Next month, Frontline is running a report about Bernard Madoff on a PBS station near you. The episode premiers the week of May 12.
“Bernard Madoff’s success as a broker made the competition wonder how the man could produce such steady returns in good times and bad. The SEC investigated several times over the last two decades, but Madoff remained untouched until last December when he admitted it was all “one big lie.” Frontline producers Martin Smith and Marcela Gaviria unravel the story behind the world’s first truly global Ponzi scheme – a deception that lasted longer, reached wider and cut deeper than any other business scandal in history.”
They are in the 2009 edition of Topps’ Allen & Ginter series of Trading Cards.
The set will consist of 350 cards: 230 baseball players, 30 rookies, 25 historic figures and 15 world champions. It also will include 50 short-printed cards. Among the unusual inclusions to the basic set are Old Faithful (the Yellowstone geyser), Brigham Young, Loch Ness Monster, Vincent Van Gogh, General George Custer, Olympic swimmer Michael Phelps.
Also, there will be a “world’s biggest hoaxes, hoodwinks and bamboozles” set that will include Charles Ponzi, The Runaway Bride, Enron, Cold Fusion, Bernie Madoff and The War of the Worlds.
(I believe A-Rod is part of the baseball players collection.)
In the last six and half years the Securities and Exchange Commission has reached settlements with over 300 defendants in cases related to alleged Ponzi schemes. NERA Consulting has been tracking these SEC settlements since the Sarbanes-Oxley Act was enacted in July 2002.
Based on the settlement amounts shown in this report, things don’t look good for the Madoff investors. The settlement amounts are small, averaging less than 10% of the fraud size. Most of the total settlement amount is tied to the Private Capital Management, Inc. case where $112 million of the $145 was recovered.
Yesterday, Madoff’s auditor was arrested for falsely stating that the firm had audited the financial statements. No surprise that such a small firm could be auditing a supposedly large investment company like Madoff Investments.
Just in time, the AICPA (that’s the American Institute of Certified Public Accountants) has expelled Friehling from its membership following an ethics investigation.
“Although Mr. Friehling is not charged with knowledge of the Madoff Ponzi scheme, he is charged with deceiving investors by falsely certifying that he audited the financial statements of Mr. Madoff’s business,” said acting U.S. Attorney Lev Dassin.
Like his client, Mr. Madoff, Mr. Friehling was released on bail. He apparently post a $2.5 million bail bond and walked free, for now.
With Madoff in jail, it is time for the rest of his crew of fraudsters to join him. Next up….
David G. Friehling, the sole practitioner at Friehling & Horowitz, CPAs, PC, has been charged with securities fraud, aiding and abetting investment adviser fraud and four counts of filing false audit reports with the Securities and Exchange Commission. The complaint alleges that Friehling enabled Madoff’s Ponzi scheme by falsely stating that the firm had audited the financial statements. Friehling & Horowitz also made representations that Friehling reviewed internal controls, including controls over the custody of assets, and found no material inadequacies. The complaint alleges that all of these statements were materially false because Friehling did not perform a meaningful audit. The SEC alleges that (1) Friehling merely pretended to conduct minimal audit procedures to make it seem like he was conducting an audit, (2) he failed to document his findings and conclusions, and (3) if properly stated, those financial statements would have shown that Madoff owed tens of billions of dollars in additional liabilities to its customers.
“Although Mr. Friehling is not charged with knowledge of the Madoff Ponzi scheme, he is charged with deceiving investors by falsely certifying that he audited the financial statements of Mr. Madoff’s business,” said acting U.S. Attorney Lev Dassin.
If you are wondering about the Horowitz half of Friehling & Horowitz, he was apparently the Madoff auditor for many years before handing the account to his son David G. Friehling in the early 1990’s. If Madoff’s wrongdoing goes far enough back, Horowitz may need to worry about ending up in a prison cell next to his son-in-law. (UPDATE: Maybe not, since he passed away recently.)
Bernie Madoff filed past a sea of reporters and camera flashes to enter his guilty plea in front of Judge Denny Chin. Several victims spoke, asking the judge to reject the plea and force a trial. They want grueling trial to make Madoff suffer and to bring more facts out to the public.
Since he turned himself in to authorities back in December, Mr. Madoff has been living in his multi-million dollar penthouse. Back in December, the magistrate ruled that Mr. Madoff was not a flight risk and allowed him to stay confined in his palatial home.
But now Mr. Madoff is guilty. Mr. Madoff’s attorney, Ira Sorkin, tried to argue for bail. But Judge Chin would have none of it. Judge Chin revoked Madoff’s bail, calling him a “flight risk” in light of the severity of the charges for which he just entered a guilty plea. He granted the government’s request for remand. The prosecution did not even have to rebut Mr. Sorkin’s argument for bail.
According to the New York Law Journal’s Mark Hamblett, Mr. Madoff was taken out of court in handcuffs. I have not seen pictures of that yet, but I am sure there are many people looking to get a copy of that picture to frame. In handcuffs, he was delivered to Manhattan Correctional Center. (If you were thinking of sending some money to Bernie to help his cause, you should take a look at the Bureau of Prison’s Inmate Money Policy.”The deposit must be in the form of a money order.”)
Fox Business takes us on a tour of his new home until his June 16 sentencing hearing:
Presumably, Mr. Madoff’s lawyer will appeal the bail revocation. The chances of Mr. Madoff being released on bail are slim and none, and slim’s 401(k) has turned into a 201(k). After all, the appellate court gives lots of deference to the district court on bail decisions.
The next question will be how much time will Mr. Madoff serve and where. Lets add up the charges:
Count 1: Securities fraud. Maximum penalty: 20 years in prison; fine of the greatest of $5 million or twice the gross gain or loss from the offense; restitution.
Count 2: Investment adviser fraud. Maximum penalty: Five years in prison, fine and restitution.
Count 3: Mail fraud. Maximum penalty: 20 years in prison, fine and restitution.
Count 4: Wire fraud. Maximum penalty: 20 years in prison, fine and restitution.
Count 5: International money laundering, related to transfer of funds between New York-based brokerage operation and London trading desk. Maximum penalty: 20 years in prison, fine and restitution.
Count 6: International money laundering. Maximum penalty: 20 years in prison, fine and restitution.
Count 7: Money laundering. Maximum penalty: 10 years in prison, fine and restitution.
Count 8: False statements. Maximum penalty: Five years in prison, fine and restitution.
Count 9: Perjury. Maximum penalty: Five years in prison, fine and restitution.
Count 10: Making a false filing with the Securities and Exchange Commission. Maximum Penalty: 20 years in prison, fine and restitution.
Count 11: Theft from an employee benefit plan, for failing to invest pension fund assets on behalf of about 35 labor union pension plans. Maximum penalty: Five years in prison, fine and restitution.
That’s a maximum penalty of 150 years. Some of these may end up being concurrent sentences. But given that Mr. Madoff is 70, it would be a good guess that he will end up spending the rest of his life in prison.
It is good to see justice happening swiftly and effectively. After all the fear of prosecution is one of the better ways to stop Ponzi schemes. It seems like Mr. Madoff just wants this to end and accept his punishment.
The compliance officer in me wants to hear more about the underlying facts of what made Madoff go bad. In his allocution Madoff states that:
When I began the Ponzi scheme, I believed it would end shortly and I would be able to extricate myself and my clients from the scheme. However, this proved difficult, and ultimately impossible.
What made him begin the scheme? What would have stopped him from starting the scheme? What lessons can learn from Mr. Madoff to deter the next Madoff from going to the dark side? How did he think he could extricate himself?
On Sunday night, 60 Minutes aired an interview with Harry Markopolos: The Man Who Figured Out Madoff’s Scheme. Last month, Markopolos supplied similar information to a Congressional panel.
By its vary nature, the SEC does not stop a financial crime until happens. As with all prosecutions, the bad act needs to happen before there is a crime. The failure with Madoff is that the fraud appears to be so big and appears to have been happening for over a decade. Usually, the SEC stops fraud before it gets so big.
If you think the SEC is ineffective, take a look at the SEC litigation releases. Quickly browsing through the list, you can see that the SEC is filing to stop a few securities fraud schemes every week. Hardly ineffective.
The SEC can no sooner prevent securities fraud than the police can prevent a robbery. You hope your patrols and effective prosecutions will deter potential bad actors. But people will always be enticed to take short cuts.
Markopolos spotted the problem and the SEC blew it. Let’s move on and find out how Madoff did it so we can learn some lessons. The sound bites and preachings from Markopolos are not contributing to the prevention of future securities fraud.
His investments’ ascent: like a rocket.
His method: his hand in your pocket.
His scheming: detested.
His freedom: arrested.
His future: a day on the docket.
With rhyme and meter perfect throughout, this limerick encapsulates a complex story in just five lines, giving the details very well and in an interesting format. This one shimmers!
The Madoff scam: what’s it about?
Paying Paul (and thus fending off doubt)
By robbing poor Peter;
And what could be neater?
But it palled when the funds petered out
Presenting a strong summing up of the situation, this limerick ends with double wordplay in the fifth line so elegant that I can overlook the lack of an ending period.
And lastly, the title of Miss Congeniality (a.k.a. third place) goes to #78 by Robin:
With Bernie’s cachet as the lure,
Even smart folks invested, quite sure
That with Madoff, funds grow
And sweet dividends flow.
Now they find themselves swindled … and poor.
More perfect rhyme and meter throughout and an accurate telling of the history of this event, but with an interesting pause for dramatic effect at the end — very nice touch!
Anyone having a claim or potential claim against BMIS should read that notice. It provides that customers of BMIS must file their claims with the trustee on or prior to March 3, 2009 to receive the maximum protection.
It further provides that a first meeting of BMIS’s customers and creditors will be held on February 20, 2009, at 10:00 a.m., at the Auditorium at the United States Bankruptcy Court, Southern District of New York, One Bowling Green, New York, New York 10004.
The trustee also has established an official website [http://www.madofftrustee.com] to provide public information about the bankruptcy court proceeding.
Typical lawsuits that one might expect to see in a situation such as this one are those filed by investors against Madoff and his entities. The most notable of such actions filed to date include class actions Kellner v. Madoff [No. 08CV05026 (E.D.N.Y. filed Dec. 12, 2008)] and Chaleff v. Madoff ( No. 08CV08260 [C.D. Cal. filed Dec. 15, 2008)] and individual action Sciremammano v. Madoff [No. 08CV11332 (S.D.N.Y. filed Dec. 30, 2008)].
The Kellner case asserts a class action on behalf of all persons and entities who invested with Madoff, BMIS, or other selling agents affiliated with Madoff or BMIS, from as early as the formation of BMIS in the 1960s. The complaint alleges violations of the securities laws and related federal laws, including the Racketeer Influenced and Corrupt Organizations Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, violations of New York General Business Law provisions concerning deceptive acts and practices, fraud, negligent misrepresentation, breach of fiduciary duty, conversion, and unjust enrichment.
In the Chaleff case, a class action was brought against Madoff, BMIS, Brighton Company and its general manager, Stanley Chais, alleging securities law violations on behalf of all persons or entities that invested through or in Chais or Brighton, had capital invested with Madoff or BMIS on December 12, 2008.
The plaintiffs in the Sciremammano case are individuals who began investing with Madoff in 1995. They seek injunctive relief to stop the alleged fraud and preserve assets, disgorgement of gains with interest, and civil monetary penalties. The alleged violations include fraud under the federal securities laws, fraudulent practices under New York state law, violations of the Investment Advisers Act of 1940, and breach of fiduciary duty.
Senator Christopher J. Dodd