Posted by Steve Markowitz on November 14, 2011
The Wall Street Journal published what was previously withheld information about penalties handed out by the Security and Exchange Commission (SEC) for employees who ignored signals of the Bernie Madoff scandal. That Ponzi scheme, which collapsed in 2008, involved $50 billion of investors’ money with billions being lost. Considering the scope of Madoff’s rip-off and the SEC’s weak response to its incompetent employees, it is not difficult to understand why they delayed release of the disciplinary actions.
An 2009 internal SEC audit determined that the Agency had received six warnings about Madoff and his business practices over a 16-year period, but took no action. It also raised concerns about the actions of 21 SEC employees who ignored signs of the scheme that resulted in the losses. However, that audit’s report was not enough for this agency charged with protecting investors. The SEC then engaged an outside law firm, Fortney & Scott, to suggest disciplinary actions for the 21 employees. Before the studies were complete, about a dozen of the problematic employees left the SEC before being disciplined. Eight were received relatively light discipline as follows:
- The one employee that Fortney & Scott recommended be fired instead was merely suspended for 30 days without pay and was demoted.
- Another employee received a 30-day suspension, but without a demotion.
- One person received a 5.7% pay-cut.
- A few employees received seven-day suspensions.
- Two employees were given “counseling memos.”
It is unacceptable given the warnings ignored by the SEC over a 16 year period that led to a $50 billion Ponzi scheme that a total of only eight SEC employees were given these meager disciplinary actions. Not one employee went to jail war was even fired.
The lack of accountability of government agencies and employees for incompetent and/or illegal actions is one reason governments are so dysfunctional. We do not have to go back long in history to remember the Enron and Arthur Anderson scandal that resulted in the Sarbanes-Oxley Act (SOX). This legislation created huge expenses for businesses and consumers, but did little to protect the investors. Not only was Bernie Madoff able to perpetrate his fraud on so many investors after SOX, but the largest banks required taxpayer bailouts in 2008 because of off-balance-sheet transactions, the same issue that brought down Enron and led to SOX.
Government regulations have proven to be ineffective in protecting investors from those that would defraud them. However, that does not stop Progressives from offering the same failed solutions. The only people who benefit from increased government regulations are employees of the bloated and/or new bureaucratic agencies charged with enforcing them.
In addition, there is an incestuous relationship between regulators and the businesses they are supposed to be regulating. All too often bureaucrats who worked in these agencies retire from government only to join the businesses they were previously charged with regulating, or vice versa. These incestuous relationship that set the stage for SEC’s weak response to its incompetent employees. Similar relationships explain why Bernie Madoff is one of the few Wall Streeter’s that ripped off investors who is currently doing time.
Posted in Bernie Madoff, SEC | Tagged: Arthur Anderson, Bernie Madoff, Enron, Fortney & Scott, Ponzi, Sarbanes-Oxley, SEC, Securities & Exchange Commission | Leave a Comment »
Posted by Steve Markowitz on February 23, 2011
Bernard Madoff recently gave his first interview since being arrested in late 2008. He continued to maintain that his family was unaware of his crimes. Madoff also intimated that certain banks and hedge funds were “complicit” in his fraud, claiming that they acted with “willful blindness” and “had to know, but the attitude was sort of, ‘If you’re doing something wrong, we don’t want to know.’”
Given Madoff’s stature as a professional liar who committed a fraud in excess of $20 billion, any of his claims must be suspect. With the extent of his fraud it is hard to buy that Madoff’s family wasn’t at least as guilty as the bankers who he accuses of “willful blindness”. However, it is easier to believe that the large banks and hedge funds did at least turn blind eye to his fraud. It is surprising that no major bank or hedge fund has ever been charged by federal prosecutors in the Madoff matter. Makes one wonder who’s protecting who?
Posted in Banks, Bernie Madoff | Tagged: Banks, Bernie Madoff, Fraud | Leave a Comment »
Posted by Steve Markowitz on February 7, 2011
On February 3 we posted a piece titled: “Lawsuit Alleges JPMorgan Complicit in Madoff Scheme” that reviewed charges filed by Irving Picard, the bankruptcy trustee attempting to recover money for Madoff victims. The Trustee believes that J.P. Morgan’s played role in the Madoff Ponzi scheme.
More recently Trustee Picard is asking the courts to have two owners of the New York Mets, large beneficiaries of Madoff’s fraud, to repay $300 million in profits and $700 million in principle for redistribution amongst Madoff victims. According to the Picard, the Mets owners should have known that Madoff was running a fraudulent scheme and therefore should not have rights to these funds.
The Madoff Ponzi scheme, like much of the questionable Wall Street practices that led to the financial meltdown did not happen by accident or in a vacuum. Many in government and within the large banks knew or should have known about the questionable practices occurring throughout the financial industry. Given that only Madoff made it to jail seems to indicate that justice has turned a blind eye on the real culprits.
The government justified its decision to bail out the very institutions that caused the meltdown by claiming that had they not, more significant economic havoc would have occurred. That claim will never proven or disproven. This Blog believes that the government also used the bailouts to lessen the likelihood that its complicity in creating the meltdown would be focused on by the People.
Posted in Bernie Madoff | Tagged: Bernie Madoff, J. P. Morgan, Mets, New York Mets, Ponzi, Trustee | Leave a Comment »
Posted by Steve Markowitz on February 3, 2011
A suit filed on December 2 2010, but just unsealed, alleges that the large bank, J.P. Morgan, had misgivings about Bernie Madoff’s activities, but continued doing business with him. The suit was filed by the bankruptcy trustee, Irving H. Picard, who is responsible for gathering assets for victims of Madoff’s Ponzi scheme. According to the Trustee’s attorney, David J. Sheehan, Madoff “would not have been able to commit this massive Ponzi scheme without this bank”.
The $6.4 billion lawsuit seeks the return of $1 billion in J.P. Morgan’s profits and fees, as well as $5.4 billion in damages. According to the complaint, the bank offered products tied to Madoff through investment funds that fed money to him even after J.P. Morgan had concerns about Madoff’s activities. The suit alleges that J.P. Morgan told the regulators of their Madoff concerns based on the “investment performance achieved by its funds which is so consistently and significantly ahead of its peers, year-on-year, even in the prevailing market conditions, as to appear too good to be true—meaning that it probably is.”
On a nearly daily basis, information is made public about the immoral behavior of the large banks. There is no justification for bailing out these institutions that brought on the financial crisis the first place. But that is past history. These banks that were too big to fail before the crisis, are only bigger today given the demise of some of their comrade banks. The government should use the Anti-Trust laws to insure that they are not too big to fail next time.
Posted in Banks, Bernie Madoff | Tagged: Anti-Trust Laws, Bankruptcy, Bernie Madoff, David J. Sheehan, Irving H. Picard, J. P. Morgan, Ponzi, Suit, Trustee | Leave a Comment »