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Congress To Hear From SEC IG, Whistleblower, On Madoff
Promising "the most substantial rewrite of the laws governing the U.S. financial markets since the Great Depression," a Congressional committee has released a list of witnesses that it has called for hearings on the Bernard Madoff scandal, starting this Monday. And the makeup of the list suggests that lawmakers are serious about getting to the bottom of the Madoff matter, and preventing a repeat.
According to a press release, Rep. Paul Kanjorski will call the following witnesses before the House Financial Services committee:
- Mr. H. David Kotz, Inspector General, U.S. Securities and Exchange Commission
- Mr. Stephen P. Harbeck, President, Securities Investor Protection Corporation
- Mr. Harry Markopolos, an independent financial fraud investigator for institutional investors and others seeking forensic accounting expertise, as well as a Chartered - Financial Analyst and Certified Fraud Examiner
- Mr. Allan Goldstein, a retiree and investor with Bernard L. Madoff Investment Securities
- Ms. Tamar Frankel, Professor of Law and Michaels Faculty Research Scholar, Boston University School of Law
- Mr. Leon Metzger, adjunct faculty member at Columbia University, Cornell University, New York University, and Yale University
There are a number of interesting things here....
As SEC IG, Kotz is, at the request of the agency's chair Chris Cox, looking into how the SEC missed an alleged fraud of Madoff's size, during several investigations into his business over the last decade. So the invitation to Kotz to testify suggests that Kanjorski and his colleagues will focus in part on fixing the SEC's myriad problems.
The SIPC is a federal fund created to cover fraud losses in brokerage accounts, which is preparing to compensate Madoff investors. So the inclusion of its president, Stephen Harbeck, suggests the committee will also focus on the pressing question of which of Madoff's alleged victims will be made whole -- an issue that currently remains opaque. That impression is reinforced by the inclusion of a Madoff investor, Allan Goldstein, on the list.
But the name Harry Markopolos may stand out the most. It was Markopolos, then a rival broker, who first argued, in a detailed complaint to the SEC, that Madoff's returns were too consistently high to have been achieved honestly. His testimony could provide some preliminary insight into how Madoff set up a system that deceived investors and regulators for so long.
We'll bring you all the news from the hearings next week...
Josh
Zachary
I think this is also worth noting:
According to CNN Money:
Friehling & Horowitz is now also being investigated by the American Institute of Certified Public Accountants, the prestigious body that sets U.S. auditing standards for private companies.
Some 33,000 firms enroll in the AICPA’s peer review program, in which experienced auditors assess each firm’s audit quality every year. Forty-four states require accountants to undergo reviews to maintain their licenses to practice.
Friehling & Horowitz is enrolled in the program but hasn’t submitted to a review since 1993, says AICPA spokesman Bill Roberts. That’s because the firm has been informing the AICPA — every year, in writing — for 15 years that it doesn’t perform audits.
Meanwhile, Friehling & Horowitz has reportedly done just that for Madoff. For example, the firm’s name and signature appears on the “statement of financial condition” for Madoff Securities dated Oct. 31, 2006. “The plain fact is that this group hasn’t submitted for peer review and appears to have done an audit,” Roberts says. AICPA has now launched an “ethics investigation,” he says.
More here: http://cpatrendlines.com/2008/12/18/cnn-money-madoffs-auditor-doesnt-audit/
This firm is in some very serious trouble.
December 31, 2008 12:14 PM | Reply | Permalink
as long as consequences for the folks who were paid big bucks to regulate and investigate these clowns... and DIDN'T... is nonexistent, this will repeat itself over and over.
The folks we have put into office the past few decades have entirely changed our basic democratic structure into something the fathers of this country would asolutely abhor (IMHO).
... and we will most likely continue this trend to the end....
December 31, 2008 12:43 PM | Reply | Permalink
If Madoff investors are allowed to recoup their investments on the grounds that the SEC was negligent, then anyone with a 401(k) who lost money in the stock market as a result of the derivatives and subprime scandal should be reimbursed.
There were any number of warnings about the danger of the ever expanding derivatives market since 2002 that the SEC and the Treasury should have heeded.
It wouldn't be hard to prove Treasury Secretary Henry Paulson lied to the investing public in the summer of 2007 when he repeatedly said the worst of the subprime mortgage mess was over.
The difference between the average investor and the Madoff investor, however, is influence. Any day I expect Senators Schumer and Lieberman to publicly support a Madoff bailout.
I'm sure the Israelis are already lobbying in DC for additional foreign aid that can be extended to Israeli charities "suffering" from the Madoff mess.
The Madoff investors all liked the big returns they were getting that the rest of couldn't but they don't want to suffer the consequences of investing in an unregulated business.
Nice to be able to have it both ways.
I'm going to be keeping an eye on who contributes to Rep. Paul Kanjorski. Bribing the US Congress still has the best return on investment money can buy.
December 31, 2008 1:28 PM | Reply | Permalink
This is pretty funny. Leon M. Metzger teaches a course on how to run a hedge fund.
In the course syllabus, Metzger promises:
"Those who attend the course should be able to launch a fund upon the course’s completion provided they have a trading strategy and access
to capital."
He also guarantees "the course will touch upon ethics in the industry."
December 31, 2008 6:04 PM | Reply | Permalink
OH WOW! Another hearing. Big freaking deal. More "There, that ought to hold the little bastards." non-action from the "leaders" who were on watch while this happened.
OH BOY! More legislation. I can't wait for Barney (Rubble) Frank to sound off with his feigned outrage out of one side of his mouth while he thanks his "contributors" from the other side.
Regulations don't mean squat if there is no enforcement and they can pass all the laws that they want but all a bureaucrat has to do is ignore them (a little like George's signing statements - "I don't have to ... NYAH!") and we're right back where we were.
Government of the people my patoot.
January 1, 2009 8:15 AM | Reply | Permalink
Every word of Markopolos' 2005 submission to the SEC is substantiated with facts. Keeping in mind he first flagged Madoff's operation in 1999; to no avail. There was never an investigation opened by the SEC based on his reports to them. All were close with recommendations that "no action be taken."
Besides the SEC investigator quitting in 2007 and marrying Madoff's niece (who had also worked for Madoff's operation at one time), the SEC is VERY much much on the hook for rubber-stamping all complaints against him with "NO ACTION." (Correction: The SEC did fine Madoff a couple thousand in 1994 for a paperwork violation.)
The SEC is as guilty as the investors in being blinded by Madoff's prior NASDAQ creator reputation and his supposed aura of infallibility.
The concern now is how much has Madoff moved offshore that will be unreachable. His attorneys plan on using an "insanity defense"; now isn't that poetic justice?
January 1, 2009 5:10 PM | Reply | Permalink
After reading the Markopolous report it is very difficult to believe that this investigation was deliberately undermined. Perhaps a real investigation now will reveal where the pressure orginated. I can't help thinking that this may lead back into the senate. Keating Five II anyone?
January 1, 2009 9:12 PM | Reply | Permalink
correction: "not deliberately undermined"
January 1, 2009 9:15 PM | Reply | Permalink
Were formal orders of investigation of Madoff ever sought by staff attorneys?
January 2, 2009 5:17 PM | Reply | Permalink