Bernard Madoff

Madoff Sentenced To 150 Years In Prison

Zachary Roth | June 29, 2009, 11:51AM

Barring extraordinary developments, Bernie Madoff will spend the rest of his life in prison.

The Wall Street swindler has been sentenced to 150 years in prison for swindling investors out of many billions of dollars, reports the AP.

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Bernard Madoff

WaPo's Kurtz Takes No Position On NYT's Merkin/Madoff Op-Ed

Zachary Roth | April 13, 2009, 1:30PM

One final note on the great New York Times Merkin/Madoff op-ed disclosure brouhaha, which we've written about here and here.

The Washington Post's Howard Kurtz covered the controversy in today's column. Here's the entirety of what he wrote:

When the New York Times published a March 21 op-ed column sympathetic to a "quintessential nice guy" -- stock swindler Bernie Madoff -- contributing writer Daphne Merkin noted that she had "a sibling who did business with him."

That turned out to be J. Ezra Merkin, former chairman of GMAC, now accused by New York authorities of defrauding clients by funneling more than $2 billion of their money to Madoff. Was the vague "sibling" reference really enough?

Ombudsman Clark Hoyt wrote yesterday that many readers thought "the disclosure was so limited as to be disingenuous," but Op-Ed Editor David Shipley defended it, saying that paper approached Merkin "in some respect because of her brother."

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Bernard Madoff

Report: Shana Madoff Contacted Prison Consultant

Zachary Roth | April 13, 2009, 12:05PM

A female relative of Bernard Madoff -- identified by the New York Post as Madoff's niece, Shana Madoff -- called a "federal prison consultant" to ask how much jail time she might be facing, the consultant told TPMmuckraker.

Larry Levine -- a former federal prisoner who now runs a company, Wall Street Prison Consultants, that gives advice to future inmates on how to survive prison time and win an early release -- said that a woman had called him about three weeks ago, saying that she might face conspiracy charges. At first, said Levine, the woman was hesitant to divulge any specific information, but, when pressed by Levine, said that she was a relative of Bernard Madoff, explained the basics of her situation, and asked how much jail time she might be facing. "No money changed hands," said Levine, describing the call as "exploratory".

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Bernard Madoff

NYT Public Editor: It's "Obvious" There Should Have Been "A Lot More" Disclosure On Merkin-Madoff Op-Ed

Zachary Roth | April 12, 2009, 1:17PM

Andrew Rosenthal, the editor of the New York Times editorial page, may not think the issue of disclosure in Daphne Merkin's op-ed about Bernard Madoff is "substantive". But it looks like the paper's public editor disagrees.

To explain: Last month, the Times published an op-ed by Daphne Merkin, a contributing writer to the Times Magazine, in which she argued that Madoff's victims weren't really victims because "no one was holding a gun to anyone's head."

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Bernard Madoff

Times Editor: Lack Of Disclosure On Merkin Op-Ed Is No Big Deal

Zachary Roth | April 7, 2009, 12:25PM

Here's another one to add to the growing list of "newspapers acting badly"...

Late last month, the New York Times published an op-ed by Daphne Merkin, a contributing writer to the Times Magazine, on the Bernie Madoff mess. The curious premise of the piece seemed to be that Madoff's "victims" (the quote marks are Merkin's) aren't really blameless, since "no one was holding a gun to anyone's head, saying sign up with Mr. Madoff or else."

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Bernard Madoff

Madoff Associate Who Ran Feeder Fund Is Charged With Fraud

Zachary Roth | April 6, 2009, 12:14PM

The high-profile proprietor of a second feeder fund has been charged in connection with Bernie Madoff's multi-billion dollar Ponzi scheme.

A civil fraud lawsuit filed by New York Attorney General Andrew Cuomo charges Ezra Merkin, the former chairman of GMAC, and a prominent Madoff associate and New York philanthropist, with "betraying hundreds of investors" by placing billions with Madoff without their knowledge, reports the Wall Street Journal.

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Bernard Madoff

Madoff Feeder Fund Charged With Ignoring Red Flags

Zachary Roth | April 2, 2009, 11:28AM

We're a little late to this, thanks to some developments in other areas, but Fairfield Greenwich, the feeder fund that placed much of its assets with Bernie Madoff, was sued Tuesday by the state of Massachusetts, for defrauding its customers.

Secretary of State William Galvin claims that Fairfield, the largest of several feeder funds that funnelled investors to Madoff, failed to conduct due diligence as it promised. For instance, Galvin alleges, Fairfield didn't question Madoff about his unusual trading strategy, or about the fact that he hadn't hired an outside firm to handle record-keeping.

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Financial Crisis

Prosecutors: Ponzi Scheming Art Dealer Bilked McEnroe, DeNiro

Ben Buchwalter | March 31, 2009, 3:24PM

Bernie Madoff isn't the only Ponzi schemer on New York's Upper East Side, at least according to prosecutors. Last Thursday, Lawrence Salander, a prominent art gallery owner, joined Madoff on that illustrious list when he was charged with bilking a slew of high-profile clients, including John McEnroe and Robert DeNiro, out of $88 million on high-priced art deals, over more than fifteen years.

Salander never fired any US Attorneys, or helped bring down the financial system -- so far as we know. But we thought he was worth our attention because the charges against him are part of a surge in Ponzi cases brought by authorities since the start of the year. That uptick appears to be the result, in part, of the financial crisis, which, as in Madoff's case, caused investors to withdraw their money en masse, leaving schemers without enough capital to keep up the charade. Call him another mini-Madoff.

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Bernard Madoff

Report: UK Expects To Soon Charge Others In Madoff Scheme

Zachary Roth | March 27, 2009, 12:21PM

The Madoff trail is shifting, at least in part, across the Atlantic. And investigators are wondering whether the Ponzi scheme was a family affair.

A report from the Wall Street Journal's London bureau contains three important new pieces of information.

1) "U.K. authorities investigating Bernard Madoff's massive Ponzi scheme believe criminal offences have been committed by people other than the New York financier and expect to start filing charges within months, according to investigators."

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Bernard Madoff

Looking For A New Career? Try Fraud Investigator.

Zachary Roth | March 26, 2009, 11:14AM

One of the few growth industries in the current economic climate? Fraud investigators.

Allegations of fraud are increasing, as the financial crisis drags on. As a result, reports the New York Times, people who are skilled at following the money have rarely been more in demand.

The FBI is recruiting new hires to work on a glut of cases -- it had more than 1600 open mortgage-fraud investigations at the end of fiscal 2008, almost twice as many as two years earlier.

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Bernard Madoff

Madoff's Prison Number Is A Lottery Winner

Zachary Roth | March 24, 2009, 2:45PM

At least someone got something out of the Bernie Madoff affair.

Ralph Amendolaro of Queens, New York, used the confessed Ponzi schemer's prison number to play the lottery, after seeing it on the front page of the New York Daily News earlier this month. And a few days later, that number -- 61727-054 -- came up, winning the lucky construction worker $1500.

Amendolaro told the Daily News that he thought at the time: "I'm going to be a winner with this guy even though everyone lost money with him. Somebody had to get a little lucky with him."

He said he plans to spend some of the money on a birthday trip to Vegas with his wife and some friends, and also to take his family out to dinner.

And he added that if Madoff hears about it, "he'll probably want a cut."

Bernard Madoff

Madoff Worth Over $823 Million

Zachary Roth | March 13, 2009, 5:34PM

We knew Bernie Madoff was living large. But maybe not this large.

The Associated Press reports:

Newly filed court documents show Bernard Madoff and his wife had a net worth of more than $823 million at the end of last year.

The document detailing the Madoffs' assets was contained in papers his lawyers filed Friday in an effort to get him freed on bail.

The document shows the Madoffs owned four real estate properties worth $22 million and had $17 million in cash and a $7 million yacht, among other assets.

Bernard Madoff

Madoff's Confession Points Up SEC Failure

Zachary Roth | March 13, 2009, 11:26AM

It's fair to say that the incompetence and fecklessness of the SEC in failing to catch Bernie Madoff's $50 billion Ponzi scheme (merely "alleged" no more!) has already been pretty well established -- by this guy, among others.

But if anything, Madoff's courtroom confession delivered yesterday only makes the extent of the SEC's screwup even more startlingly clear.

Here's what Madoff said:

To conceal my fraud, I misrepresented to clients, employees and others, that I purchased securities for clients in overseas markets. Indeed, when the United States Securities and Exchange Commission asked me to testify as part of an investigation they were conducting about my investment advisory business, I knowingly gave false testimony under oath to the staff of the SEC on May 19, 2006 that I executed trades of common stock on behalf of my investment advisory clients and that I purchased and sold the equities that were part of my investment strategy in European markets. In that session with the SEC, which took place here in Manhattan, New York, I also knowingly gave false testimony under oath that I had executed options contracts on behalf of my investment advisory clients and that my firm had custody of the assets managed on behalf of my investment advisory clients.

And here's how the SEC -- in a memo that recommended closing that inquiry, having found only minor violations -- what appears to be that same piece of testimony:

[I]n the course of a preliminary inquiry into [Markopolos' allegations that Madoff's hedge fund profits were the result of fraud], the staff learned that during a recent examination of BLM by NERO's broker-dealer examination staff, Bernard Madoff, the sole owner of BLM, did not fully disclose to the examination staff either the nature of the trading conducted in the hedge fund accounts or the number of such accounts at BLM.

But of course, it wasn't that he didn't fully disclose the trading information. It's that he wasn't even making any trades, and had directed his staff to create false tickets to fool investors. Presumably, that deception could have been detected had the SEC simply bothered to try to match up those trade with the supposed counter-parties -- who didn't exist.

The SEC had another chance to catch that scheme when Madoff filed reports with the agency that year. Madoff said yesterday:

Another way that I concealed my fraud was through the filing of false and misleading certified audit reports and financial statements with the SEC. I knew that these audit reports and financial statements were false and that they would also be sent to clients. These reports, which were prepared here in the Southern District of New York, among things, falsely reflected my firm's liabilities as a result of my intentional failure to purchase securities on behalf of my advisory clients.

"Were there sufficient red flags for SEC to have caught this?" asked Ross Albert, a former SEC senior special counsel, asked in an interview with TPMmuckraker last December. "Absolutely, without a doubt."

Since then, that conclusion has become only more indisputable. And the case for those additional SEC funds has grown only stronger.

Bernard Madoff

Madoff's Statement

Zachary Roth | March 12, 2009, 4:14PM

Here's the full text of Bernad Madoff's statement made in court this morning, in which he admitted his crimes and described them in detail.

Madoff pleaded guilty to all 11 counts on which he was charged, in connection to a multi-billion dollar financial fraud.

Bernard Madoff

Madoff: "I Am Deeply Sorry And Ashamed"

Zachary Roth | March 12, 2009, 10:53AM

The moment that many of Bernard Madoff's victims have been waiting for has arrived: He has publicly described his crimes.

At the court proceeding this morning at which he pleaded guilty, Madoff declared: "I cannot adequately express how sorry I am for what I have done."

CNBC describes the scene:

As the proceeding began, Madoff asked if he could have some water.

Judge Denny Chin swore Madoff in and asked him for his plea. After Madoff said he was pleading guilty, Chin explained that he would ask a series of questions before deciding whether to accept the plea.

"Mr. Madoff, you can be seated; pour yourself some water," Chin told him.

Chin went on to ask Madoff, "Do you understand parole has been abolished?" Madoff said, "Yes." Chin is due to sentence Madoff at a later date.

In his plea, Madoff made these statements:

"Your honor for many years ... I operated a ponzi scheme."

"I am grateful for this opportunity to speak" and explain that "I am deeply sorry and ashamed."

"I cannot adequately express how sorry I am for what I have done."

Madoff went on to say, "The victims of my schemes included individuals, charities, pension funds and hedge funds."

Madoff made a distinction between his investment business which was the fraud and the other businesses which he said were legit. "The other businesses were legitimate, profitable ...in all respects and those businesses were run by my brother and my sons," said Madoff.

Bernard Madoff

Madoff Pleading Guilty This Morning, But Not Playing Ball On Conspiracy

Zachary Roth | March 12, 2009, 9:13AM

The Bernard Madoff probe could be expanding, as we told you yesterday. But it doesn't look like prosecutors are getting any help from the man himself.

Bloomberg reports that Madoff, who will plead guilty in a Manhattan federal courthouse today, has not agreed to a plea deal, because prosecutors were demanding he admit to a conspiracy, meaning admitting he worked with others.

Madoff, 70, will plead guilty to all 11 counts he faces, and could receive up to 150 years in jail.

Prosecutors have not at this point alleged a conspiracy, in which two or more people agree to commit an illegal act, nor have they charged anyone except Madoff. But according to Bloomberg's sources, they have said Madoff didn't act alone. And in court documents, they alleged he told employees to create false account documents and trade confirmations, and to create false financial statements to fool regulators.

The Daily Beast reported Tuesday evening that the investigation had widened to include co-conspirators, but it remain unclear exactly what that means, or what evidence prosecutors have compiled.

Bernard Madoff

Is Madoff Probe Expanding?

Zachary Roth | March 11, 2009, 2:22PM

Bernard Madoff is set this week to plead guilty to orchestrating a massive Ponzi scheme. But could we be in line for more guilty pleas before this is all over?

The Daily Beast reports:

[T]he [Madoff] investigation ... has broadened to include a number of suspected co-conspirators, according to federal officials involved in the case.

The Daily Beast story -- written by Lucinda Franks, whose byline identifies her as a Pulitzer-Prize winning journalist who was formerly on the staff of the New York Times -- also reports that, according to sources, "several members of Madoff's inner circle transferred assets to their wives, transactions thought to be laundered through an English bank."

There are said to be three groups of possible co-conspirators, who could potentially be charged either criminally by the Justice Department, or civilly by the SEC.

In the first group are employees of Madoff's firm who concocted false trades and sent out phony statements to thousands of unsuspecting clients.

The second group is comprised of principals in feeder funds such as Cohmad Securities Corp. and Fairfield Greenwich Group, which funneled investor dollars to Madoff and received large fees for steering this business. If they were aware of Madoff's fraud, they could face criminal charges; if they were not, they could be hit with civil charges for a lack of due diligence.

The third group is the target of an investigation that's still in its early stages into money laundering through British banks, in which US and British authorities are cooperating. This group consists of solicitors, accountants, and others in London who may have assisted Madoff in transferring funds from client accounts to a Madoff entity that lists Ruth Madoff, brother Peter Madoff, and sons Mark and Andrew Madoff among its board members.

It's not clear from any of this that any specific members of Madoff's family, or his inner circle, are in immediate legal jeopardy.

But the Wall Street Journal appears to be thinking along similar lines (sub req). It notes:

Prosecutors alleged Tuesday that Mr. Madoff hired numerous employees with "little or no prior pertinent training or experience in the securities industry" and caused them to "communicate with clients and generate false and fraudulent documents."

Its report doesn't go as far as the Daily Beast's. The Journal says it's still unclear whether prosecutors believe these people knew they were involved in a fraudulent scheme, and doesn't explicitly say that the investigation has broadened beyond Madoff himself.

But it's noticeable that the paper does take the time to lay out what's known about the possible involvement in the scheme of five of Madoff's relatives and associates -- including his wife Ruth, who has hired her own lawyer, and his brother Peter, who was the chief compliance officer for Madoff's firm.

With Madoff's guilty plea soon to be safely in the bag, are these reports an indication of where prosecutors are going next?

Allen Stanford

For Stanford, A Long Trail Of Run-Ins With Authorities

Zachary Roth | February 23, 2009, 12:13PM

Relatively few Americans had heard of Allen Stanford until the last week or so. But it turns out that, over the last decade, the Texas billionaire had attracted the scrutiny of a range of government authorities, and been the subject of several civil suits -- so much so that it's hard to believe it took until last week for him to be formally charged.

Let's recap what we know about the various inquiries, investigations, and lawsuits focused on Stanford's sprawling financial empire over the last decade:

Circa 1998

- Stanford writes in a letter to the US ambassador to Antigua that he has been investigated by numerous agencies over the years, and none had found evidence of wrongdoing.

1999

- After Stanford finds that a former Mexican drug lord had used his bank to hide or launder money, he voluntarily makes out a cashier's check worth $3.1 million, and gives it to the Drug Enforcement Agency.

- The Treasury Department places Antigua -- where Stanford's business is based, and with whose government he is cozy -- on its money-laundering watch list.

Circa 1999

- Texas securities regulators find evidence of potential money laundering involving Stanford. They refer it to the FBI and the SEC, because it involves offshore banks. Texas securities commissioner Denise Voigt Crawford later tells the state legislative committee: "Why it took 10 years for the feds to move on it, I cannot answer." She added: "We worked with the FBI and the SEC and basically gave them the case. We told them what we'd seen and they were going to run with it."

2005

- A lawsuit filed in Florida accuses Stanford of aiding a Ponzi scheme.

2006

- The SEC's Fort Worth office opens an investigation into Stanford's business, but is asked by another agency to "stand down," and complies. (Rep. Dennis Kucinich, who chairs the House Domestic Policy subcommittee, asked late last week that the agency turn over documents related to that sequence of events.)

2006

- A second Florida lawsuit, this one filed by a former employee, accused Stanford of being involved in a Ponzi scheme.

2007

- Two former employees sue Stanford, alleging fraud.

- The SEC finds, during a routine exam, that Stanford's Houston-based broker-dealer operation is violating net capital requirements. The firm pays a $20,000 fine.

- Stanford Financial pays a $10,000 fine to FINRA in response to allegations that it gave out "misleading, unfair and unbalanced information" about its certificates of deposit.

2008

- Stanford Financial pays a $30,000 fine to FINRA in response to allegations that it didn't adequately disclose in its research reports its method for valuing certain securities, among other information.

- FBI opens an investigation into whether Stanford laundered drug money for Mexico's violent Gulf Cartel. Mexican authorities detained one of Stanford's private planes after officials found checks inside believed to be connected to the cartel. (The DEA also at some point probed Stanford for laundering drug money.)

- That inquiry into Stanford by the SEC's Fort Worth office is reopened, in the wake of widespread criticism of the agency for failing to catch Bernard Madoff's alleged $50 billion Ponzi scheme, and for de-emphasizing enforcement in recent years.

2009

- SEC files charges against Stanford, alleging "massive ongoing fraud."

As we reported last week, there's strong reason to believe that the SEC should have pushed harder on Stanford sooner. The long history of inquiries that failed to uncover Stanford's alleged $8 billion fraud only strengthens that notion.

Allen Stanford

SEC Vet: Agency Should Have Looked Closer At Stanford

Zachary Roth | February 19, 2009, 4:50PM

Did the SEC fall down on the job by not paying closer attention to Allen Stanford, the billionaire Texas banker accused of orchestrating an $8 billion fraud? One former long-time enforcement director for the agency thinks it may well have.

Robert Fusfeld, who spent 31 years as an SEC enforcement lawyer, and for 15 managed the trial unit in the commission's Denver office before retiring in 2006, told TPMmuckraker that there was plenty of reason for the SEC to aggressively scrutinize Stanford's operation.

"A registered broker dealer and registered investment adviser is selling offshore Caribbean CDs in mammoth volumes, and nobody's looking at the bonafides of the bank," he said.

The New York Times reported today that the Stanford Group paid several fines over the last few years after regulators found that it did not have enough capital to meet the requirements of being a broker-dealer and used misleading sales literature. "There were numerous very significant red flags that included a history of violations," said Fusfeld.

The case, he said, contained the "same kind of red flags as Madoff" -- like consistently high returns -- but with the added red flag of the Antiguan CDs. "It's not Germany, France, or England," he continued, noting the history of "flagrant offshore CD frauds" over the last 10-15 years.

Because Stanford was a registered broker dealer and investment adviser, the SEC had full access to its operation, Fusfeld added. "They can walk right in."

The SEC was publicly flogged earlier this month for its failure to catch Bernard Madoff's alleged $50 billion Ponzi scheme. Since then, its appears to have been making a special effort to show it's capable of acting aggressively -- a concern which may have affected the timing of the Stanford complaint filed Tuesday.

It would certainly be ironic if, in this case too, it was found to have fallen down on the job.

Allen Stanford

Six Degrees Of Allen Stanford

Zachary Roth | February 18, 2009, 2:24PM

Here at TPMmuckraker, the more we think about the Allen Stanford saga, the more it seems like a kind of harmonic convergence of recent high-profile muck.

The emerging story's range of ties -- some incidental, some more substantive -- to some other high-profile scandals of the past few years, from Bermard Madoff to Jack Abramoff to Rod Blagojevich -- is pretty striking.

First, Madoff.

It's not just that questions about the pace of the SEC's Stanford investigation -- including whether the agency's decision to bring charges yesterday was prompted in part by recent news reports -- have to be considered in light of the SEC's well-documented missteps on the Madoff case.

It's also that, according to the SEC complaint, Stanford's investors were exposed to losses via Madoff -- but falsely assured them they weren't.

From the complaint:

In a December 2008 Monthly Report, the bank told investors that their money was safe because SID "had no direct or indirect exposure to any of [Bernard] Madoffs investments."

But, contrary to this statement, at least $400,000 in Tier 2 was invested in Meridian, a New York-based hedge fund that used Tremont Partners as its asset manager. Tremont invested approximately 6-8% of the SIB assets they indirectly managed with Madoffs investment firm.

Pendergest, Davis and Stanford knew about this exposure to loss relating to the Meridian investment. On December 15, 2008, an Analyst informed Pendergast, Davis and Stanford in a weekly report that his "rough estimate is a loss of $400k ... based on the indirect exposure" to Madoff'.

As for Abramoff, we reported yesterday that a bevvy lawmakers with ties to the crooked lobbyist or a history of other ethical problems - including then-GOP members of Congress Bob Ney, Katherine Harris, Tom Feeney, and John Sweeney, as well as current Rep. Charlie Rangel -- went on a 2005 junket to Antigua that was funded by an organization with close links to Stanford.

Indeed, until yesterday, that organization, the Inter-American Economic Council, had photographs from the trip -- showing Harris, Feeney, and pals hobnobbing in splendor with Antiguan dignitaries -- posted on its website. It's since removed them, but not before we saved them. You can see the slideshow here.

And there's also another congressional angle which, though not on a par with the Abramoff sleaze, nonetheless appears to reflect the cynical money-for-access culture that has characterized Washington politics in recent years:

In 2002, as we reported yesterday, after lobbying from Stanford's firm, the Democratic-controlled Senate killed a bill designed to bolster efforts to catch financial fraud. During that cycle, Stanford's company had given an eye-popping $800,000 to the Democratic Senatorial Campaign Committee. And according to campaign finance records examined by TPMmuckraker, it had also given generously to key Democrats on the Senate Banking committee: $8000 to Chuck Schumer, $6000 to Chris Dodd, and $1000 to then-chair Paul Sarbanes.

So there's that.

What about Blago?

Well, it turns out that, according to lobby disclosure reports examined by TPMmuckraker, one of Stanford's paid lobbyists in 2002 -- the year that the firm was lobbying on the anti-financial-fraud bill -- was John Wyma. One form lists Wyma and his team's work as "Helping them address legislature (sic) which involves financial services companies."

In case you'd forgotten, Wyma used to be one of Blagojevich's closest aides, before cooperating with Pat Fitzgerald's investigation by secretly recording conversations with the then governor.

The two were apparently think as thieves at one time. The Chicago Tribune reported at the time of Blago's arrest:

The governor routinely reported exchanging personal gifts and often appeared at Wyma-sponsored fundraisers where Wyma's clients hobnobbed with the governor before turning over checks for his campaign fund.

Now all we need is a link to the U.S. Attorney firings, and we'll be all set.

Bernard Madoff

Report: Mrs. Madoff Withdrew $15 Million Days Before Bernie's Arrest

Zachary Roth | February 11, 2009, 12:07PM

Reuters reports:

Massachusetts' top securities regulator said on Wednesday that the wife of accused financial swindler Bernard Madoff took out roughly $15 million from an account managed by Cohmad Securities days before her husband was arrested and charged with securities fraud.

More as we get it...

Late Update: The Wall Street Journal has more. The information about Ruth Madoff comes from a complaint filed by the office of Massachusetts Secretary of State William Galvin, which is probing the role of Cohmad Securities, a company co-owned by Bernie Madoff.

The complaint says Ruth Madoff withdrew the money from Cohmad.

Reports the Journal:

The complaint seeks to revoke the registration of Cohmad, a New York-based firm that has an office in Boston. The complaint says Cohmad has refused to provide information regarding its activities in Massachusetts, its relationship with Bernard L. Madoff Investment Securities and "Cohmad's apparent role in the transfer of moneys from Madoff Investments to Cohmad personnel."

Bernard Madoff

Thomsen Out At SEC, As New Chair Fills Out Team

Zachary Roth | February 9, 2009, 2:11PM

The changes at the SEC continuing apace.

Days after the agency was excoriated by whistleblower Harry Markopolos, and by lawmakers, for failing to catch Bernie Madoff's alleged $50 billion Ponzi scheme, CNBC reports that enforcement director Linda Thomsen -- whose department came in for perhaps the most criticism over Madoff, will likely announce her departure today.

And several outlets have reported, starting over the weekend, that Thomsen's replacement will be Robert Khuzami, a former federal prosecutor who's now Deutsche Bank's top lawyer.

During Thomsen's tenure, the SEC has, by many accounts, devoted fewer resources to enforcement, and made it more difficult for investigators to obtain subpoenas -- changes led in large part by former chair Chris Cox.

As for Khuzami, he's a Republican who spoke at the 2004 GOP Convention in support of the Patriot Act and President Bush's policies in the war on terror. But as a prosecutor, he successfully oversaw some high-profile cases. He was part of the team that got convictions of a blind Egyptian cleric and nine others for a failed plot to blow up New York City landmarks. And, crucially, he led the team that won a conviction on the largest previous known Ponzi scheme, in which Patrick Bennett bilked investors out of $700 million. In 1997, the Clinton Justice Department gave Khuzami its highest citation, the Attorney General's Award for Exceptional Service.

In addition, on Friday the new SEC chair, Mary Schapiro, named David Becker, a partner at Cleary Gottlieb, as the agency's top lawyer. Becker held the same position from 2000 to 2002.

So the names on the doors of senior officials are certainly changing. Whether that improves the agency's regulatory performance, of course, remains to be seen. But the old crew was hardly inspiring confidence.

Bernard Madoff

Was SECer Now Running Madoff Case Involved in Failed Earlier Inquiry?

Zachary Roth | February 5, 2009, 4:36PM

The SEC is deep in the midst of beating itself up over its failure over many years to catch Bernard Madoff's alleged $50 billion Ponzi scheme. Just yesterday, agency chair Mary Schapiro told Congress in a letter that "there needs to be a full accounting, both of Mr. Madoff's activities and why we did not detect the fraud, which we regret."

But is it in danger of making the same mistakes the second time around as the first?

The SEC's civil case against Madoff, hurriedly filed in December 2008 after Madoff allegedly confessed to his lawyer, is being conducted out of the agency's New York regional office, where Madoff's business was based. But it was the New York office that conducted the 2006 inquiry into Madoff that famously came up dry. That inquiry, which found only a few technical violations and recommended that Madoff register as an investment adviser, is now itself one focus of the investigation by the SEC's inspector general into how the agency failed to catch Madoff.

According to one former SEC enforcement veteran, in other cases where the agency opened a second investigation after a regional office was found to have slipped up the first time around, the second probe has sometimes been run out of the Washington headquarters, to ensure that it retains public confidence. That wasn't done here.

Asked about the matter by TPMmuckraker, an SEC spokesman declined to comment.

But there may be even less distance between the two Madoff investigations.

The current case is being led by Andrew Calamari, the Associate Regional Director for the New York office, who last month publicly called the Madoff case "a stunning fraud that appears to be of epic proportions." Calamari's name is listed prominently on the agency's civil complaint.

But Calamari appears tied to the ill-fated 2006 effort. Doria Bachenheimer, an Assistant Regional Director in the New York office "reviewed and approved" the decision to close that inquiry, according to a "Case Closing Recommendation" document obtained by the Wall Street Journal.

And an organizational chart produced by the agency in 2006, and obtained by TPMmuckraker, indicates that Calamari is Bachenheimer's supervisor. That reading of the chart was confirmed to TPMmucraker by the ex-SECer.

It's not clear that Calamari played any active role in the failed 2006 inquiry. But at the very least, the fact that he supervised the staffer who wrongly approved closing it -- and the fact that there's no evidence he raised red flags about her work -- might suggest he's not the ideal person to handle the followup, especially given the high public profile the case has taken on.

Calamari referred an inquiry from TPMmuckraker to the SEC's press office, which again declined to comment.

Securities and Exchange Commission

SEC Chair To Lawmaker: Madoff Hearing "Cannot Have Been Satisfactory For You"

Zachary Roth | February 5, 2009, 12:50PM

Remember that weird moment during yesterday's Madoff hearings, when the SEC's top lawyer, Andy Vollmer, declined to answer questions, and kinda sorta implied he was asserting executive privilege, before backing off that claim when pressed by lawmakers? The moment that provoked Rep. Gary Ackerman's blunt assessment: "We thought the enemy was Mr. Madoff. I think it's you"?

One staffer described the Vollmer moment to TPMmuckraker as a "bombshell" within the agency's headquarters.

And it looks like the SEC is a little embarrassed about it -- and about the general evasiveness of other agency brass in their testimony yesterday.

Check out this letter, which the SEC's new chair, Mary Schapiro, sent to the committee last night.

Schapiro tells lawmakers that the hearing "cannot have been satisfactory for you." She admits that there needs to be a full accounting of what went wrong, and offers to meet with the lawmakers, at their earliest convenience, to "determine a course forward that will meet all of our interests."

As for the Vollmer issue itself, an agency spokesman confirmed that he wasn't claiming the privilege, but couldn't offer any further explanation, saying he'd get back to us.

Bernard Madoff

Top SECer Recused Herself From Madoff Probe, After Going To His Niece's Wedding

Zachary Roth | February 4, 2009, 2:36PM

Another interesting moment from the House committee hearings on the Bernard Madoff case.

Lori Richards, the director of the agency's Office of Compliance, Inspections, and Examinations, told the committee she recused herself from the Madoff probe because a former employee she supervised had married Madoff's niece, and Richards was at the wedding.

She was referring to Eric Swanson, an SEC lawyer who married Shana Madoff in 2006. Shana Madoff had worked for her uncle's firm as a compliance lawyer.

The admission that Richards -- the top SEC official overseeing examinations of brokers -- recused herself, points up the way in which Madoff's cozy ties to regulators helped his scheme go undetected.

Bernard Madoff

Markopolos To Mobsters: "I'm the Good Guy Here."

Zachary Roth | February 4, 2009, 1:03PM

Harry Markopolos, the Bernard Madoff whistleblower, ended his testimony about an hour ago. But before he did, he fleshed out his thoughts about Madoff's ties to organized crime.

In a remarkable moment, Markopolos even addressed the mobsters directly, arguing -- in an apparent effort to convince them not to go after him -- that he was protecting them Madoff's scheme.

Here's the exchange with Rep. Gary Ackerman:

ACKERMAN: I'm talking about, when you talk about the Russian mob and organized crime, these are people who invested through European investors or European feeder funds?

MARKOPOLOS: Correct. And I didn't fear of them, and I didn't think they were going to come after me, I want to make this perfectly clear to all those Russian mobsters and Latin American drug cartels out there...

ACKERMAN: You're talking directly to them.

MARKOPOLOS: I was acting on your behalf trying to stop him from zeroing out your accounts. I'm the good guy here. Just like to make that clear.

ACKERMAN: Uh, yeah I think we registered that.

Here's the video:

Bernard Madoff

Markopolos: SEC Couldn't Find First Base In Fenway Park

Zachary Roth | February 4, 2009, 12:16PM

Throughout his testimony, Harry Markopolos seemed to be refining his effort to express, in one crisp sound byte, his low opinion of the SEC's investigative powers.

And right at the end, he seemed to hit on it. He told the committee (the exact wording may be a little off here, we're going from memory):

If you flew the entire SEC staff to Boston, and sat them in Fenway Park, they wouldn't be able to find first base.

Might be hard to top that.

Bernard Madoff

Markopolos: SEC Has Just One Bloomberg Terminal Per Office

Zachary Roth | February 4, 2009, 11:58AM

A stunning claim just made by whistleblower Harry Markpolos helps further explain how the SEC failed to catch Madoff.

Referring to Bloomberg computer terminals, Markopolos said that the agency "might have one per regional office."

Bloomberg's terminals sit on the desk of almost every trader on Wall Street, providing a steady stream of live market data. It would be extremely difficult to detect sophisticated financial fraud without this basic tool of modern trading.

We've contacted current and former SEC sources to ask whether Markopolos' claim is accurate, and we'll keep you posted.

Late Update:
Reader FH writes in to say that Bloomberg terminals aren't useful for detecting fraud:

I'm a quant at a hedge fund, and have a bloomberg terminal that I share with a colleague.

You detect fraud by runnnig statistical tests on data, or I suppose by forensic accounting (which I don't know anything about). Not by watching live scrolling news feeds or flickering prices on a terminal.

I would say you should take as your model the 1994 paper by Bill Christie and Paul Schultz that detected implicit nasdaq market maker collusion as how enforcement research is going to be done.

In my view, it does not help his credibility if Markopolos is talking about the paucity of Bloomberg terminals at SEC offices.

Late Late Update:

Robert Fusfeld, who retired in 2006 as a senior enforcement lawyer in the SEC's Denver office, confirms to TPMmuckraker that when he left, that office had only one terminal.

Bailout

Markopolos: Madoff's Mob Ties Made Me Fear For My Life

Zachary Roth | February 4, 2009, 11:45AM

For a while now, there have been suggestions that Bernard Madoff had ties to organized crime. And Harry Markopolos just told Congress that those alleged connections made him fear for his life as a whistleblower working to expose Madoff's scheme.

When a committee member referred to Markopolos' "paranoia" about his safety, he responded by referring to Madoff's "dirty money."

Here's the full quote:

I don't consider it paranoia. And the reason is, Mr. Madoff was running such a large scheme of unimaginable size and complexity, and he had a lot of dirty money. And let me describe dirty money to you. When you're that big and you're that secrective, you're going to attract a lot of organized crime money, and which we now know came from the Russian mob and the Latin American drug cartel, and when you are zeroing out mobsters, you have a lot to fear. And he could not afford to get caught, because once he was caught. And if he would've known my name and knew he had a team tracking him, I didn't think I was long for this world.

Bernard Madoff

Congresswoman To Markopolos: You're A "Modern-Day Greek Hero"

Zachary Roth | February 4, 2009, 11:31AM

The open worship of whistleblower Harry Markopolos by members of the House committee, which had already emerged at times this morning, has reached its apotheosis.

Rep. Jackie Speier just told him:

I would like to say for the record that I see you as a modern-day Greek hero.

Bernard Madoff

Markopolos Wanted To Go Under Cover, Wear A Disguise, To Catch Madoff

Zachary Roth | February 4, 2009, 11:23AM

Harry Markopolos, the whistle-blower on the Berrnard Madoff case, just offered a remarkable cloak-and-dagger tidbit in his testimony before a House committee, demonstrating his commitment to bringing Madoff to justice.

He said he offered to go under cover, "as I was trained to in the army," -- and wearing a disguise -- in order to catch Madoff.

Here's the full quote:

In fact, I made an offer to the SEC in my October 2001 submission, if you look closely, you'll see, I offered to go undercover for the SEC, under their command and control, and have no one know where I was, except my wife, and have no contact with my family, during this time. And I would have assumed a disguise, as I was trained to in the army, and gone under cover and led that team to a successful result very quickly. I don't know what more I could do to put it on the line.

We don't either. Though the wife exception makes it seem like maybe he wasn't really committed enough.

Late Update:
And here's the video:

Bernard Madoff

Markopolos Plans To Turn In A Mini-Madoff Tomorrow

Zachary Roth | February 4, 2009, 10:48AM

Harry Markopolos just warned that he's got another alleged fraudster in his sights.

"I plan to turn in a $1 billion mini-Madoff to the SEC's inspector general tomorrow," he said.

That may have put a scare into some on Wall Street.

Bernard Madoff

Markopolos: SEC Was "Captive Regulator"

Zachary Roth | February 4, 2009, 10:39AM

Markopolos identifies another problem with the SEC:

"They were a captive regulator. Mr. Madoff was too big," he just told Congress. "They looked at Madoff and said: 'he's a big firm, we dont attack big firms.'"

Bernard Madoff

Markopolos: SEC "Had No Idea How To Do The Math"

Zachary Roth | February 4, 2009, 10:34AM

Markopolos just put his finger on perhaps the key problem in the SEC's failure to catch Madoff:

"We need a highly trained finance team that is highly incentivized to look for frauds. Derivatives are too complicated otherwise," he said. "They had no idea how to do the math."

In other words, today's sophisticated Wall Street deals are simply too complex for the SEC's enforcement staff, as currently composed, to properly understand.

The only way to fix the problem, it appears, is to hire staff with more expertise.