes (1/26/09)
        One of the many mysteries of the Madoff scheme concerns the taxes his investors paid. Bernie's reported trading strategy (see the Fairfield Greenwich slides) had him repeatedly buying and selling and going to cash at the end of every quarter. This must mean that virtually all the gains reported to clients should be short term gains. From a tax viewpoint this is bad, because short term gains are taxed at the highest incremental earned income tax rates. This takes some of the bloom off the rose of his returns, at least for large investors, since his investment was the most tax in-efficient investment possible.

        I am very surprised that no investor interviewed has ever mentioned this. In fact I have seen zero mention of this in the press. Is there some explanation, like maybe returns were not reported this way?

        -- Political contributions
               List of Bernie's political contributions 1996 to 2008

         http://www.newsmeat.com/fec/bystate_detail.php?last=Madoff&first=Bernard

        -- Senate SEC Madoff hearing Jan 27, 2009
                  Here is link to NYT Live blog on Senate 1/27/09 SEC Madoff hearing, plus comments (including mine)

        -- NYT (1/28/09) listed a bunch of ponzi operators who have been arrested in just the last few weeks. In the old days this would be big news (size of one is hundreds of millions), but compared to Bernie these guys are all small potatoes. The NYT has taken to calling these guys, mini-Madoff's.

        -- According to WSJ 1/28/09 article on Senate Madoff hearings, the SEC concluded in 2006 that Bernie lied to them about the investment strategy he was using. Markopolos listed as one of his 29 red flags in 2005 that Bernie could not be using the investment strategy he told his customers he was using (see Fairfield slides). Not doing what you say you are doing is illegal, said Markopolos. Why, because it's lying!

        -- In a detailed story NYT reports that London branch of JPMorgan withdrew virtually all its money (250 - 300 million) invested with Bernie through Fairfield Greenwich two months before Bernie was arrested. The bank got into the game of allowing investors to triple leverage the steady returns of Madoff. To do this it offered bank notes that it would pay off in five years depending on how well Madoff's funds did. To hedge the risk the bank then invested x3 of the investor funds in Madoff (thru Fairfield). 2/3 rds of these notes had principal guaranteed by the bank, so those investors are OK, but the other 1/3 rd of investors have lost probably all value.

        What's interesting is that Madoff Securities had several accounts at JPMorgan NY, and many think the bank monitoring those accounts may have seen trouble brewing in Oct 2008, and this is the true reason why they pulled all their money from Madoff. Some insiders say the steady 2008 returns made the bank's due diligence people wary. Regardless of the reason, there was an indicator of problems at Madoff in the open market as of Oct 2008, because when the bank cashed out, the resale value of the bank's Madoff notes fell 12%. (NYT 1/29/09)
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Views of financial fraud investigator (2/4/09)
        I captured and reproduce below an excellent NYT posting (1/16/09) by a (self described) financial fraud investigator named, Daniel Finnegan. I think he hits the nail on the head and agree with him completely.

        As a former fraud investigator with over 25 years of experience in financial fraud, I thought some readers might be interested in my reactions to this story.

        The evidence shows Bernie Madoff did not act alone, that key perpetrators include other Madoff family members, that these family members are likely to now control off-shore accounts containing substantial stolen funds.

        The Madoff fraud was, without a doubt, a group effort. Bernie Madoff could not have done it all himself. At a minimum he needed three types of support:

        1. Computer Systems; unless Bernie hand typed customer statements each and every month, he had computer systems support. Systems support was necessary to track customer accounts, produce false trade reports, and the myriad of other tasks necessary to create the impression among clients of a real hedge fund.

        2. Accounting; two sets of books are more than twice as hard to maintain as a single set. Real accounting systems benefit from automated importing of data from bank and stock trading accounts. In a fraud scheme all this data must be manufactured Off-the-shelf accounting systems send up many red flags when data is not consistent. Fraudulent accounting creates an impression of such consistency where none exists. This is a major task.

        3. Tax and Government Reporting: although Madoff went to great lengths to escape government regulation, nonetheless the scheme was bound to standard income and tax reporting requirements. The usual sources for such reporting did not exist—actual income and taxes paid—therefore fake data needed to be manufactured and reported by individuals expert in these isssues.

        Therefore, it is certain Bernie Madoff did not act alone and, at a minimum, had knowledgeable coconspirators in computer systems, accounting and tax and government reporting. It is highly likely that the conspiracy involved a much larger group.

        It is also highly likely that fraud scheme was a family enterprise. Like the Mafia, the family is the basic unit of most organized fraud schemes. The reason is simple—outsiders create a substantial risk of defection or blackmail. There is no honor among thieves. Bernie Madoff’s business was a family enterprise family members heading up all major functions including, computer systems, accounting and tax and government reporting.

        In his warning to the SEC Harry Markopolos listed 29 red flags that the Madoff hedge fund was a Ponzi scheme. All of these flags were visible to family members working in the firm every day. They had to have known a great deal more including the fact that all the trades Bernie Madoff claimed to be making never occurred. Close-up views of every fraud scheme I have ever investigated made it clear the emperor has no clothes. The most that can plausibly be claimed is that family members knew what was happening and did nothing.

        Bernie’s story is that at the last minute he informed his wife, his brother, and his sons that all was not well and that acting alone he had for seventeen years perpetrated the largest Ponzi scheme in history. Being shocked, shocked that fraud was going on the sons went to the authorities the very next day. None of this is in anyway believable. That the sons participated in this charade is evidence of long-term involvement

        Third it is likely that a significant portion of the lost billions are in hidden accounts or bonds controlled by family members. Money laundering is not difficult given time and financial sophistication. The Madoff scheme had a great deal of both.

        All Ponzi schemes come to an end sooner or later. Therefore, the perpetrators inevitably develop exist strategies. I cannot believe the Madoff perpetrators did not do the same. New alternative identities are almost as easy to create as money is to launder.

        Given these facts, I suspect that prosecutors will concentrate Madoff family members as the most promising method of recovering stolen funds. Without perpetrator cooperation laundered funds are seldom found. Bernie Madoff will be spending the rest of his life in jail, therefore there is no plea bargain possible to gain cooperation. The fate of other family members creates much greater leverage. In return of full recovery and accounting of all Madoff Ponzi scheme funds, the prosecutors are likely to trade leniency for some family members.

        In the absence of such a full accounting and recovery I predict that, in a few years, when things a quieted down, one or more Madoff family members will quietly disappear and then a new mega-yacht will appear in St Tropiz owned by an Americans with a vague backgrounds.

            — Posted by Daniel Finnegan, January 16th, 2009,9:05 pm
                posting to NYT DealBook on Madoff

        http://dealbook.blogs.nytimes.com/2009/01/15/did-madoff-trade-any-stocks-evidence-is-lacking/

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Live blogging House Madoff hearing (2/4/09)

        This hearing is devoted to largely to Markopolos testimony. He testifies two hours.
                    He has two lawyer beside him. Later the SEC comes in.
         Almost all the committee chairs are empty, but a lot of different questioners show up, including
                    two not even on committee.
         Markopolos was aided by three other guys, who he names. One guy gathered up marketing
                    material on feeder funds. They tracked these feeders that's how they were
                    able to accurately figure the size of the ponzi (WSJ next day identifies one of
                    Madoff's team as Neil Chelo, portfolio manager at Benchmark Plus)
        Markopolos is asked if he would come to Washington and take an SEC job. He says he
                has commitments in Boston for next two years.
        30 min in and almost no discussion about the specifics of the Madoff case
        no one paid them, hundreds of hours of work
         House members just want his thoughts on what's wrong with SEC
         His opinion is they are overlawyered, they don't do big cases, they don't have
                   the financial people who can do the numbers.
        So far his lawyers have done zero. Markoff never talks to them and they say nothing.
        Markopolos says Madoff had a lot of help, so far not a single follow up question about
                    why no one else has been arrested!
         17 billion Markopolos reported number is "truer" (compared to 50 billion) says Markopolos
                        He estimates Madoff probably really had 15-25 billion
                        This agrees with my previous estimate!
*      He noticed that Fairfield Greenwich Sentry fund changed auditor every year for the three years
                        in a row he looked at their financial records. He thought this looked suspicious.
        Bernie reported he went to Treasury bills at end of every year (& quarter). He speaks as though
                        this makes it difficult for auditors to check. He says Fairfield Greenwich used big
                        four accounting firms, and they didn't find the problems.
        As usual, most committee questioners appear to know squat about the Madoff case.
        Markopolos says he was warning for years all the people he knew in the industry in Boston.
                        He says they knew and respected him and all of them stayed away.
        Markopolos has high praise for Ed Mangion (sp) of the SEC Boston office. He says over the years
                        he (& head of Boston SEC) encouraged Markopolos to keep up tracking Bernie.
        Markopolos handed gave a package to staff of JFK Library to get to Eliot Spitzer on a visit.
                        He suspected Spitzer might be a Madoff investor. He doesn't know if he
                        ever got the package.
        (I check and find NYT reports 12/18/08 that Spitzer's family firm was indeed invested with
                        Bernie. No dollar loss number.)
        Markopols says he managed billion in derivatives at a well known Boston firm. He says  he
                        was well respected in Boston and SEC Boston office always vouched for his creditionals.
        Markopolos says he is now a full time independent fraud investigator. (He works with lawyers)
        He says all SEC had to do was go into Madoff's firm and ask to speak with top derivative
                        trader. They had no derivative trader. Or he said go to Chicago option board and
                        ask if they ever got an order from Madoff. They would tell him no, Madoff was a fraud.
        SEC people have so little investment experience that they did recognize 'too good to be true'
                        investment results, he says.
        He says other people came to him to ask how to go to SEC.  Several of them had documentation
                        as good as his. High quality. But the SEC never even picked up the phone or did
                        anything on these filings
**    Question : What happened with sophisticated investors? Ans: Madoff prayed on jews in USA, but in
                        Europe it was different. In Europe it was 'off shore' illegal money from royal and very
                       rich people. In other words the European's were hiding money and investing illegally
                        (probably avoiding taxes), so they can't admit their losses, he says.
         He hammers on the warning sign of Bernie's wierd fee structure. How Bernie passed the huge
                        4% fee to feeder funds and kept only a tiny amount for himself.
        He went to WSJ in 2006 to a senior writer who he said wanted several times to get on plane
                       to Boston, but his editors wouldn't approve. Markoplos concludes WSJ was afraid
                        of Madoff.
        He repeats many time he "feared for his life" if Madoff discovered he was being tracked.
        "Code of silence on wall st."
**   Madoff atracked a "lot of dirty money". Latin American drug cartel money and Russian
                        gangster money. This is why he feared for his life.
        Mass Security div and NY AG regulators are pit bulls. They take in tips and go forward. SEC is useless.
        Question: Should someone go after Fairfield and other feeder funds?
                        Ans: they were being paid a lot of money to be "willfully blind" and they are
                        now running for the hills.
        One and half hours in. Markopolos is very impressive on almost every answer.
**    He says Madoff was "not using any derivatives at all". Their was nothing there
         Madoff is under "penthouse arrest" says Markopolos (good quote)
           He didn't know who hired Bernie's home guards. (congressman tells him, "Bernie" and smiles)
            Al Green (D Texas, interloper) says he agrees that he was right to fear for his life. Asks him
                        him to describe his creditionals. He was an reserve officer who commanded a big
                        special operations team overseas for 17 years.
            When NY AG and MA sec div get a tip they vigorously pursue it, when the
                    the SEC gets a tip the "vigorously ignore it". (another good quote)
            More discussion of feeder fund fees get 4%, which is outrageous 280 million to
                        Fairfield Greenwich.
***     Markopolos believes Madoff might take steps, if he found out that he was being tracked
                    and reported on, that would result in Markopols being killed. Obviously, a very
                    serious charge.
                    He says that if the SEC had been corrupt and had handed his packages to Madoff, he
                   wouldn't be alive today.
            Markopolos knew that much of offshore money was dirty money. 5% to 50% of offshore
                    investing is to avoid the law, so he figured Bernie's percentage had to be even higher.
            Madoff claimed he was investing in a diversified basket of stock, so investors
                        thought they were diversified. He adds individual investors would have a hard
                        time checking. But that it would have been easy for feeders like Fairfield Greenwich
                        to check that prices and volumes were not consistent with Madoff's reports.
            Markopolos finishes by saying that if you flew the whole SEC staff to Fenway park and sat
                        them down for two hours. They could not find first base!!
           He will reveal another mini-Madoff scandle tomorrow (to SEC?)
                   One congressman jokes, I bet the SEC will listen to you this time!
            His summary opinion is SEC is incompetent and FINRA is corrupt.

2nd panel of  SEC
           SEC people come in right after Markopolos, five SEC senior people and one FINRA
            They refuse to defend their eight year record of ingoring Markopolos "case on a
                    silver platter" he presented to them repeatedly, or in fact say anything at
                    all about the Madoff case.
            SEC refusal to say anything is driving the chairmen and other committee members nuts.
                    Vague threats to shut the SEC down.
            Congressman Ackerman, who had a lot of Madoff investors in his district, goes ballistic.
                    He attacks and insults the whole SEC panel for his entire question time. (His comments
                    are reported in NYT next day.)

Markopolos key points at 2/4/09 house hearing
        Markopolos was a very impressive witness for two hours. The focus of the whole two hours of Markopolos testimony was the SEC. Even though he was well supported by the Boston office of the SEC over nine years in repeated written and personal contact he could never get the SEC to do anything. He says the SEC is totally incompetent. Others, he says, like Como and MA Securities Div take outside tips and run with them, the SEC just runs away from them.

He also filled in some details of the Madoff story.

        First, he basically 'confirmed' (thinks like I do) a key point in my scenario, which I published a couple of weeks ago. I argued that the 17 billion Madoff reported he had in Jan 2008 was probably close to correct. Markopolos said that 17 billion was "truer" than 50 billion, and then said he estimated Bernie had (he didn't say when) 15- 25 billion in assets. Markopolos view is that Madoff was not trading, which is consistent with early reports of investigators. He also explained how he was able to pretty accurately figure the size of Bernie's ponzi. One of the team members had gathered up marketing materials on the various feeder funds. Another team member had done a key interview in Madoff's firm's office (no details). Markopolos also mentioned briefly research on Madoff's feeder funds on a trip to Europe.

        Markopolos figures a lot of overseas money was tainted. They were investing overseas (in USA) because the money was in some way illegal or to avoid taxes. (I believe much of this money was gathered up by Fairfield Greenwich Noel's son-in-laws who live in Europe and South America? In later years most (as much as 90%) of Fairfield Greenwich's money was gathered overseas. Another reason why Noel and the Greenwich gang are sleezebags.)

        Markopolos also believes that Madoff attracted a lot of (really) dirty money from dangerous characters like South American drug cartels and Russian gangsters. This is consistent with the NYT reports that the Austrian feeder banker feared for her life and went into hiding because she had invested a lot of Russian criminal money with Bernie.

        Markopolos most dramatic statement was he worried that the amount of money was so huge and so much of it likely coming from a lot of criminal types and various schemers, that if Madoff knew he was tracking him (knew of his SEC filing) he could be killed. Markopolos is basically accusing Madoff of being more than just a white collar criminal. He thinks if Bernie got his hands on his material, he would have no qualms about passing it on to gangsters and criminal types, so in this way Bernie would be responsible for his death. While he didn't put this way, I think it's fair to say Markopolos considers Bernie to be scum.
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Wall St Journal twists Markopolos testimony into a defense of Fairfield Greenwich
        I lost a lot of respect for WSJ reading their reporting on the Markopolos' House testimony. They wildly underplayed it and much worse, distorted it. Next day 2/5/09 on an inside page of C section at the fold we find pictures of Markopolos and this headline:

        What! The Hearing were about the SEC and how Markopolos has shown its total incompetence, at least as far as outside tips are concerned. The WSJ article is mostly a defense of Fairfield Greenwich. It's so distorted it almost seems like the Fairfield partners and WSJ owner Murdock must be buddies. The articles contains gems like this that look like they come from the Fairfield Greenwich's PR firm:

        "There has been no suggestion that Fairfield Greenwich knew of the alleged (alleged!!) fraud at the Madoff firm" and "Fairfield Greenwich is working with legal counsel to determine the appropriate course of action  toward recovering assets."

Question: Should someone go after Fairfield and other feeder fund?
Ans: They were being paid a lot of money to be "willfully blind", and they are now
          running for the hills.

SEC Inspector General's Madoff Report
        Here's a link to the SEC IG report released early Sept 09.
        http://dealbook.blogs.nytimes.com/2009/09/02/sec-watchdog-releases-madoff-report/?scp=1&sq=dealbook%20sec&st=cse

Notes from reading through the SEC report
        ---  Basically it says what Markopolos said: SEC is not corrupt it's just incompetent. (Chris Dodd, chairman of the Senate Banking Committee, announced that there will be a hearing Sept. 10 on Kotz’s findings.)

**    --- (very interesting) Anonoymous complaint filed in 2006 says a "late" investor had more than 10 billion (!) invested with Madoff and those funds have now been comingled with Madoff funds. (Joel)

        --- In addition to Markopolos three complaints the SEC had received five others going back to 1992. Captured emails (found during some other investigation in 2004) detailed how Madoff could not be trading the option volume he claimed to be trading. Volume too high for exchanges and it couldn't be over the counter (as he claimed), because it was "inconceivable" he could find a counterparty. This was because Madoff's customer statements showed he always made money on his options trades, so there was no incentive for counterparty to take the other side and always lose money!

        --- Key check for a ponzi says report: verify trading records from on outside party. (instead SEC when it did check it got records from Madoff himself). One SEC manager (Assistant Director) does request documents from an institution Madoff says clears his traders. Response back to SEC is that there was no activity in Madoff account during this time. Incredibly the SEC Assistant Director upon hearing this does nothing! (total imcompetantance or is he paid off?)

        --- In 1992 when SEC investigates a Madoff feeder who promised guaranteed high returns, the SEC fails to consider that Madoff paid them their money taken from other of his clients.

        --- SEC had found (during its investigations) that his 'hedge fund' business was making "significantly more money" than his well known market-making operation. This was the WSJ and my conclusion too. Later in the report it says the Madoff's business would be losing money without hedge fund business.

        --- Most of the evidence supports the idea that in 1992 (time of first investigation) Madoff was running a ponzi. (And almost for sure years before that because there were years of high consistent 'guaranteed' returns at this time, which had triggered the investigation. In 1992 feeders Avelline & Bienes were shut down. Avellino says for "numerous years" prior to 1992 Madoff had achieved from them "extraordinarily consistent returns" and  without a single loss. (So what do you think the odds are that the ponzi was going on in the 1980's?)

        --- On the 2005 Markopolos complaint (not so indentified). "The inexperienced enforcement staff failed to appreciated the significance of the analysis in the complaint, and almost immediately expressed skepticism and disbelief". (This is exactly what Markopolos concluded and testified to before congress. The nitwit lawyers at the SEC were so unknowledgable about finance that they didn't understand what he was talking about. Later it says one of the Madoff investigating teams was "composed entirely of attourneys", who had no real experience with equity or options trading.)

        --- Planning memorandum for 2003 investigation fails to address issused raised in the complaint and 2001 articles:
                unusual fee structure, option trading volume too high for market, remarkable returns, Madoff's claimed trading strategy was not duplicable, returns had no correlation to equity markets, accounts were in cash as months end, no third party brokers, auditor was a related party.

        --- again and again it states letter or requests for docuements are drafted and then for unknown reasons not sent. This happens repeatedly.  Seems very suspicious to me. A person who spends time drafting a letter wants it sent, so maybe it just go to his supervisor who then cans it (but the report never says this).

        --- When examiners go to visit Bernie, he tells them lots of stories about his role in the financial industry and drops names of top SEC officials. (and get this!) Madoff tells them he himself is on a short list to be the next SEC chairman, but that Chis Cox will be chosen (this is weeks before Cox is named.)

        --- There is confirmation in the report that Madoff was widely suspected of front running. The inspectors go looking not for a ponzi, but for front running. When they start asking Madoff questions he gets angry and "repeated" said, "What are you looking for ..... front running?"

        --- One of the two examiners of Madoff is promoted for his Madoff examination work (even though most of the issued raised in complaints and emails were still unresolved.). Report says the staff attourney got the highest performance rating available, in part because her "ability to understand and analyze the complex issues of the Madoff investigation."

        --- Boston SEC office takes Markopolos 2005 complaint very seriouly. The Boston head of the office even personally emails the NY office to impress on him its importance and follows up with a later email to see if in investigation is being planned. (again this is consistent with what Markopolos said before congress) NY assigns the investigation to a lawyer, she has been with SEC for a year and a half. (What better person to lead the investigation into the worlds largest ponzi scheme!)

        --- The report details how this NY team did not understand Markopolos complaint, in fact didn't really read it at all or misread it. They said he was out for a bounty, whereas he had pointed out in his complaint that if it was a ponzi, which he considered "highly likely", he would not be elible for a bounty. Consider this incredible stupid statment made by the SEC examiners to the Enforcement staff:  Markopolos "doesn't have the detailed understanding of Madoff's operations that we do, which refutes most of his allegations." (oh, yea!)

        --- In Dec 2005 Markopolos (in person) presents a several inch thick folder on Madoff and the Branch chief assigned to the Madoff Enforcement investigation "decline to even pick up" the folder, because he took an instant dislike of Markopolos!

        --- An SEC guy in the Analysis section, described as an expert on options trading, when asked about Bernie's split-strike stategy writes that "was not a stategy that would be expected to earn significant returns in excess of the market". It takes him all of 20 minutes to figure this out according to the report.

        --- The report details (previosly reported) how in 2006 after his testimony to SEC Madoff himself thought they jig was up. He had given the SEC his account # at DTC (which stand for?) an outside third party. All the SEC had to do was call them and it would have been clear he was not trading anywhere near the amount shown even on just one of his feeder account statements. But the SEC did not call, the "most egregious failure" says the report. (SEC finally called DTC after Madoff confessed and within days knew that Madoff had done no trading.)

        --- SEC people ask Madoff's counsel (not named, is this IRA?) about the report of a 10 billion investor. Madoff's counsel told them Madoff never managed money for this investor.  It turns out that he was indeed one of Bernies largest individual investors.  (Do lawyers lie?)

Madoff's complete (?) client list (2/12/09)
        -- List of Madoff clients runs in thousands. Trustee releases (densely typed) 162-page list of presumed victims. (2/5/09) (In Bernie's blog there was mention that a version of this(?) list may have been released on the internet with addresses of all the investors.) I found the complete 163 page list on WSJ site and it does indeed have addresses (but no investment amounts). There is something like  50 entries per page, so there are roughly 8,000 Madoff investors listed here. I don't know the source of this list. Is this the people who filed for money back or does this come from Madoff records? (Markopolos claims that a lot of the European and Russian money is hot and will never be reported as lost.)

        http://online.wsj.com/public/resources/documents/madoffclientlist020409.pdf

        * I did a little reading of these filings and found this tidbit: A Fort Lee NJ CPA firm, Marder & Sosnik & Co has pages of listing!! Found more pages of Marder Sosnik & Co listed under Melvin Marder, CPA.

        * Neither Tuft Univ of Yeshiva, both of whom invested with Bernie thru Merkin, is listed. Merkin's Gabriel Capital Group's Ariel Fund invested with Bernie. Ariel Fund is listed (two lines). This tells us that Bernie's clients are much more than what is on this list when Merkin's large group of investors merits just two lines. The two addresses of Ariel Fund LTD are Park Ave NY and Grand Cayman Islands, British West Indies!

        * The listing of individual names is unusal in that it is organized alphabetical using the first name! There are dozens of Barbara xxxx in a row.

        * Cohmad Securities has about 10 lines, all naming Robert Jaffe, with an address in Boston on Commonwealth Ave.

        * I noticed about two pages of entries for Wellesley Capital Management in Wellesley MA. Did a little Googling founding little except that they are financial investment advisors and then -- Bingo --- up popped the Form 990-pf for Carl & Ruth Shapiro Family Foundation c/o Wellesley Capital Management. These are the guys who manage charity money of Jaffe's 95 year old, super rich father in law, Carl Shapiro. In 2000 it has assets of 123 million, yet it only reports net investment income of 4.6 million (3.8% return). Why so low? In 2000 they gave 10k Wang center, 19k Boston Ballet, 20k Boson Museum of Fine Arts, 20k Boston Symphony Orchestra, and 5 million to Brandeis and many others for a total of 8.3 million.

        -- Kristoff, op ed columnist of NYT , in Jan (or early Feb) 2008 had someone prepare and released a list of non-profit and charities invested with Bernie. He included (est) invesment amounts.

Court filings of MA AG Galvin against Cohmad (2/15/09)
        Feb 11, 2009 court filing of MA AG Galvin against Cohmad --- After describing how Cohmad securities has shared office space with Madoff for eight years, gets nearly all its revenue from Madoff, and paid Sonya Kohn (Vienna Madoff feeder) 1/2 million dollars even though she appears to have no connection to Cohmad, the complaint puts forward its purpose:

        "Specifically, the (MA) Division sought to determine whether the business and finances of Cohmad and Madoff Investments are so intertwined that they could be viewed as a common enterprise and not as separate entities, for purposes of imputing liability and obtaining investor relief."

                    - 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 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.

        Marcia Cohn, the president of Cohmad, is playing the same games with the MA AG's investigation. She asked for a two week delay to prepare her testimony. The Dept granted it and then she didn't show up. Her father Maurice Cohen, a director of Cohmad, was to testify and he didn't show up. Cohmad was subpoenaed by the Dept to designate someone familiar with the business to answer questions. Cohmad refused to do so. Alvin Delaire, Jr. who Cohmad statements shows has earned substantial commissions selling Bernie, was also subpoenaed to testify and he didn't show up.

        They all don't know nothing, and are shocked, shocked by the scam, but not one of them will respond to a subpoena to tell what they know. Quite a bunch!

        The document goes on to accuse Marcia Cohen of being (basically) a lying sonofabitch (the document speaks of her  "patently inaccurate verification"), because she signed off on the resonse to the subpoena verifying that Cohmad under personal direction had delivered all the documents subpoenaed, whereas the Dept says there are clear gaps and basic documents are missing.

        The Dept submitted a key question to Cohmad asking for a written response:

    What 'due diligence'  had Cohmad done with regard to Madoff Securities?

         Six filings of MA AG Galvin 2/15/09 concerning Jaffe's Cohmad Securities can be found here:

        http://www.sec.state.ma.us/sct/sctcohmad/cohmadidx.htm

        These six pdf documents posted by the MA AG contain a large amount of interesting raw material as exhibits. There are letters from Jaffe and Cohen to clients. Cohen describes the investment strategy as "simplistic" "conservative" and "insuring" against large loss by the use of puts. There are checks showing Madoff in 2007 was paying Cohmad about 1/2 million a month. There are some customer records showing the kind of paperwork that was needed and had to be generated to support the ponzi. A customer withdrawal is shown as sale of Treasuries with quantity and bond price.

        The headlines about this filing were that Ruth Madoff had an account with Cohmad and withdrew 10 million the day before Bernie was arrested and 5.5 million a few weeks before. I read other Madoff family members have accounts at Cohmad Securities too. Why?  Why don't they just deal directly with Bernie?  A key point is that this money did not come from Cohmad. They had no resources. The attached financial statements show the total value of the firm was 3 million. This must be a withdrawal from Bernie's (supposed) 50 billion stash. I suspect having Cohmad accounts is just for the paperwork. Bernie out sources his paperwork. Cohmad is part of his backroom.

        According to letters to customers in the exhibits, it appears that customers may only have been able to put in or take out money at the end or beginning of a quarter. This would have greatly simplified reported customer records because input and output cash flows can be shown as being put into and taken out of treasuries. The reported bond price and quantity reported to customers then could be accurate and not have to be fabricated, because Bernie may very well have kept significant cash for withdrawals in treasuries. Of course, the claimed investment strategy, which had the seemingly peculiar characteristic of going into cash at the end of every quarter, nicely supported this simplified record keeping.

Bernie's back room
        A very interesting question is who does all of Bernie asset management paperwork, where or who is his back room? Who is doing all the fabricating and generating all the tax statements and other legal documents? An employee of a small collapsed Salem MA charity even had, as her financial writer husband explained,  her 401(k) invested with Bernard L. Madoff, so Bernie was handling 401(k) too.

        It takes a 1,000 million dollars to total to one billion and Bernie's total assets (on papper) was about 50 billion. Some schmuck investing a million dollars  with Bernie represents only 0.002% of Bernie's (paper) assets. If all of Bernie's investors had only a million dollars, he would have 50,000 clients (!) all of whom need tax statements and monthly trading reports. Clearly Bernie needed to outsource a lot of his paper work.

        Is it remotely possible that back room boys don't know that something is not right? If they are doing any fabricating at all, fleshing out of phoney trades for example, then they know a scam is going on and are part of it!

Bernie's favorite customer CPA firm ---Larry Bell, Melvin Marder, & Marder & Sosnik & Co (Feb 12, 2009)
        A long trail leads to an obscure, 8 person, CPA firm in Fort Lee NY as one of Bernie's major back room organizations. I started down the trail when I read a 2001 letter (below) from Jaffe to a client (attached to Feb 11, 2009 court filing of MA AG Galvin against Cohmad Securities) suggesting the client use CPA's Marder & Sosnik & Co. who "do accounting for many Madoff clients", says Jaffe. Browsing the 163 page client list I find Marder & Sosnik & Co goes on for (four pages + four pages) with maybe 50 entries/page, some with the name Larry Bell attached, others Melvin Marder.

        NorthJersey.com reports (12/24/08) Fort Lee accountants Scott Sosnik and Larry Bell (Sosnik Bell & Co) are among Madoff losers, and includes this:

        "Sosnik and Bell, principals in the eight-person firm based near the George Washington Bridge, also lost their pensions with Madoff's firm, said Robert Anello, an attorney speaking for Sosnik and Bell. "These guys are screwed, royally," Anello said. "Mr. Madoff leaves many in his wake." Sosnik Bell handled paperwork for hundreds of Madoff’s investors, Anello said.

        The accounting firm Sosnik Bell & Co. only received monthly statements from Bernard L. Madoff Investment Securities LLC, tallied reported profits and losses, and prepared tax summaries and schedules for clients' other accountants to use, Anello said." (While the syntax above is a little garbled it appears to say that the accountants took limited info from Bernie and fleshed it out into tax statements.)

        Sosnik and Bell's lawyer, explaining why they have so many Madoff clients says, they inherited a lot of them in 1993 from another firm and gathered other since by "word of mouth". Somehow their lawyer failed to mention that word of mouth included folks like Jaffe. Madoff feeders were steering individal investors to these guys. Then I found the following very interesting two stories about this firm that ties things together. I like this quote from the 1st piece:

        "Both Sosnik and Bell have assumed the official position of anyone who profited from Madoff's operation: they're victims too."  (Yes, indeed)

        The speculation in the articles above, based on the timing, is that the firm Sosnik and Bell inherited their Madoff clients from was Avellino & Bienes (see two sections above in this essay for more info about Avillino and Bienes who were profiled in NYT), the accounting firm whose principals were busted by the SEC in 1993 for running an unregistered securities business that raised about $440 million from 3,200 clients promising high, steady returns, and who invested it with Bernie. Avellino & Bienes, says the article, was previously known as Alpern & Heller, and guess who was the head of Alpern & Heller? Why it's none other than Saul Alpern, the father of Bernie's wife, Ruth Alpern Madoff.  And who Bloomberg reports was recruiting investors for Bernie's money management business as early as the 1960's when Bernie was just getting started. And guess who was Avellino's lawyer in the 1990's, why it was Ira Sorkin, who of course is now Bernie's lawyer. Everything ties together pretty neatly.

        -- A Madoff investor, Phyllis Molchatsky, a 61-year-old retiree of Valley Cottage, New York, who lost almost $2 million investing with Bernard Madoff, is sueing the SEC (Feb 2009)

        -- (2/11/009) Another month delay announced before bringing grand jury charges against Bernie. This reinforces speculation that a deal is brewing.

        -- One  member of the Madoff family seems to be known for something besides (crooked) finance, Roger Madoff, Bernie's nephew, now dead. His memoirs were assembled into a book, Leukemia for Chickens, by his wife Jennifer as he was dying of Leukemia in his early 30's. Jennifer Madoff, his widow, however, along with most of the Madoff family could resist a sure thing and 'invested' her money with uncle Bernie, her name shows up (twice) on the list of Madoff losers.

Is the SEC alleging the senior managers of the firm 'knew' of the fraud?
        Rereading the original Dec 11, 2008 SEC court filing I find there are two defendants: Bernie (as an individual) and Bernard L Madoff Investment Securities LLC (firm). The 2nd Claim for relief "Against all defendants" alleges the defendants (plural) "knew or were reckless in not knowing" a fraud was occurring.

        It's pretty clear the SEC is alleging that (some sense) Bernie's firm knew, or should have known, of the fraud. So in what sense is this? Does it mean the senior managers of the firm knew, or should have known, or is it just legal gobblygock, because a firm, as a legal entity, can't really know anything?

Markopolos boss (2/16/09)
        CNBC cable network in a featured hour on the Madoff ponzi (2/16/09) introduced a new character: Frank Casey. In the late 1990's he was Markopolos boss, and the story he tells CNBC confirms the reason Markopolos gave for why he started looking into Bernie's operation: his boss asked him to.

        Casey explained he first heard of Madoff around 1997 or 1998 when someone (I missed who) showed him the high, smooth returns Madoff was getting by buying a basket of S&P 100 stocks combined with calls and puts to limit gain and loss. Casey asked his employee Markopolos to test this strategy to see how well it could work. Casey says Markopolos soon came back and told him it didn't work well at all, and all he could figure was that (maybe) Madoff was running a ponzi.

How stupid and/or corrupt do you need to be to be a lawyer? (2/17/09)
        Conde Nast Portfolio.com recently had a long article (by  Scot J. Paltrow) questioning how was it possible that the family members, especially Bernie's brother Peter, the compliance officer at the firm, didn't know about the ponzi. His Feb article arguments are basically the same as I wrote up in this essay weeks ago.

        The article quotes financial people explaining that as compliance officer Peter Madoff had a duty to know about the investment fund's operations in detail. Tamar Frankel, a Boston University law professor, in testimony before congress said, "I don't understand quite frankly how he [Peter Madoff] couldn't either know what was going on or, if he didn't, he violated his duties as chief compliance officer."

        Case in point about stupid/corrupt lawyers. Look at how Peter Madoff lawyer, John Wing, responded to questions from the author of the article:

        "In an e-mailed statement, (John) Wing said: "Peter Madoff's wife and daughter are among the many victims of Bernard Madoff's alleged Ponzi scheme, having lost millions of dollars that were invested with Peter's brother. Any suggestion that Peter Madoff knew that his brother was engaged in this Ponzi scheme is absurd." (Conde Nast Portfolio.com 2/13/09)

Victor Teicher and bagman Merkin
       -- It's hard to know what, if anything, to make of this Merkin story reported 2/17/09 in Crains's New York Business.com story and reported earlier by NYT.

        "From court filing by New York Univ against Merkin we learn this: (Merkin's) partner, Victor Teicher, told Mr. Merkin (prior to 1993 says NY Univ) that “the Madoff returns smelled, that they were not probable” and that trading statements had been “altered,” said Beth Kaswan, a lawyer for New York University. ... Mr. Merkin’s lawyer, Andrew Levander, confirmed at Tuesday’s court hearing that Mr. Teicher did help manage money for Mr. Merkin during the 1990's. (2/17/09 Crains's New York Business.com)

         (2/15/09)  Tzvee's Talmudic Blog dug up a 1986 story describing the securities charges against Victor Teicher, "Ezra Merkin, Victor Teicher and the Yuppie Five Scandal"
--------------------
NY Univ suit agaist Merkin
        Available online is a 31 page court filing laying out the NY Univ case against Merkin.
         http://www.scribd.com/doc/12352310/NYUs-Memo-Opposing-Merkin-Motion-to-Dismiss

 I read through it and made a few notes:
        -- NY Univ started investing thru Merkin in 1993 (Ariel Fund) with 20 mil in 1993
                        and 10 mil more in 1997
        -- Merkin's fee was 1% of assets plus 20% of returns
        -- Merkin only reported quarterly on Bernie performance
        -- Merkin's Ariel fund is based in Cayman Islands. Merkin uses as a defense against NY
                    Univ  that Cayman law applies not NY law.
        -- NY Univ says Teicher and his staff were the money manager of Ariel funds 1993
                    to 2001
        -- Discovery found Merkins funds fees (thru 2007) foe all his funds and clients were
                    523 million
        -- (for some unexplained reason) Merkin suggests to NY Univ in a Oct 2008 meeting
                    that they invest directly with Madoff. NY Univ says immediately at meeting that
                    investments with Madoff are "unsuitable" for NY Univ because Madoff operates
                    with "oversight" (whatever that means).
                             (Did perhaps Merkin know in Oct 2008 that withdrawals were heavy and
                               Bernie needed  more cash?)
        -- At Oct 2008 meeting Merkin does not tell NY Univ they are already invested with
                    Madoff thru Ariel. NY Univ finds out their funds are invested with Bernie only
                    when Merkins sends  them a letter after Bernie's arrest saying (in effect) tough shit!
**    -- NY Univ alleges that Merkin "either knew or was deliberately ignorant of the fact
                    that Madoff investment results were implausible and likely fraudulent."
          -- NY Univ alleges that Merkin engaged in "gross negligence, fraud or willful misconduct"
                    and (get this) by taking compensation based on illusory profits he's in breach of his
                    (Ariel fund) contract.
          -- Later in the document NY Univ says Merkin's "own inside expert"  advised him that
                      Madoff returns were "impossible" ('not probable' is now upgraded to 'impossible')
**      -- Merkin is said to have 'deliberate ignorance' and 'willful blindness' brought on by the
                      huge fees he was collecting. (This is apparently the legal equivalent of knowing.)
                      The legal reference given is to Jeffry Skilling CEO of Enron, who was convicted.
--------------------
        -- Lawyers on WSJ legal blog (2/5/09) are all a twitter about possible conflict of interest since
                           Ira Sorkin, Bernie's lawyer, appears on the list of Madoff victims. Sorkin says he
                            did not invest with Bernie, but I checked and sure enough on the list is
                            Ira Lee Sorkin (his full name)

Report by liquidator that Bernie did not trade destroys Madoff family cover story (2/20/2009)
        NYT today had an article that the liquidator says Madoff did not trade for (at least) the last 13 years. Within 12 hours there were 90 comments posted! I saw the article within 30 minutes and at that time there was only one comment. In the hour and half it took me to have lunch and write my comment 38 more comments appeared, so my comment about how 'no trading' destroys the Madoff family cover story, ended up as the #40 comment.

        The NY Madoff liquidator in a town meeting was asked about separation between Madoff's money management business and the trading business. He answered was 'they were one'. Not sure how to interpret this. They were one legally, but does he mean the trading people share responsibility for the ponzi? (Clearly more than two months after his arrest there is still a lot of interest in Madoff.) Here's NYT post (2/20/09):

        Bernie told clients for 20 years that he traded all the time, that he bought stocks and options (famous split-strike strategy) and sold back into cash every quarter. For this to be true there had to be a huge trading desk on the 17th floor. Markopolos said in his congressional testimony that all the SEC needed to do to uncover Madoff’s ponzi was ask to speak to Bernie’s (money management) head trader. He doesn’t exist, so the fraud is revealed! No large trading desk on the 17th floor had to have been obvious to everyone in the firm, certainly all the firm’s managers, compliance people, and traders. They knew they weren’t trading for Bernie’s money management business, which on its face never made sense, since Bernie always claimed he earned fees only from trading.

        If Bernie wasn’t trading, where did brother Peter, sons Mark and Andy, nephew Charles Weiner, niece Shana think Bernie’s 12% returns and more than half the income of the firm came from? Maybe from Bill Bernstein’s ‘returns fairy’?

        The now known fact of no trading totally destroys the cover story the Madoff family has put forward that no one in the family knew anything was wrong on the 17th floor. If they were not directly involved, at a minimum they had to have suspected strongly (I would argue they knew) a crime was going on, and for years they sat by and did nothing letting it grow to the point of collapse with thousands of people losing millions. Why have not the whole Madof (mafia) clan, and probably other top people at the firm too like Frank DiPiscali and Enrica Pitz, been arrested?

(Comment #40 2/20/09 to a NYT article that Bernie did not trade says the liquidator)  — Posted by Donald E. Fulton

        Doubt Madoff will do a day in the slammer. Sorkin (Bernie's lawyer) shouldn’t have a problem finding medical expert witnesses who’ll over read brain MRI's to claim normal cerebral atrophy changes found in most people his age depict cognitive declines rendering him unfit to stand trial. Such a strategy might explain why Ruthie’s getting a free pass as Bernie’s testimony would be suspect.
— Posted by MARK KLEIN, M.D

    In the middle of the Greenwood and Walsh story I find this little gem tucked in.

Up pops Ira Lee Sorkin
        James M. Nicholson, age 42, has just been charged with a 900 million dollar securites and bank fraud in NYC. And guess who his lawyer is? Why it's none other than Ira Lee Sorkin! This is Bernie's lawyer. What's going on here, another mini-Madoff pops up and so does Ira! Does Ira just like to 'pile the cold cuts high' as they say?

        According to the SEC complaint after Nicholson issue many withdrawal checks he couldn't cover he suspended all investor redemptions due to what he called investors' "irrational behavior. I guess it didn't occur to this genius that it might have been smarter to suspend withdrawals before issuing bad checks.

 Ira does it again --- no jail for Nicholson
        Like Benie he gets "home incarceration" at his multi-million dollar home (Oak Road home on 2.6 acres that he and his wife purchased three years ago for $5.75 million). "Home incarceration" is described by a local NJ newspaper as meaning he can only travel up to 30 miles, so I guess he can still get into Manhatton to see a few plays and have some good food!

        Here's a look at his 9 bathroom house in the Hamptons, now a steal at only 33 million (just 6 million more than he paid for it last month). He's a house flipper too.

        The SEC complaint against Nicholson and Westgate is here:
         http://www.sec.gov/litigation/complaints/2009/comp20911.pdf

        Sinc