Picower
        7.2 billion Picower settlement
        Jeffry Picower withdrawals
        Review of 501(c)(3) Picower Foundation 990 filings 2001 thru 2007
        Picard and Sheehan talk about Picower on CBS's 60 Min
        Picower's history --- Forbes 2002 article 'Unaccountable'
        Madoff/MIT connection
        Reading Picower's Will --- a new Picower Foundation -- (or Time to kiss April Freilich's ass?)
        Where is the new Picower Foundation?
        JPB Foundation -- new Picower Foundation
      Picower Foundation 990 filings

Madoff family
        Fake Bernie lays out the circumstantial case against the Madoff family
        Peter Madoff to plead guilty (6/28/12)
        My take on the circumstantial case against the Madoff family
         case II --  Amazon review of Diana Henriques' Madoff book written after Peter Madoff's arrest (7/12/12)
         case III  -- Judge Swain's view parallels my view of Peter and the 'crooked' operation of the Madoff firm (12/20/12)

JP Morgan bank -- Reading the Trustee's complaint (Feb 2011)
JP Morgan 2.5 billion settlement with prosecutors (2 billion) and Trustee (0.5 billion) (1/7/14)

Madoff insiders
        J. Ezra Merkin --- Bernie's NY bagman
Ponzi cash transfer data
Picower Foundation table
Madoff links

Appendix
       Mitt Romney charitable foundation 990 filings

Madoff's 2nd son dies (9/3/14)
        The headlines today are that Bernie Madoff's younger son Andrew, age 48, just died of cancer. Cancer runs in the Madoff family. Peter Madoff's son died of cancer too. The articles about Andrew's death contain information about a July 2014 update to Picard's suit against the brothers. Picard a couple of years ago on 60 Minutes said the purpose of his suit against the brothers was not only to recover assets for the investors, but to bankrupt them. Mark Madoff on Dec 11, 2010, exactly two years after his father was arrested, perhaps not wanting to be poor (!), hanged himself.

        New information about the brother's actions inside the firm, and their possible knowledge of criminal wrongdoing, has been made available to Picard from Frank DiPascali, who was Bernie's right hand man in the investment advisory business and the leading witness for the prosecution in the big trial last winter. The complaint against the brothers now details (see link below) how they conspired to conceal information from the SEC in a 2005 investigation by deleting masses of emails. The suit also describes how 'fake documents are us' Madoff ginned up a phony investment account statement for one of the brothers for him to verify his assets when he bought a NYC condo. Picard alleges they dipped into customer money to use as their own with phony loans for millions that they never intended to pay back. The brothers KNEW Madoff Securities was not run honestly.

        Picard's July 2014 updated suit against the brothers lays out evidence of their criminality (10 pages):

         http://www.madofftrustee.com/document/dockets/004921-andrew-madoffmemorandum09-01503docket185.pdf

        This suit in footnotes also describes the 90 million dollar financial settlement with brother Peter Madoff (now in jail) and his family that kept his daughter Shana, a compliance officer at the firm, from being charged. Shana contributed to the 90 million settlement by selling her million dollar vacation home in the Hamptons.

        I  have long since argued that the brothers as senior professional traders had to have known that their father, who they could observe daily, was not trading in a manner consistent with their high yielding investment account statements. Bernie didn't have the resources (where was the staff, the traders?), didn't have the time (he spend weeks to months on vacation in France), didn't have the technical knowledge (it is reported by his secretary he could barely turn on a computer), or I dare say the trading skill. Furthermore as trading pros they would have known that no trading strategy in history has ever been devised that could yield the consistent, high yields that were reflected in their account statements. Thus they had to have known, for SURE, their father was running some sort of massive scam, and this would not surprise them. They knew their father was a scammer, always had been, the firm was run that way always skirting the law, he didn't pay proper taxes, lied to the SEC, and they participated too miraculously 'earning' millions on meager investments allowing them to live the live of the super rich. It was clear their own investment advisory account statements were clearly fraudulent, Madoff would change them on request, and they showed phony and backdated trades.

        So if their father wasn't trading, where did they think the money was coming from? This is the key question about their guilt or innocence! Now upon learning it was a ponzi, of course they were shocked. They present this as 'evidence' of their innocence, but (if real) it is just as easily explained by their sudden realization that their investment accounts, which they thought were worth millions, were worthless. However, Bernie, ever the 'good' family man had an (idiot) plan, he was going to further screw all the little investors and pay off his family, key staff, and friends with the remaining cash, alas it never came to be, because the written checks went undelivered after his arrest.

Madoff trial of five wraps up (3/24/14)
        Many of Bernie Madoff's associates, including his brother, have pled guilty in the five years since he was arrested, but five who worked faking records, cheating on taxes, lying to customers, backdating fictitious trades, keeping a 2nd set of book, and were paid handsomely for it, claimed they were innocent, no idea the investment advisory business was a fraud, they were just doing as they were instructed. The jury didn't buy it. Today after one of the longest white collar cases in Federal court history, they were found guilty of all charges (31 counts).

        The prosecutor, John T. Zach, an assistant United States attorney, in the closing weeks of a trial told the jury “There’s really no dispute here that there was a massive criminal conspiracy.” The only question, he said, was whether the (five) defendants knowingly committed fraud to help Mr. Madoff sustain that criminal enterprise. “So let me state it to you as clearly as I can,” he said: “The defendants knew that fraud was going on at Madoff Securities.” The jury agreed. Note the prosecution is not saying they knew specifically it was a ponzi, just that there was (massive) fraud going on, and Mr. Bharara (US attorney) said. “These defendants each played an important role in carrying out the charade, propping it up and concealing it from regulators, auditors, taxing authorities, lenders and investors.”

Hi-lites of the trial
        -- All five tried together in one of the longest white collar criminal cases ever in Federal court (Oct 2013 to March 2014)
        -- Star prosecution witness Frank DiPascali, Madoff's closest associate in the fake investment advisory business who pled guilty in 2009,  was on the stand for a month (Dec). He detailed how all five were involved in the fraud.
        -- Annette Bongiorno and Dainel Beonventre took the stand (for a few days) in their own defense.
        -- “The trial established that the Madoff fraud began at least as far back as the early 1970s,”said Preet Bharara, the United States attorney in Manhattan.
        -- DiPascali on the stand claimed that the defendants were well aware that Mr. Madoff’s firm was routinely backdating the fictitious trades that showed up on customer accounts — a practice that he said had been going on at least since the late 1970s. (see Picower's charity investment records)
        -- I was at the trial (2 days in Nov)

        "Annette Bongiorno's attorney, Roland Ripoelle, said his client "saw $50 million of what she thought was her own money to up in smoke." So they are Madoff victims too claim their lawyers! The jury didn't buy it. Annette claimed she was little more than a clerk at Madoff Securities, so how did she explain the 50 million in wealth she amassed? Did she claim to be just a good 'investor' like Picower, Shapiro and the other Madoff insiders.

       Bernie Madoff -- (pled guilty, in jail)
       Peter Madoff -- Bernie's brother pleads guilty and gets 10 years for filing false documents and
                      false income tax. (Only took 4 years to nail him!) The judge at sentencing says Peter's claim
                      that he didn't know anything was wrong with Bernie's investment advisory business (for which
                      he was faking records!) is "beneath the dignity of the former vice chairman of NASD"
                      and "frankly, not believable". The judge also said his plea taken at face value showed he "knew"
                      Bernie's IA business was a "little bit crooked". (So Peter like his brother pleads guilty, while at the
                      same time putting forward an absurd claim, here, 'I was shocked, shocked, I tell you. I thought
                     Bernie was this fantastic trader. Why he was so good that without the help of traders I saw him
                     make hundreds of millions almost every month for nearly 20 years. Now that's a trader, and you
                      know I never asked him how he did it.)
                      (36 page transcript of Peter's 12/20/12 sentencing hearing is here)
                      (details of Peter's 90 million settlement, which probably kept Shana from being indicted, is here, see footnotes)
       Frank DiPascali -- Madoff's ponzi customer man (pled guilty, awaiting sentencing)
       David G. Friehling -- Madoff's do nothing accountant and personal income tax preparer (pled guilty, awaiting sentencing)
       Jerome O’Hara -- ponzi computer guy, who faked records, His trial starts Oct 2013. Convicted 3/24/14.
                                    Sentened to 2.5 years in jail.
       George Perez -- ponzi computer guy, who faked records, His trial starts Oct 2013. Convicted 3/24/14.
                                   Sentened to 2.5 years in jail.
       Daniel Bonventre -- financial guy who transferred funds back and forth between ponzi and
                        the trading business and faked SEC records. His trial starts Oct 2013.
                        He was convicted in 3/24/14 and on 12/8/14 sentenced to ten years in jail.
       Annette Bongiorno -- Key manager on 17th floor under DiPascali arrested 11/18/10.
                        Her trial starts Oct 2013. She was convicted 3/24/14 and on 12/9/14
                        sentenced to six years in jail. At sentencing she claimed she was a 'victim' of Mr. Madoff
                        and even though she was regularly back dating and faking trades, she claimed she didn't
                        know what was going on. The judge said "She was a pampered, compliant and grossly overpaid
                        clerical worker" who had "willfully blinded herself" to illegal acts she was being told to
                        carry out, all in return for a luxurious lifestyle. She has to forfeit an estimated 14.6 million
                        she received in salary, bonuses and fake loans from Madoff Securities since 1992.  At the close
                        she was managing hundreds of accounts with a balance of 8.5 billion.
       Joann Crupi -- Another long time manager on 17th floor under DiPascali arrested on same day as Bongiorno.
                        Her trial starts Oct 2013. Convicted 3/24/14. Sentened to six years in jail on 12/16/14.
       David L. Kugel -- A 40 year experienced Madoff trader, who for years also faked trading records.
                       He spans the two of the Madoff businesses (office on 18th floor?). Admits to faking
                       trading records as far back as early 70's, and his own account records are obviously fraudulent
                       back to 1977. (Strong proof Madoff has been a slimeball from day one.) His specialty was
                       “convertible arbitrage” trading both real and fake. Salary was 588k and he withdrew over 10
                       million from his accounts. He is a possible link to Peter Madoff. (pled guilty, awaiting
                      sentencing and is cooperating)
       Craig Kugel -- David Kugel's son worked at Madoff Securities too as a human resources employee. He
                      sent fake forms to US Dept of Labor swearing the phony people on Madoff's payroll (like
                      DiPascali's boat captain, and probably all the wives who were making business charges)
                      worked at Madoff Securities. He was clearly an insider, because he charged 200k to the
                      company credit card for peronal items like family vacations, which of course he did not report
                      as income. (pled guilty to five criminal counts including income tax evasion, fined 2.3 million
                      awaiting sentening in Dec 2013, possible 19 years, but may be reduced since he is cooperating).
                              Finally someone at the firm is charged (and guilty) with income tax evasion! But at
                     200k he was a small fish. The whole Madoff family (very likely) did what Craig Kugel did
                     on a much bigger scale. Are they next?
                              Even more interesting the WSJ ties Craig Kugel to Peter Madoff. Peter is suspected to be
                      employee 'CC-1', who hired him, who approved of a plan to conceal corporate personal
                      spending from IRS, and Picard alleges that Peter Madoff's wife (for 12 years!) was one of the
                      phony employees collecting 1.57 million in salary.
       Eric S. Lipkin --  Worked for Frank di Pascali for 16 years and was Madoff Securities payroll manager.
                      His father had been Madoff first employee, hired 1964. Picard alleges the father remained
                      on the payroll after retirement as a phony employee. (pled guilty, awaiting sentencing in Dec 2013)
      Irwin Lipkin --  Now (9/12) comes news that Eric Lipkin's father has been rounded up and will plead guilty too.
                    This is Bernie's first employee, hired in 1964, and he is a crook, which tells you Madoff has probably
                    been a crook from day one! He is 74 and hadn't worked at the firm since 1999, but was still listed
                     as an employee and collected a salary. (It's things like this that tell you a lot of people at Madoff
                     Securities had to have known this was not a law respecting business.) He will plead guilty to making
                     'false statements in regulatory filings, conspiracy to commit securities fraud and other crimes' and faces
                     up to 10 years in prison.
       Enrica Cotellessa-Pitz --- Bernie's long time (1978) controller is pleading guilty to criminal charges:
                       faking documents to deceive SEC, conspiring with the outside accoutant to provide false audit reports.
                       She was involved in moving 600 million from the ponzi to the trading side of the business. The
                       trustee wants a 3.75 million clawback (3.3 million salary and 500k withdrawals) from her and
                       her husband. She is a cooperating, and it turns out (according to the trustee) she was DiPascali's mistress.
                       Apparently she pled guilty, as she is to be sentenced in Dec 2013.
        Paul Konigsberg --- Age 77, arrest Sept 2013 for conspiracy and falsifying records, released on $2 million bond.
                       He is a 'big time' outside accoutant who assisted Madoff in the ponzi by doctoring records including
                       phonying up his clients (so called) Madoff trading records to minimize their taxes (say the prosecutors).
                       One of his relatives was a no-show employee on Bernie's payroll. He was founding partner of mid-size
                       NYC accounting firm Konigsberg Wolf and Co and the goto accountant for some of Bernie's early and
                       biggest clients including Carl Shapiro and later Jaffe (gee I wonder why?) including Madoff himself.
                       In June 2014 he pled guilty.

        "Another client whose accounts were regularly brought in line was Jeffry Picower, whose staff often sent requests for specific backdated trades to Madoff, said Bongiorno, who managed the billionaire’s accounts for years. “They would make suggestions, and Bernie would say, ‘Yes, we will do it,’ or, ‘No, we won't,’” Bongiorno said. “But it was never a mystery that they were backdated. They knew it.” (from Bloomberg news 2/27/14)

        Picower, who began investing with Madoff in the late 1970s, died in 2009 at age 67. His estate in 2010 agreed to forfeit $7.2 billion to victims of the fraud and the U.S. A telephone call to his attorney wasn’t immediately returned.

I'm at the trial! (update 11/15/13)

        I found myself in NYC the week of 11/11/13 for a few days (mainly to see some shows) and with a lot of effort figured out how to observe at the Madoff trial. After five years this is the first (and maybe the only) criminal trial of Madoff people, all the others from Bernie on down in jail or going to jail (9) have pled guilty, so no trials. All five claiming innocence are being tried together. Went two days and spent a total of 4-5 hours observing. David G. Friehling was on the stand the whole time, he is a government witness. The first day I heard the last two hours of his direct testimony, and the next morning nearly three hours of his cross examination by two of the five defense lawyers.

        The trial is in the biggest courtroom (ceremonial courtroom) in the new Daniel Patrick Moynihan courthouse at 500 Pearl St downtown. The trial observers were outnumbered by the lawyers! I counted 15 lawyers, 7 on the government side and 8 for the five defendants. At first I couldn't pick out the defendants with all the defense lawyers, but when the judge called for meeting in chambers, all 15 lawyers trooped out leaving the five defendants sitting alone on the defense side: Daniel Bonventre, Jerome O’Hara, George Perez in first row, and behind them Annette Bongiorno and Joann Crupi. The only spouse in evidence was Annette Bongiorno's husband parked by a window. 18 in the jury box (12 jurors and 6 alternates, could not tell which is which). Very few (if any) of the 18 potential jurors looked jewish.

        Friehling said on the stand he had pled guilty to nine felonies, and he is a government witness hoping to lighten his pending sentence. He was always very precise and clear in his answers, it was clear he had been well prepared. It came out in cross that he had 15 meeting with prosecutors to prepare! Beside being the company's (do nothing) accountant for years he prepared the personal income taxes for Bernie and pretty much the whole Madoff family that worked at Madoff securities. A few of Bernie's 1040s were flashed on screen. I could see one year Bernie and Ruth reported 38 million in interest.

        The main focus of the direct was that every year Friehling would work with Bonventre to produce phony company documents for the IRS to show that the company had nearly no profit. For the few years I saw presented the company earned 40-70 million profit each year (at least that what was Friehling was told, but he could not confirm). This should have been reported as income on Bernie's return since he owned 100% of the firm. Yet every year Bernie's 1040 would show the firm made barely any profit, just a small gain or loss (million or two) for nearly 20 years (my guess knowing Bernie is it probably averaged pretty close to zero over time) saving Bernie and Ruth tens of millions in taxes every year. (And Ruth is still walking around free!) So Friehling's testimony has Bonventre delivering phony company records for the IRS to support Bernie's cheating on his income taxes. The generation of phony records were of course a specialty of Madoff Securities!

        Friehling's testimony also connected Annette Bongiorno with tax cheating, in this case Peter Madoff cheating on his personal income taxes. Bongiorno gives Friehling (so called) trading records showing a cool five million dollar gain Peter Madoff  has (supposedly) made on a stock held less than a year. Friehling duly enters the five million as short term gain on Peter Madoff's 1040. Peter explodes when he sees how much tax liability this generates. When Friehling checks again with Bongiorno she hands him a new trading record that now (surprise, surprise) shows the stock had been held more than a year, thus converting a [short term capital gain => long term capital gain] saving Peter and Marion about a million in taxes. (This presentation to the jury led by lead prosecutor Randall Jackson I didn't think was very clear.)

        The cross of Friehling I saw was pretty much a joke with blowhard defense lawyers making trivial arguments with questions like, 'You would agree that not all travel expenses are personal expenses?' Now and then the defense lawyers would troupe out the classic misleading defenses, 'Did you consider Bernie to be an investment guru?' (Ans: pretty much) and 'You never suspected that Bernie was running a ponzi? (Ans: no) They never ask about 'fraud', never a question about whether or not the returns looked like market returns, just did Friehling think it might be a ponzi. (Bloomberg's news story on Friehling's trial testimony is here.)

Footnote -- Observing the trial
        The difficulty I found with observing the trial (even if you know the judge, case name and courthouse, which I did) is knowing when the trial is on. I could not find the 'court calendar', which gives the days and hours of the trials. There is no link to it on the District Court web site, it does not appear to be online. In fact there is zero support there for anyone wanting to observe any trial in the courthouse.

        While in NYC with a lot of searching (using google I think) I finally turned up a one page letter Judge Swain had issued to the press for this trial, and in that letter she gave the days and time: Mon thru Thur, 9:15am to 4:15pm, beginning in Oct 2013 expected to last for five months. (I had earlier emailed the Bloomberg reporter covering the trial, but got no reply.) Once through security at the courthouse entrance I found I had the run of the building and could just walk into any courtroom. It appears that each district judge has an assigned courtroom with his/her name posted outside. Curiously the courtroom where the case is being held (normally used I am told for things like the swearing in of judges) outside just says 'Courtroom', nothing else, no name, no number, and there is no one on the 9th floor outside the courtroom to ask.

JP Morgan settles for about 2.5 billion (Update Jan 7, 2014)
        You can find my summary/commentary of this settlement here.

        JP Morgan roughly 2.5 billion dollar settlement of several of its Madoff suits is headline news today. Biggest chunk is a fine of 1.7 billion fine to justice dept for violations of anti-money laundering laws, also an agreement by the bank on a long statement of facts. Another half billion or so goes to victims via Trustee and other suits. The Trustee settled for a lot less than he sued for.

        The infamous JP Morgan 'account 703' that Madoff used to run the ponzi had had over five billion in later summer 2008 only to have nearly all this drain away before the Dec 2008 arrest. Madoff used this account for 22 years (1986 to 2008) to run the ponzi, and when all the deposits and transfers are added up for the 22 years it comes to 150 billion. This gives some flavor of the circulation of the money as only about 20 billion in real money was even input to the ponzi, and it had a paper value at the end of 64 billion.

        The report makes a claim I find impossible to swallow: The JP Morgan banker assigned to monitor Madoff and his 703 account, who visited Madoff's offices, who was Madoff's banker for something like fifteen years (until his retirement) claims he never knew much about Madoff business or the purpose of the 703 account, he thought it 'probably' contained just tens of millions and was used for routine support of a trader/broder firm like paying the rent and not for Madoff's investment business. Ten's of millions? Didn't he ever look at the account statement! In fact in 2005, long before the banker retired, the account had one billion in it.

        Details of a long running check kiting scheme that Madoff did using Norman Levy's account at another bank is explained. Levy's account in mid 90's held a portfolio worth 2.3 billion, which was probably more cash that Madoff's 703 account had at the time, so it was probably useful for Madoff to have (or appear to have) some of Levy's money appear to be his. Tens of million went on a round trip loop through account 703 and two other accounts "virtually on a daily basis" for years, which had the effect, the report says, of making Madoff's balances look bigger than they really were. JP Morgan of course turned to a blind eye to these transaction which obviously had no business purpose.

        In 1996 an outside bank used in this loop that had a Madoff account ('Madoff bank 2') investigated and smelling a rat it pulled out, terminating Madoff as a client, and importantly (in 1996!) filing with regulators an SAR (suspicious activity report) naming both Madoff and Levy! (Note this SAR is not filed by JP Morgan.) This struck me as pretty important, a filing of a suspicious banking report on Madoff in 1996, and in fact Bloomberg in their story high lights this quote from the report. (Bloomberg also high lights the unbelievable JP Morgan Madoff banker's claim that he thought account 703 had 100 times less money in it than it did and was used to pay the "rent".)  When Madoff lost his outside bank, the round trips continued between his and Levy's account both at JP Morgan. Since this check kiting was now being done only between two JP Morgan accounts, it strains belief that the bank was not aware of this.

Does Bloomberg misread the report?

        "The $1.7 billion that JPMC has agreed to forfeit to the United States pursuant to the Deferred Prosecution Agreement represents a portion of the funds leaving the Madoff Securities accounts at JPMC from October 29, 2008 (i.e., the date of JPMC's report to SOCA) until Madoff's arrest on December 11, 2008 ..." (This language is vague.) Bloomberg comments: "So at the time JP Morgan filed a report with the U.K.'s Serious Organized Crime Agency saying that it thought Madoff was a fraud, there were several billion dollars (about 3 billion, but most of this was withdrawn in short order by two feeder funds). That money vanished on JP Morgan's watch. And now JP Morgan is paying back "a portion" of it." (A little unfair I think. My reading of the report is that it is pretty clear that JP Morgan in the last weeks got out about 300 million (80% of the money they had at risk). They had other withdrawal requests pending, but they didn't clear before Bernie was arrested.

        Bloomberg points out that during this time they went 'short' on Madoff at the same time their clients were 'long'. This unwinding put the bank at risk if Bernie stayed afloat and prospered as they had sold 100 million or so of derivatives, which they were no longer hedging.

        How Madoff treated his favorite investors: Levy's account increased 820% from couple of hundred million to close to 2 billion in 11-12 years (86 to 98), though he was borrowing from the bank to leverage his Madoff investment. The report says his returns were "consistently positive" including during 1987 when the market had a big crash.

        In 2007 JP Morgan has been Bernie's banker for 21 years, but when the bank wanting to expand its Madoff derivative products asks to do due diligence on his funds Bernie says no. That killed the expansion in the Madoff derivative products. More and more it looks to me that a basic reason that a lot of banks and financial people didn't do business with Madoff wasn't because of his 'too good to be true' returns, but simply because he wouldn't let them in the door to do any real due diligence. He would tell a favored few a little about split strike, but that was the extent of his openness.

        Near the end one senior JP Morgan executive is quoted as telling another JP Morgan executive that "Madoff has a very shady reputation in the market", which is exactly what Markopulus told the SEC. The Oct 16, 2008 internal JP Morgan memo, written in UK just weeks from the ponzi collapse, the basis of the SAR filing, details a host of the red flags Markopolus had figured out years earlier: total lack of transparency about his trading techniques and how implemented, feeders have no idea how he makes his money and are afraid of him, no confirmation the assets actually exist, no identification of the counterparties (for split strike), and coup de grace, performance so ahead of its peers and so consistent "as to appear too good to be true -- meaning that it probably is".

One poster to the Bloomberg story notes something interesting about JP Morgan in-house chief lawyer:

        "Let’s talk about JPM’s chief in-house lawyer for a moment, one Stephen Cutler (He does in fact sign for JP Morgan). Steve was the SEC Director of Enforcement from ‘01 to ‘05 before going to JPM; in other words, at one time our nation’s top cop on the securities markets beat. At the SEC he made a couple hundred grand per year; at JPM he makes millions per year." (He's running SEC enforcement at the time Markopolus is filing complaints about Madoff's returns being phony.)

        -- Madoff pays off programers Jerome O'Hara and George Perez partly with diamonds to avoid a paper trail.
        -- In 1990s when a possible ponzi wrap up 300 million payout to insiders was on the table, 58 million of this was to go to Annette Bongiorno and she complained she would have to pay taxes on it. Oh, yea!
        -- Bonventre kept three separate sets of books. He is paid over a million a year and on top of that he write his own bunus checks. Most of his income doesn't appear on his 1040s, because like most of the Madoff insiders he is a tax cheat.

(Update 10/19/2013)
        Headline today is a 40 million case in London against several Madoff insiders, including Sonja Kohn and Andrew Madoff, has been dismissed. The heart of this case appears to be that British regulators (working with Picard) argued that the Madoff sons and the board of the British arm of Madoff securities should have recognized that some of the large money transfers between NY and London were sham transactions.

        Article: "Mr. Madoff’s sons, Andrew and Mark, won a significant victory on Friday when a judge in London dismissed a lawsuit brought against them and six others by the trustee seeking money for victims of the fraud." The UK judge, Andrew Popplewell, (sort of) appologized to Andrew Madoff for all he had been put through (with his cancer and all) ruling that neither of them “knew of, or suspected, the fraud” and stated that “their honesty and integrity has been vindicated.” (Really, his 'honesty' has been vindicated!) A separate US case by Picard seeking to recover 255 million from Andrew Madoff and the rest of the Madoff family is still pending.  However, the 'vindication' includes this: Judge Popplewell ruled that the Madoff brothers and another director, Philip Toop, "were in breach of their duty to exercise reasonable skill and care" by failing to investigate whether the payments (30+ million to Sonja Kohn) were in the company's best interests." Peter Madoff testified in the trial by video link from prison, but invoked the 5th amendment more than 50 times.

I posted  two comments below (two days apart) to the NYT Dealbook article announcing the decision:

Donald E. Fulton, Boston MA, Oct 19, 2013
        Is this a question of semantics? Is Andrew Madoff's argument for his innocence like that of his uncle Peter? Peter in his plea to the court admitted he knew Madoff Securities was a 'little bit crooked'. The whole Madoff family routinely charged thousands of dollars in personal expenses to the firm every month. Everyone in the family, including Andrew, was benefiting from taxes not paid with phony loans for millions. Peter's 'defense' was that he didn't know specifically that Bernie's investment advisory business was a ponzi. Is this Andrew's claim?

        Let's look at the circumstantial case. Andrew had an account with his father. He saw the unreal (20%/yr for insiders) steady returns, almost never a down month. Even if the markets tanked or Bernie is off in Europe sailing, still his account shows a nice monthly gain. I would argue that to a trading pro like Andrew this would make no sense, the returns don't look like market returns.

        Outside observers suspected for years that Bernie's IA business was a scam, but they usually assumed that his returns were coming from front running his trading clients. But the two Madoff sons run the trading business, they KNOW the IA returns are not coming from front running. It has to be trading, but where are the IA traders? How is it even remotely possible that in 20 years his sons can't figure out there are that there are NO traders or trades! They know their father is barely computer literate, so he can't be doing the trading.
-----------------------------------
Donald E. Fulton, Boston MA, Oct 21, 2013 (submitted late and not published)
        Madoff Securites firm was run by scammer, legitimate taxes were not paid and SEC was fed phony documents. Everyone in the family knew this, and most participated and benefited.

        What I think is most consistent with the facts here is that the sons knew all along that Bernie's IA business was a scam, a huge scam, they just didn't know the NATURE of it, i.e. that it was a ponzi. I can believe they may very well have been shocked when they found out the principal of thousands of members of the jewish community that largely supported Bernie had been stolen.

        The key I think is that Bernie had probably told the sons a cover story, for example, he had worked out a sweet deal laundering drug and mob money. This scenario explains a lot of otherwise inexplicable facts:

         -- Why the sons don't ask their 70 year old father to show them what he does and maybe teach them
         -- Why as professional traders the sons can't seem to figure out that Bernie's IA returns are not market returns
         -- Why the sons never seem to notice that there are no traders or trades
         -- How it can be that counter-parties so inept can exist that they can be on the losing side of option deals with Bernie month after month for decades
         -- Why tens of million are paid to Sonja Kohn, who can access Russian mob money, for worthless stock 'research'

http://dealbook.nytimes.com/2013/10/18/madoffs-sons-cleared-in-london-trial/?_r=0

        Shana is Peter's daughter. She was a compliance officer at the firm, and the trustee says she signed off on regulatory documents that the firm had only 23 clients in its investment business when in fact it had nearly 5,000. (She must be one crack a jack lawyer!)

        Andrew Madoff is Bernie's younger son. The article is unclear about how much Andrew is at risk saying only his "conduct has been examined". He now claims to have cancer and might die. Forgive me for being a little skeptical, but is this perhaps part of a little scheme his lawyer worked up to prevent him from being indicted?

Konigsberg
       Konigsberg is an interesting case. He's a big time accountant, at the time head of his own good sized NY accounting firm (founding partner of Konigsberg Wolf and Co). If you look at the victim list his name appears (probably) hundreds of times. Bernie sent a lot of business his way, small time clients were instructed to hire him if they wanted to invest with Bernie. In effect he was the outside customer man for a lot of Bernie's accounts (for a piece of the action of course). The article labels him a Madoff insider, which he was. He worked for major Madoff clients like Carl Shapiro and Norman Levy, he even owned a (tiny) slice of Bernie's London trading business. Here we have a (supposed) big time, reputable accountant with an inside view of Madoff's operation. He has to know that Madoff's firm's accounting was shall we say 'sub-par', but apparently that didn't bother him. I don't see how they can put Bernie's small fry accountant, Friehling, in jail and not file criminal charges this senior insider accountant who was racking it in.

Phony tax losses
       The criminal indictment of Konigsberg (Sept 2013) makes it clear that a lot of Bernie's biggest clients, like Shapiro, were 'invested' with Bernie because Bernie's firm would cooperate and generate phony account statements, so they could minimize their taxes. The prosecutors allege that central to the generation of these phony trading records (showing losses) was accountant Konigsberg, who likely worked out the details for his big time clients.

Konigsberg indictment (update 9/26/13)
        More on Konigsberg from a long press release by the US attorney and FBI. Konigsberg was the senior tax partner at Konigsberg Wolf and Co. He is both a CPA and a licensed attorney (degree in tax law).

       http://www.justice.gov/usao/nys/pressreleases/September13/PaulKonigsbergArrestPR.php
       http://www.justice.gov/usao/nys/pressreleases/September13/PaulKonigsbergArrestPR/Konigsberg,%20Paul%20S11%20Indictment.pdf

        "After the death of one long-time Madoff client – who had recruited investors and had been promised by Madoff corresponding annual commission payments in the form of guaranteed returns – Madoff encouraged the client’s widow to use KONIGSBERG as her accountant. KONIGSBERG, Madoff, and Frank DiPascali, Jr. – who pled guilty for his role in the fraud and is cooperating with the Government – agreed on an investment “strategy” for the widow’s account. Under the “strategy,” the widow’s money would be “invested” in United States Treasury bonds and cash equivalents for the first 11 months of each year, and then in December, DiPascali would fabricate back-dated options trades in order to generate the promised returns. (Note, options were a favorite way Madoff customer accounts were 'tweaked up' to get the desired return or loss, because option trades are nearly impossible to trace.)

        For instance, one of the widow’s accounts was invested in Treasuries and money market funds in January through November of 2003, resulting in net equity at the end of November 2003 of approximately $860,000. In January 2004, however, DiPascali back-dated fake options trades purportedly executed in December 2003 to generate an additional approximately $825,000, nearly doubling the value of the account. Each December, over the course of several years, KONIGSBERG spoke with DiPascali to ensure that DiPascali arranged for the back-dated trades necessary to ensure the widow’s promised returns.

        Similarly, in May 2003, KONIGSBERG requested that another co-conspirator who worked at Madoff Securities (“CC-1”) (Is this Shapiro?) create back-dated trades in a second client’s account, retroactive to December 2002, in order to generate losses for tax purposes. ... In late 2002 or early 2003, KONIGSBERG sent back an entire year’s worth of statements for one client in favor of new ones. The new statements reflected millions of dollars in additional profitable trading activity for the client. Likewise, in 2008, KONIGSBERG sent back several months’ worth of statements for a different client, in favor of new ones reflecting millions of dollars in losses. ...  (Konigsberg handled) one of Madoff’s oldest and largest (clients), deposited and withdrew tens of billions of dollars into Madoff Securities over the years, and Madoff executed glaringly fraudulent trades in his accounts, such as back-dating an entire year’s worth of statements into accounts that did not previously exist."

Paul Konigsberg profile from Forbes (2011)
        Mr. Konigsberg has been one of our ( Gramercy Property Trust Inc) directors since August 2004. Mr. Konigsberg also serves as Chairman of our Audit Committee and as a member of our Nominating and Corporate Governance Committee. For the past 20 years, Mr. Konigsberg was a senior partner and President of Konigsberg Wolf and Co. PC, a New York-based accounting firm, which was reorganized in 2011 as KMR LLP and acquired in September 2011 by Citrin Cooperman, where Mr. Konigsberg now serves as a consultant. Previously, Mr. Konigsberg served on the Boards of Directors of two NYSE-listed companies, Savin Business Machines and Ipco Hospital Supplies. In addition, he served on the audit committees for Savin Business Machines and National Medical Health Card, also listed on the NYSE. Mr. Konigsberg is the former treasurer and board member of the UJA Federation of New York and a member of the Board of Overseers and on the finance committee of the Albert Einstein College of Medicine. He also serves as an officer and director for the Westlake Foundation, Inc. Mr. Konigsberg is a Certified Public Accountant, and a member of the New York State Society of CPAs and The American Institute of Certified Public Accountants. Mr. Konigsberg received a B.A. degree in Business Administration from New York University in 1958, a L.L.B. from Brooklyn Law School in 1961 and an L.L.M. in taxation from the New York University Law School in 1965.

        -- "Bongiorno also asked certain IA (investment advisory) clients to return previously issued BLMIS account statements so that she could alter them and often include additional backdated trades." This tells you a lot about Madoff's (so-called) victims.
        -- "From 1997 to 2008, more than $750 million of IA investor funds were used to support BLMIS’s Market Making and Proprietary Trading operations." What, Bernie's brother and sons, who run the trading operation, aren't the tinyest bit curious as to where the nearly one billion that keeps their business afloat comes from?

        A further teaser in advance of the trials has come from the prosecutors (Aug 8, 2013). They say Madoff was in a 'Love Triangle' with one of the five! Assuming it is not one of the wives of the three men, my money is on Crupi.
-------------------------------------------

Stanley Chais
       It has been confirmed by criminal investigators that they are looking into Stanley Chais (LA feeder) and into the Madoff family members for criminal tax evasion. In addition many civil suits have been filed against other insiders and feeders for recovery of funds by the court appointed Madoff Trustee (Picard) with suits also by SEC, NY AG, and MA AG. Unfortunately for the prosecutors Stanley Chais was a decade older than Madoff, and in 2010 he died at age 84.

Stanley Chais appearing to be honored

        Stanley Chais being honored? This is the guy who requested that the monthly statements of his LA clients never show a loss and for years Bernie honored this request!

Mark Madoff dead (update 12/11/10)
        Mark Madoff, Bernie's oldest son age 46, killed himself (hung himself) today in his NYC apartment with his two year old in the next room and his wife in Florida. The Madoff Trustee is out to bankrupt him (he explicitly said this on 60 Min) and has filed several lawsuits against him seeking millions. What, Mark Madoff couldn't stand being poor?

        As I wrote here nearly two years ago, because so much of the Madoff firm's income came from Bernie's 17th floor operation and because Bernie was 70 years old, far beyond normal retirement age, I find it totally unbelievable the Bernie's brother and sons could be ignorant of the (so-called) investment advisory business run out of the 17th floor, unless they had good reason not to know what was going on.

        When David Brook's blob discussing Mark Madoff's and David Holdbrook's deaths was published in the NYT (12/15/10), I posted the following comment to it:  (comment #75)

Let's see...
        The business is family owned and operated (father, brother, two sons, niece). A large fraction of the firm's income comes from the 'secret' business Bernie runs on the 17th floor. Bernie is 70 years old in 2008 far beyond normal retirement age. The sons run the trading operation, and records show many millions of dollars, sometimes 100 million, slosh back and forth between the trading business and the 'secret' business (the chief slosher has been arrested). All the family knows Bernie is not a legitimate business man/investment manger, because

1) Most of them, including Mark, have special accounts in the 'secret' 17th floor investment advisory business and see the kind of unreal returns Bernie pays, and

2) They all know Bernie and the firm are not paying proper taxes. Records show virtually the whole Madoff family (including wives) and favored employees charging tens of thousands in personal expenses monthly to the firm. And much larger sums (many millions) flow under the table to the family and favored employees to buy mansion homes.

        The odds are virtually zero that Mark and the rest of the family did not know a fraud (of some sort) was being run out of the 17th floor. Talk about George Bush being incurious!   Don Fulton, 12/15/10

        Two days later there was another NYT article on Mark Madoff's death, so I posted below. 'Mark Madoff’s Name Became Too Big a Burden to Bear', By DIANA B. HENRIQUES and PETER LATTMAN (12/16/10)  (ranked #2 out of 285 posts, posting #43)

I keep coming back to this ...
        A large fraction of the revenue and profit of Madoff Securities came from the investment advisory business on the 17th floor. I believe it was reported that in recent years the profit from the investment advisory business was actually subsidizing losses on the trading side and keeping the firm afloat.

        Just suppose for a moment that Bernie's sons, who have worked for him for years, don't know anything about the investment advisory business dad is running on the 17th floor. Is it even conceivable that they haven't gone to their father and said, 'Hey, pop, you're getting older (Bernie is age 70 in 2008) and at some point you are going to retire. We depend on the firm and the firm can't afford to lose this business, and besides we want to know how you earn these great returns, just take some time to show us how you do it, train us so we can take it over. This is how companies work.

        If this didn't happen, why not? Was it because the family just 'understood' it was better 'not to know' what was happening on the 17th floor, even at the risk the firm might fail when Bernie retired.

Another thing does not add up ...
        Bernie over the years made no secret that his 'special sauce' for investment was the exotic sounding split-strike trading strategy, in fact his biggest feeder, Fairfield Greenwich, described it on their web site while listing Madoff Securities as their executing broker. But here's the problem. It would have been obvious to his sons, who were top people in the trading side of the business, that not only were they not doing the trading the split strike required, but also there was no group of traders working on the 17th floor to execute it! No trading, no short term gains. So just how did they think their father was earning those great returns?

        The Forbes article is discussing the new book by Mark Madoff's widow: 'The End of Normal: A Wife's Anguish, A Widow'…by Stephanie Madoff Mack.' This book is on Amazon and can be open, so I opened it and reading through the first chapter I found the Nov 21, 2008 reference. What the date refers to is this: It's her daughter's two year birthday and she takes Bernie's grandchild to the office on her birthday to meet up with Bernie and Ruth for lunch. She said earlier that Mark had told her that for weeks Bernie had lost interest in the business and was spending all his time just staring at the ceiling. He thought Bernie might be seriously ill. She say it was on Nov 21, 2008 that at the office she gets to see for herself Bernie's odd behavior. Mark does later tell her (on a Wed, presumably the day before the Thur Dec 11 Bernie is arrested): "It's my father. My father has done something very bad and is probably going to go to jail for the rest of his life". So Forbes in its article has conflated two events which happened weeks apart.

Peter Madoff to plead guilty (6/28/12) (10/2/12)
        Finally to paraphase the mayor in the Music Man 'the sword of retribution has cut down' Peter Madoff, Bernie's brother, the first member of the Madoff family (other than Bernie) to be criminally nailed (only took 3.5 yrs!) with an expected 10 year sentence. Charges are like those for Craig Kugel, filing false documents and false income tax. My comment posting to the article is below:

        http://dealbook.nytimes.com/2012/06/27/peter-madoff-expected-to-plead-guilty/?ref=todayspaper

Donald Fulton, Stoneham MA (6/28/12)

        When a small fry at Madoff Securities (Craig Kugel) was recently nailed for not paying tax on 200k in charges to the company credit card, it was clear the government was finally taking income tax evasion seriously in the Madoff case. Court records show the whole Madoff family (including wives) did this too, but in much bigger amounts. Sure enough, one of the crimes which Peter Madoff will admit to is “filing false tax returns”.

        I wonder if part of the plea deal is that Peter is protecting his daughter, Shana, also a compliance officer at the firm, and his wife, who reportedly has been a no show employee of the company for years.

        This article says the two sides of the Madoff business operated separately, but Daniel Bonventre, the financial guy at the firm, is alleged in court papers to have moved hundreds of million of dollars from the ponzi to the trading side.

        It may very well be, as Ms Henriques argues in her book, that Peter and the sons did not know Bernie was running a ponzi, but so what? With all that has come out in the last three years I believe the circumstantial case is very strong that the brother and sons had to know that Bernie's investment business was not as represented, was not 100% legitimate. Trustee Picard in his suits against insiders nearly always alleges: not that they knew it was a 'ponzi', but that it was a 'fraud'. So no surprise to me that we soon are to see Peter Madoff go into court and admit he is a criminal.

        Below is my long Amazon review of the Diana Henrique's Madoff book 'The Wizard of Lies: Bernie Madoff and the Death of Trust'. This was written after Peter Madoff  was arrest and pled guilty (with 10 years in jail pending). I agree with Ms. Henriques on her assessment of Picower and take a different view from her about the guilt (or innocence) of the rest of the Madoff family.

Title:   Picower's role in ponzi nailed, but too much sympathy for the Madoff family
        By Donald E. Fulton, July 12, 2011 (incorrectly dated by Amazon, apparently the date of my earlier deleted review)

        I've read most of the Madoff books, and this is one of the better ones. Much about how the ponzi was operated remains murky, so in this review I want to focus on two of Ms. Henriques contributions: 1) Role of Madoff's biggest client (Jeffry Picower), and 2) Innocence or guilt of the rest of the Madoff family, did they know about the ponzi?

        There's new information since the book was published. A second member of the Madoff family, Peter Madoff (Bernie's brother) has recently been arrested and will be going to jail for ten years for his role in the fraud.

        One of the important contributions of this book to the Madoff story is Ms. Henriques' examination of the role played by Madoff's biggest client, Jeffry Picower. Madoff told Henriques that he suspected that Picower early on had figured out what was going on, and for years he bled the ponzi of huge amounts of cash. Ms. Henriques concludes that Bernie's assessment is probably pretty close to the truth, that Picower had indeed probably guessed that Madoff was running a ponzi and used this leverage to end up with 1/3rd of all the ponzi cash. What is known for sure is that after Picower's sudden death, his widow was sitting on so much stolen Madoff cash that she was able to write a check for 7.2 billion dollars to the Madoff Trustee!

        Where Ms. Henriques takes a stand different from other Madoff books is on the guilt (or innocence) of the rest of the Madoff family. She clearly has some sympathy for the Madoff family. She argues they were under Bernie's thumb, and there is no evidence that prosecutors could find that they knew about the ponzi. She has also been quite critical of those in the blogosphere who attack the family. However, as recent developments have shown, it is important to keep in mind that not knowing the details of the ponzi is not the same thing as being innocent.

        On the family's guilt or innocence one can take an external or internal view. Ms. Henriques takes an external view. She has argued that an intensive multi-year search by investigators failed to turn up evidence that the family had knowledge of the ponzi. And in fact in Peter Madoff's recent plea deal Peter does not admit, nor do prosecutors allege, that he knew Bernie was running a ponzi. Peter in his plea, however, admits to various criminal acts masking the true nature of the business being run on the 17th floor and to personally enriching himself by illegal schemes to avoid paying taxes.

        One can also take an internal view. To ask how prior to Bernie's arrest the ponzi looked to the Madoff family members who worked at the firm. Is it even conceivable that the family thought their father/brother/uncle was running a legitimate investment or hedge fund business on the 17th floor? I don't think so. Harry Markopolos early on had noticed and reported to the SEC a whole host of red flags about Madoff's returns, and he had far less visibility into what Madoff was doing than did Madoff's family at the firm. Markopolos and his boss at a Boston financial firm had analyzed Madoff's returns and concluded they were not 'market returns'.

        Didn't the family every wonder how Bernie's stated investment strategy (blue chips with option collar known as the split-strike) could regularly report gains in a month when the market tanked? As professional traders they would know this was impossible. Even if they thought, contrary to all evidence, that Bernie was a trading genius, how could he be trading on the scale necessary? They ran the trading side of the business, and they weren't doing his trades. They knew Bernie personally was not doing the trading, so who and where in the firm were his traders? Bernie's reported returns were incredibly steady and almost never showed a monthly loss, so the market savvy and timing ability of his traders had to be near miraculous. Didn't the family ever wonder about this? Didn't they want to meet the world's greatest traders that Bernie seemed to be hiding somewhere?

        There were other things to explain away too if they believed that Bernie was honestly investing. Quite a few people at Madoff Securities, a relatively small firm, were engaged in fabricating fake trading records. Two of them, the programmers, I think had their desks on the 18th floor and reported to Peter. How could the investment business be throwing off hundreds of millions in cash since Bernie allowed his bagmen (such as Jaffe of Boston, Noel of Greenwich, and Merkin of NY) to collect hedge fund like fees, while he only charged a small trading fee? To Markopolos this was the biggest red flag of all. Trading records were sloppily fabricated (often out of trading range, volumes too high). How could European counter-parties be found who were so totally incompetent that they would end up on the losing end of options trades month after month for years? To the Madoff family members who were top Wall St professional traders none of this would have made any sense.

        Harry Markopolos and his colleagues at a Boston investment house told the SEC about dozens of top people on Wall St who suspected Madoff's returns were fraudulent (see Markopolos' excellent book, 'No One Would Listen: A True Financial Thriller'). Most outsiders suspected Bernie was illegally front running his clients. Markopolos told the SEC that multiple red flags pointed to Madoff's returns being fraudulent, and he figured Madoff was either front running or running a ponzi. But Bernie's brother and sons ran the trading side of the business, so they KNOW Bernie's steady investment returns (20% for favored clients) are NOT coming from front running! So just where does the family think the piles of cash Bernie needs for his investor returns (and in later years to keep the firm afloat) is coming from? To me the circumstantial case is overwhelming that the family had to have known that Bernie was running a scam (of some sort) on the 17th floor.

        One of the charges Peter has pled guilty to is income tax evasion. Anyone who has looked at the various court filings knows the entire Madoff family was in on this. They benefited from phony business loans in the millions, thousands monthly in personal charges recorded as business expenses, and collected salaries for no work (Peter's wife Marion was a fake employee, as was the boat caption of Madoff's right hand man on the 17th floor Frank DiPascali). Ruth too, Bernie's wife, was no innocent here. The Trustee alleges that a million dollar tax avoidance scheme was being run out of her personal checking account.

        Ms. Henriques may have been correct that the family did not know (the details) of the ponzi, but with time this is looking less and less important. Brother Peter Madoff has now been arrested and will be going to jail for ten years for (essentially) assisting Madoff while personally and illegally benefiting from millions in stolen cash. Peter's plea deal also appears to implicate his daughter, Shana (Bernie's niece) another compliance officer at the firm, with some press accounts saying she assisted him in preparing false documents for the SEC. Picard, the Madoff trustee, is seeking the return of 170 million from a trio of younger Madoff family members: niece Shana, son Andrew and estate of son Mark who killed himself, and of course Peter in addition to his jail term will be bankrupted. Yes indeed, quite a family

            'If DiPascali has the goods on the other Madoff family members, then why haven't they been prosecuted?' Good question. Of course, one possibility is that Bernie revealed the ponzi at family gatherings with warnings this was never to be mentioned at work. While this might apply to Ruth and Peter, I am persuaded that, more likely than not, based mainly on how they have acted in the years since Bernie's arrest, that his sons did not know specifically it was a ponzi, meaning cash payouts were coming only from principal.

       I think there can be little doubt that the whole family knew Bernie's investment advisory business was 'in some way' a scam. Bernie was not an honest man, he was a scammer and had been from day one. Even Bernie's first hire in 1964, Irwin Lipkin, is on the list of those arrested! The operation of the firm he 100% owed reflected his personality and was run with little regard for securities or tax law. Many outside observers on Wall Street and at banks with far less visibility than the family suspected strongly the IA business was a scam, but their guess was his returns were coming from front running his trading clients. For example, this was Markopolus' first guess. But, and this is an important but, his brother and sons, who run the trading side of the business, know this is not true, front running is not the source of his returns. So I think a key question is,  'If the returns are not being stolen from principal (aka, a ponzi), then where does the family think the returns are coming from?'

     In public (see Peter's plea) his explanation is that Bernie was this trading genius. I discussed this in emails with a Madoff reporter for a well known newspaper. She thinks it was feasible that DiPascali with a few clicks could in his spare time trade 50 billion in equities and options in and out of the market every few months. I don't buy this at all. As Markopolus explained the only way to make money with this type of trading was exquisite timing (and research), and the brother and sons as trading professionals would understand this. The resources available to Bernie to expertly trade, to make money trading month after month, simply did not exist, and the family would have to know this.

        So what's left for the family to believe? If the returns are not from being stolen from principal and not coming from trading, where is the money coming from? I can come up with only one guess.

Bernie's cover story
        My guess is that Bernie tells the sons (mayb Peter) in private some sort of plausible cover story, probably involving the mob or drug types. He says can't tell them details as to this sweet deal he as worked out, because if it gets out it will collapse, and it is better that they don't know. His family well understands when 'it is better not to know', so they don't ask. Hence no evidence trail at work, and DiPascali can't point to anything. Both Markopolus and NYT reporter Diana Henrique discuss how Madoff was involved with South American and East European drug and mafia money, but the details have never come out. He could have told the family he was helping the mob launder cash, and his 'commission' is the source of his returns. In fact I wonder if he didn't in fact do some of this at some point, it might even be consistent with his explanation that the ponzi started later.

       It explains a lot of otherwise inexplicable facts:
        -- Why as professional traders they can't seem to figure out that Bernie's IA returns are not market returns
        -- Why they can't seem to figure out that there aren't any traders or trades
        -- Why they don't ask their father to show them what he does and maybe teach them
        -- How it can be that counter-parties so inept can exist that they can be on the losing side of option deals with Bernie month after month for decades

      To continue with this rank speculation I note that Picower was a tax avoidance lawyer and expert, early investor and long time friend of Madoff's. Did he possibly work or consult with Bernie on money laundering for the mob in the early days? Maybe they had a falling out, which would explain a lot.

Ruth and Peter
       I do think that wife Ruth and brother Peter, being a generation older, probably knew a lot more than the sons about what was going on in the investment advisory business, and, more likely than not, they knew (or strongly suspected) it was a ponzi.
----------------
Judge Swain's view (12/20/12)
       I drafted the above circumstantial case III on the family's guilt prior to today's Peter Madoff court appearance, so I was pleased to see that the Judge's view about how the Madoff firm was operated and what Peter knew parallel my views. Here's the NYT today reporting the judges remarks to Peter in open court.

        "Peter Madoff  was not charged with knowing about the Ponzi scheme, and insists that he first learned about it only 36 hours before his brother’s arrest. During the sentencing in Federal District Court in Manhattan, Judge Laura Taylor Swain expressed skepticism about that assertion.

        "Peter Madoff’s contention that he did not know that anything was wrong with the investment advisory business is beneath the dignity” of a sophisticated Wall Street executive, Judge Swain said.

        “It is also, frankly, not believable,” she added.

        In her view, Peter knew for decades that the Madoff business operation was “a little bit crooked and he was content to go along with that.” She then added, “We all know that a crooked operation is only rarely, if ever, just a little bit crooked.” (New York Times 12/20/12)

        http://www.justice.gov/usao/nys/madoff/20120629transcriptpetermadoffpleaproceeding%20.pdf

        In the court transcript Peter Madoff explains the details of how he again and again fakes documents that conceals his brother's (so-called) investment advisory business from the SEC, and how as compliance officer he has reviewed the investment business and it's on the up and up, customer accounts are protected. Somehow he never gets around to explaining why if he thought that Bernie was this world class trader that his investment advisory business couldn't stand the light of day. Also unstated is that he knows (for a fact!) that his brother is not honest, because he has schemed with Bernie for years to fake records to avoid he and his family from paying millions in taxes. A few excerpts:

Peter Madoff explaining to the court what he did
        As the Court is aware, my brother is Bernard Madoff, who in December 2008 confessed and later pled guilty to operating a Ponzi scheme at Bernard L. Madoff Investment Securities, otherwise known as BLMIS. And while the conduct I am pleading guilty to relates to my own employment at BLMIS, it is important for your Honor to know that at no time before December 2008 was I ever aware that my brother Bernard Madoff, or anyone else at BLMIS, was engaged in a Ponzi scheme. I truly believed that my brother was a brilliant securities trader who successfully traded for his customers' accounts. In fact, I encouraged my own family to invest millions of dollars in accounts managed by my brother. My wife lost millions of dollars in an account managed by my brother, and my daughter and granddaughter, sister and other relatives similarly had, at my urging, invested money with my brother.

        My respect and admiration for my brother only grew over the decades, as he became one of the most successful and best regarded traders on Wall Street. He held important positions within the industry, including chairman of the NASDAQ. Among the most prominent members of the securities industry -- including high-ranking officials at the SEC -- my brother was widely viewed as one of the most honorable as well as the most successful traders of our time, and no one believed it more than I did. I revered him and trusted him implicitly.

        On several occasions my brother and I engaged in money transfers in ways specifically designed to avoid payment of taxes. I knew that this conduct was wrong. In addition, at my request, my wife was placed on the BLMIS payroll and for many years received compensation for a no-show job.

        In 2005, in order to avoid the payment of gift tax on a transfer from my brother to me, we treated the stock transaction as though it had occurred in my account rather than my brother's. In 2002, in order to avoid the payment of a gift tax on a transfer from my brother to me, we treated a similar stock transaction as though it had occurred in my account rather than my brother's. I now know that those transactions never occurred at all, but at the time I truly believed they were legitimate transactions, albeit not my own transactions.

        On these and other occasions my brother provided me with gifts of substantial sums of money which I had no intention of repaying, and some of these transfers were documented as loans in order to avoid gift tax.

        In addition, the next day, (after Bernie had told him about the ponzi) I had taken out $200,000 from the firm to make end-of-year charitable contributions, as I had planned to do before I was aware of the fraud. The following morning my brother was arrested and confessed, and shortly thereafter my assets were restrained, and I never made the planned charitable contributions.

Government summaries the case against Peter Madoff
        For example, the evidence would show that Peter Madoff created documents that were filed with the SEC that stated that the investment advisory business had 23 client accounts, a statement that he knew was false. In reality, it had more than 4,000 client accounts. The evidence would show that in those filings, he vastly underreported the amounts of assets under management.

        With respect to the tax fraud, the evidence would show that Mr. Madoff engaged in an enormous tax fraud conspiracy in which tens of millions of dollars were transferred within the Madoff family so that Peter Madoff and OTHERS could avoid paying millions of dollars of taxes. Just from 1998 through 2008, the evidence would show that Peter Madoff received at least $40 million from Bernie L. Madoff and BLMIS out of accounts holding investor funds, and that Madoff conspired with others not to pay taxes on this money.

        http://madoff.com/document/dockets/001036-kwdeclaration11-03605docket107.pdf

------------------------------------
Chais dead (update 9/28/2010)
        NYT had a short story today that Madoff's LA bag man Stanley Chais 84, who has not been in good health, just died. The article mentions the SEC suit against Chais charging him with defrauding his investors. On the criminal investigation, the article only says, "Last year, the Justice Department also started a criminal investigation into Mr. Chais and his funds." The article indicates that law suits again him are still pending, saying 'his surviving relative face legal action from his Madoff investors.'

        My memory is that one of his sons at one point was scheduled to replace him as fund manager as he got older and his health declined, but the article (on the word of family lawyers no doubt) says his wife and sons don't know nothing about how the fund were run...)

7.2 billion Picower settlement (Dec 2010)
        Even though it had been reported in court papers in spring 2010 that the Picower suit would be settled for 2 billion, Barbara Picower ended up forking over 7.2 billion exactly the amount the Trustee had sued for. 7.2 billion was the amount the Trustee figured had been the Picower's net Madoff withdrawals for the last 13 years. Barbara said she settle for 7.2 billion because that's what Jeffry would have wanted. Oh, yea! I read the Picower's reply to court before Jeffry died, I guess I missed the part where he agreed to return 7.2 billion.

Barbara and Jeffry Picower

2.2 billion of the Picower settlement is related to criminal activity (Dec 2010)
        The 7.2 billion Picower settlement is actually two settlements announced at the same time. 5 billion is with the Madoff Trustee (Picard) and 2.2 billion is with the "U.S. Attorney for the Southern District of New York" which the WSJ article describes this way: "U.S. attorney’s office in Manhattan would obtain $2.2 billion through civil forfeiture, a procedure that allows prosecutors to recover the proceeds of criminal activity."  (WSJ 12/17/2010)

        --  U.S. attorney's office in Manhattan would obtain $2.2 billion through civil forfeiture. (WSJ)
        --  U.S. attorney, Preet Bharara, 4 page announcement of Picower settlement (link) (Dec 17, 2010
                  "largest single forfeiture in US hisory"
                   settlment is with US Dept of Justice, FBI, IRS and SIPA
                   settlement of 'civil forfeiture complaint'
                   "BLMIS was operated as a massive ponzi scheme from at least the early 1980's"
                                 (in other words every single investment shown in the records of the Picower
                                  Foundation beginning in 1989 was phony)
                  "The settlement contains no admission or finding of fault against Picower..."
        -- US attorney 10 page forfeiture complaint (link) Dec 17, 2010 (cosigned by FBI)
                  7.2 billion the Justice Dept is seeking is on deposit at JP Morgan Chase bank
                  (Madoff ran all his ponzi money through a single account at the same bank)
                  "Any property, real or personal, which constitutes or is derived from proceeds tracable
                   to .... any offense constituting  'specified unlawful activity'... or a conspiracy to
                   commit such offense'." (this is the authorizing language, the '...' are included)

        -- US Dept of Justice report discussing asset forfeiture (link)
                  "Federal asset forfeiture laws and regulations are powerful law inforcement tools that
                    serve several important purposes. First, they deter criminal activity by taking the profit
                    out of crime, depriving criminals of their illegal proceeds and instrumentalities. Second,
                    they are used to restore funds to victims..."

        -- Civil forfeiture, a procedure that allows prosecutors to recover the proceeds of criminal activity.
        -- (from a video of Preet Bharara speaking of the settlement. The 7.2 billion to be recovered he says,
                "was always other's people's money".

        -- Federal prosecutors in Manhattan came to believe that the $7.2 billion represented the proceeds of “specified unlawful activity or a conspiracy to commit such an offense." The U.S. Attorney in Manhattan, Preet Bharara, filed a civil forfeiture complaint against the money in December at the same time that the government announced that Barbara Picower had agreed to turn over all of the money as part of the “largest single forfeiture recovery in U.S. history.” (Forbes 4/12/11)

        -- Madoff is a liar and a thief, but he may have also provided Jeffry Picower with one of the largest zero-interest margin loans in history. (Forbes 4/12/11)

        -- ** Asked about Picower’s role in Madoff’s scheme and whether the settlement cleared Picower’s name, U.S. Attorney Bharara said, “Mr. Picower passed away a year ago and so the question of whether he had a role—as a criminal matter—is now moot.” (Allan Dodds Frank writing in the Daily Beast 12/17/10)

        -- ** The U.S. Attorney, like Picard, deflected questions about whether the (7.2 billion) settlement “cleared” Jeffry Picower’s name or reputation. What Bharara left to be said in court papers is this: The U.S. government can only force forfeiture in cases where they can tie the money to “specified unlawful activity or a conspiracy to commit such an offense.”  (Allan Dodds Frank writing in the Daily Beast 12/17/10)

        -- ** The aggressive use of forfeiture as a legal mechanism to seize and freeze criminal proceeds has long been a hallmark of Manhattan’s federal prosecutors. Securing forfeited assets is a priority of the office in part because many of the largest financial fraud cases are centered in New York. ( U.S. Attorney’s Office, Forfeiture From Crimes Pays, NYT Dealbook 1/1/13)

Trustee recovery and payout (update 5/5/11)
        "The trustee, Irving H. Picard, who has filed more than 1,000 suits seeking money for Madoff investors, said in the statement that he had recovered $7.6 billion, or about 44 percent of the estimated principal of $17.3 billion lost in the Ponzi scheme." (NYT news story May 5, 2011). Doing the math (7.2 billion picower/17.3 billion total lost principal) x 100% = 41.6% of all estimated lost principal in the ponzi has been recovered from just one couple, Barbara and Jeffry Picower!

1/3rd of all the ponzi cash ends up in Picower pocket! (latest number see above is over 40%)
        Trustee figures the cash lost in the Madoff ponzi was about 20 billion, so incredibly one investor (Picower) of thousands of Madoff's investors ends up with about 1/3rd of all the Madoff cash! Just what service did he render to the ponzi to be worth so much cash?

Picower's misleading cash input
       Trustee estimates Picower's cash input at 620 million, but likely this is just a simple sum and very misleading. The Trustee himself details a case when Picower puts in 125 million (more than 1/4th of all the cash he ever put in says the complaint!) into a new account, which with Madoff's accounting magic appears to generate a 40 million profit in two weeks (!), then a few months later out comes the original 125 million investment leaving 81 million in phony profit to grow. It's likely this pattern was repeated.

        Below is the Trustee's Dec 2010 court filing of the Picower settlement agreement to get a judge to sign off on it (he does). Interesting things in it:

        * 7.2 billion to be returned are in a JP Morgan account (see title of the filing). (NYT (see below) reports two Goldman insiders say his accounts there ten years ago were worth 10 billion, so this hardly bankrupts Barbara Picower.)

        * (p3) "Estate representative (Barbara) wishes to divest any and all funds received from Madoff (that's a crock, the Trustee legally could only reach back 13 years)... to use the remaining assets of the Estate primarily to establish a charitable foundation in accordance with Jeffry M. Picower’s last Will and wishes."

    * (p3) If the suit were to be litigated, Estate representative (Barbara) would assert that Picower "had no involvement in, knowledge of, or participation in the Madoff fraud ... and were innocent owners of all assets transferred to them by Madoff.

        http://www.scribd.com/doc/45532848/Agreement-by-Picower-Estate-to-Pay-7-2-Billion

NYT article on settlement (12/17/10) by DIANA B. HENRIQUES

        http://dealbook.nytimes.com/2010/12/17/big-settlement-with-madoff-investor-near/

        On his wealth the NYT 12/17/10 article by DIANA B. HENRIQUES says this:

        "In the late 1990s, Mr. Picower’s personal brokerage accounts at Goldman were worth about $10 billion, according to two people with direct knowledge of the account."

        Note this is 10 billion in accounts at one bank ten years ago! I have never seen any info on Picower recent wealth, all we know for sure is that Barbara is able to cough up 7.2 billion (2.2 billion of which goes to the Justice Dept) and will still have wealth to form a new charity.  WSJ and NYT say Picower had been a client at Goldman Sachs for 30 years and leveraged his stock investments, at one point he had 5 billion in margin loans. He might very well have doubled that 10 billion to 20 billion in the last ten years of his life, if he was a competent investor! Was he? Who knows.

Secret multi-billionaire
       -- "Mr. Picower was among the wealthiest individual clients at Goldman Sachs. Executives who ran the firm’s exclusive private wealth management business, with clients including Ralph Lauren and Bill Gates, were amazed that Mr. Picower had become so wealthy yet managed to stay out of the public spotlight." “It was amazing,” said a former Goldman executive. “The guy was worth $10 billion, just at Goldman, and that alone would have made him one of the richest men in the country, yet he wasn’t in the Forbes 400,” the magazine’s annual roster of the rich and super-rich, until after the Madoff scandal." (NYT 12/17/10)

Settlement press releases
        The press releases from the Trustee and Barbara Picower adds a few details. Of the amount being returned  (7.2 billion) Barbara Picower says this:

        "The settlement “will return every penny received from almost 35 years of investing with Bernard Madoff,” Mr. Picower’s wife, Barbara, said in a statement released through Mr. Zabel, a  partner at New York law firm Schulte Roth & Zabel."

        I think this is another Barbara Picower crock. I don't see the Trustee saying this. In fact I think it is very unlikely to be true. The press reports the clawback period as 13 years (1985), which I think is about as far back as the Madoff records go. The amount returned (7.2 billion) is the exact amount the Trustee sued for.

        And there is this from the Trustee in the press statement:

        "Mr. Picard further stated, “When we filed suit against Mr. Picower and others in the spring of 2009, the records available led us to allege that Mr. Picower might have, or should have known, of Mr. Madoff’s fraud. With the benefit of additional records, I have determined that there is no basis to pursue the complaint against Mr. Picower, and we have arrived at a business solution instead.” (translation: we are willing to sweep our claim that Picower knew of the fraud under the rug, since a) he is dead, and b) we are getting billions in cash, every cent we could legally clawback.)

        It's amazing what consideration a 7.2 billion settlement will buy. 'Additional records' gee that's specific. You think the fact that Mr. Picower is dead might be relevant? The two Trustee complaints details dozens of pages of indications of fraud. Notice this statement does not say that we were wrong, we now think Picower was innocent, we changed our minds or that any of indications or fraud we put forward no longer apply.

        No, it just says 'there's no basis to pursue the complaint'. Well of course there isn't, the suit's purpose was to recover 7.2 billion and that is exactly what the settlement achieves, so of course they are settling. No double this vaguely worded statement will be used by Barbara Picower sometime in the future to indicate her and Jeffry's innocence, but it says no such thing!

** ProPublica on Picower (Dec 17, 2010)
        Reputable ProPublica has a very nice summary of what the Trustee documents show about the relationship between Picower and Madoff, which I have previously written up to MIT (April Freilich's account manipulations, etc). (by Jake Bernstein)

        -- The annual rate of return for two of Picower's regular trading accounts in the four years between 1996 and 1999 ranged from about 120 percent to more than 550 percent annually. In 1999, one account earned 950 percent.

        --Picower belonged to a select group of Madoff investors who received souped-up returns. A Wall Street Journal story published in May cited unnamed sources saying that prosecutors were looking into eight investors who appear to have received special treatment from Madoff.

        http://www.propublica.org/article/madoff-client-jeffry-picower-netted-5-billion

Trustee litigation update -- JP Morgan (2/3/11)
        JP Morgan, who was Bernie's banker for years, it has been revealed (suit unsealed) today (2/3/11) is being sued by the Madoff Trustee (Picard) for 1 billon in profit and 5.4 billion in damages. In the suit the trustee alleges that JP Morgan 'aided and abetted' a fraud, and referring to internal bank emails alleges that the bank 'knew or should have known' that Madoff' was likely engaged in a fraud. In a 2009 suit against DiPascali (see far below) the Trustee said that all the ponzi cash (five billion at one point) sloshed into and out of a single JP Morgan Chase account.

        The bank officials were advised by some hedge fund managers that Madoff was very likely involved in a fraud, but did nothing except act to protect their own investments. The news stories say that in Oct 2008 (3 months before Madoff was arrested) that JP Morgan did report Madoff to the government officials. According to the suit filed by Mr. Picard, the bank filed a suspicious activity report to the U.K.’s Serious Organised Crime Agency in October 2008.

Here is the 121 page Dec 2, 2010 Picard suit against the JP Morgan. (My notes on reading the JP Morgan complaint are here. )

        http://online.wsj.com/public/resources/documents/020311madoffjpm.pdf

        From the day Madoff was arrested it has been widely speculated that many Madoff investors long suspected Madoff was a cheat, that his so-called great returns came from illegally front-running his trading customers. I read the Trustee's recent complaint against JP Morgan and sure enough it reveals that this is what some at the bank long suspected.

        Think about it --- if a Madoff investor suspects that Madoff is a front-running cheat, then ignoring all those investment red flags makes sense. Red flags in this context are a positive, confirming that you have latched onto a money making crook! I have no sympathy for such investors who (as a group) were essentially too stupid to understand that they were the ones being cheated.

        Nevertheless, some (Trustee's 'net winners') did benefit with the Madoff insiders like the Wilpons and Picowers benefiting hugely. At root the Madoff ponzi was a cash transfer machine stealing money from the little, often indirect, Madoff investors and giving it to the Madoff insiders.

       Washington Post links (below) to a Bloomberg TV 12/13/10 interview with a lawyer, David Berg, a partner at Berg & Androphy, who says Picard in his clawback lawsuit is doing a good job, that the suits are strong because after a two year study he has lots of evidence.

http://www.washingtonpost.com/wp-dyn/content/video/2010/12/13/VI2010121301784.html

Trustee litigation update (Bloomberg news, 11/1/10)
        "A New York lawyer who was appointed as trustee in December 2008, Picard, 69, told U.S. Bankruptcy Judge Burton Lifland in his latest report that he recovered (to date) a total of about $1.5 billion for creditors of Bernard L. Madoff Investment Securities LLC."

       "Picard is also pursuing 19 lawsuits seeking to recover more than $15.5 billion from parties related to Madoff, including his friends and family, and from so-called feeder funds, which directed most or all of their clients’ money to Madoff. The biggest of these is a suit seeking $7.2 billion from the estate of Jeffry Picower. " ("Picower settlement discussions continue.”)

        "Picard said he “anticipates filing extensive additional litigation” to recover fictitious profits paid out to some investors, so-called “claw-back” suits." (earlier from WSJ July 26, 2010, "In an interview, Irving Picard said he could wind up suing about half the estimated 2,000 individual investors he has called "net winners" from their dealings with Mr. Madoff." )

        The point he makes about Picower is that 2.4 billion was the clawback amount if the clawback time was limited to 6 years, but if Jeffry Picower was in on the scheme or willfully blind, which is (effectively) what the Trustee alleged in his filings, then Nocera says the time limit is gone and all Picower's withdrawals were subject to clawback. Curious isn't it that after Picower's lawyer long talked of settling for about 2 billion, the full 7.2 billion was returned without a trial. Here is Nocer's NYT column in full (as published 3/19/12).

        Fifteen months ago, Irving Picard, the trustee managing the Madoff bankruptcy, and Preet Bharara, the United States attorney for the Southern District of New York, reached an astonishing settlement with the widow of one of Bernard Madoff’s wealthiest investors. Barbara Picower’s late husband, Jeffry, had been a Madoff investor since the late 1970s. During that time, he had pulled out a staggering $7.2 billion in profits, far more than any other investor in the Madoff Ponzi scheme.

        Under New York law, a bankruptcy trustee trying to reclaim money from the “net winners” in a Ponzi scheme — that is, investors who took out more in profits than they put in — can “claw back” only the last six years’ worth of profits. In Picower’s case, that amounted to $2.4 billion. The law also says, however, that if the investor was either in on the scheme, or was “willfully blind” to it, he is liable for every penny he ever took out, no matter how far back. Although Barbara Picower insisted that her husband had been unaware of Madoff’s crimes, she nonetheless decided to give back everything; she was starting a foundation, she told people, and she didn’t want it tainted by Madoff. (It certainly helped that Picower’s other investments had been so profitable that she could afford to give back $7.2 billion.)

        Today, that money sits, frozen, in the bank. Although it represents the lion’s share of the $9 billion Picard has recovered so far, he has been unable to distribute it to the Madoff “net losers,” many of whom are elderly and broke and desperately need it.

        The reason is that a lawyer named Helen Davis Chaitman, who says she represents some 800 Madoff victims, has sued to void the settlement, claiming it would prevent her clients from bringing their own lawsuits against Picower. (Chaitman did not respond to an e-mail or a phone call for this column; she and I have spoken in the past, however.) In truth, her suit is ludicrous, and has no chance of succeeding. Her motive, so far as I can tell, is anger. A Madoff victim herself, she has become so consumed with rage at the trustee’s hardball tactics against the net winners that she sues Picard pretty much at the drop of a hat. But that rage is harming some of the very people she claims to represent.

        Up until Monday, Fred Wilpon and Saul Katz, the beleaguered owners of the New York Mets, were every bit as angry at Picard as Helen Chaitman. They were furious when the trustee went public with his accusation that they had been willfully blind to the Ponzi scheme. They were livid that Picard was demanding $1 billion. They were convinced the trustee was filing inflammatory legal briefs, intended to make them look bad in the media. They even joined Chaitman in suing Picard over the question of whether he had the right to claw back profits from the net winners, even though that is standard operating procedure in a Ponzi scheme bankruptcy.

        And then, just as they were about to bring their war to court, the two sides settled. It is easy to understand why. Jed Rakoff, the federal judge who was presiding over the case, has been openly skeptical of the trustee’s claim that Katz and Wilpon had been willfully blind. As for the Mets’ owners, the prospect of daily headlines airing their financial problems and their ties to Madoff is exactly what they don’t need as they desperately try to find minority investors to shore up their debt-ridden team.

        So, in effect, Katz and Wilpon switched sides. They agreed to settle the suit for $162 million. At first glance, it is a very good deal for the Mets’ owners. But look again: it still adds up to six years’ worth of Madoff profits — exactly what the trustee has been demanding of all the other Madoff net winners. Katz and Wilpon also agreed to end their role in the litigation over whether Picard can claw back from the net winners. (That litigation is doomed anyway.) In other words, instead of letting their anger carry the day, the owners of the Mets did what they had to do, which included, essentially, agreeing with the trustee’s legal view of the Madoff bankruptcy. Unlike Chaitman’s lawsuit over the Picower settlement, they acted rationally.

        Here’s one final, complicated wrinkle. Under the terms of the settlement, Katz and Wilpon won’t have to pay the $162 million for three years, giving them time to shore up the Mets’ finances. Indeed, because many of the Katz and Wilpon accounts were also net losers — and the trustee has agreed to accept those claims as legitimate — they might actually wind up paying much less than that out of pocket, depending on how much the trustee can raise in those three years from other sources. If they do have to pay, they have personally guaranteed $29 million. Thus, the two men who fought so hard to prevent Irving Picard from collecting from the net winners are now in the position of rooting for him to do so. They might start by having a little talk with their former ally, Helen Chaitman.

Here's my scenario (1/15/09)
        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)
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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.

Hard cash numbers
        Aug 11, 09 SEC court filing against Frank DiPascali says that Bernie's "slush fund" (JPMorgan Chase bank account 703), into which all deposits went and from which all withdrawals came, contained 5.5 billion in "summer 2008" and that it was drained by more than 6 billion in withdrawals in the last three months of the ponzi down to a few hundred million.
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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.
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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 withdrawals (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
http://www.propublica.org/projects/picower/chart.html

        For reason unexplained a large fraction of all the billions in cash that Bernard Madoff ever raked in his decades long ponzi made its way into Jeffry Picower's pocket. In the years Picower was funding the Picower Institute for Learning and Memory his cash withdrawals from the Madoff ponzi exceeded his gift to MIT by x50 to x100. Here's the record of Picower's MIT gifts and his Madoff ponzi withdrawals for years 2001 to 2005 (in millions):

                                                        Picower's                     Picower's
                               year               Gift to MIT               Madoff Withdrawal
                              -------             ----------------            -----------------------
                               2001                     10.2                               821
                               2002                     10.0                               922
                               2003                     10.0                            1,025
                               2004                     10.2                               480
                               2005                     10.2                               468
                                               -----------------               -----------------
                                         subtotals     50.6                            3,716

        Picower's Madoff cash withdrawals were 7.2 billion (net) in just 13 years. This is x72 times the 100 million or so the Madoff family is known to have received! The court appointed Madoff Trustee has made credible allegations that both Jeffry and Barbara Picower, along with their associate April Freilich, knew their (so-called) investments with Madoff were phony and that they were active participates with Madoff in fraudulent activity.

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)

Hi res MIT Picower lobby portrait
( photo credit: Don Fulton)

Picower info sites (almost wholly negative in tone)
            Wikipedia -- Jeffry Picower  ---  http://en.wikipedia.org/wiki/Jeffry_Picower
         http://hedgefundoperationalduediligence.com/life-death-jeffrey-picower-madoffs-frenemy/

            Wikipedia -- Picower Institute for Learning and Memory -- "It was renamed after a massive $50 million grant by the Picower Foundation in 2002. The Picower Foundation wealth was later found to have come mostly from Bernard Madoff's ponzi scheme, which stole billions of dollars from thousands of small Madoff investors and paid it out to Madoff insiders like Jeffry Picower as lavish, but totally fictitious, returns."
         http://en.wikipedia.org/wiki/Picower_Institute_for_Learning_and_Memory

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 links describing the 50 million Picower Foundation gift. (excerpts) "This is the single largest gift given to MIT by a private foundation in the university's history."  "The Picower Foundation gift will fund a new state-of-the-art facility for the center, plus $12 million for four endowed professorships and $8 million for research and related activities."

        http://web.mit.edu/picower/news/index.html      (begining, scroll down to 2002)
        http://web.mit.edu/newsoffice/2002/picower.html   (complete)

        MIT Link to the agenda for the 12/1/2005 dedication of the Picower Institute of Learning and Memory:
        http://web.mit.edu/picower/events/inaugural.html
---------------------------------------------------------
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)
Mailing list for my analysis of Picower/Madoff investment portfolios (2001 to 2007)
        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

        http://twinkle_toes_engineering.home.comcast.net/picower_foundation_portfolio_analysis.pdf
--------------------------------------------------------------------------------------------

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 Picower 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)

Cash transfers from advisor side to trading side (update 12/18/11)
        The plea agreement of Erica Pitz today has disclose a very interesting fact about transfers from the advisory side to the trading side. About 100 million a year!! from 2002 to 2008 was being moved from the ponzi to the trading business. Compare this to the number in the figure above.

        "She (Erica Pitz) also allegedly funneled large amounts of investor money from the fraudulent investment advisory business to the firm’s legitimate proprietary trading and market-making operations, including more than $600 million between 2002 and 2008, according to Mr. Picard’s lawsuit."

Fake Bernie lays out the circumstantial case against the Madoff family (upsdate 12/18/11)
        Here's Fake Bernie quoting from the Trustee's suits against the Madoff family. I haven't checked these numbers, but on the facts Fake Bernie is generally pretty good. The circumstantial case that the family had to be aware of rank criminality within Madoff Securities is very strong.

Innocent Andrew? Puhlease
        Andrew says he was the "head of the firm’s Nasdaq trading desk"; so why didn't Morley (Safer on 60 Min) ask him about how he redeemed nearly $15 million from his BLMIS account re: purported Dell trades––that took place before he ever opened the account?

         All 60 Minutes needed to do was actually look at the trustee’s suit against the Madoff family members which shows: a) Peter Madoff ”invested” $32,000 in the hedge fund and redeemed $17 million; b) Mark Madoff “invested” $745,000 in and took out $18 million and c) Andrew “invested” $900,000 and took out $17 million.  And these profits were made on trades that never took place in the phony hedge fund.

        Excerpts from the suit: “Mark and Andrew Madoff supervised trading at the company’s proprietary trading and market-making operations. They were, therefore, aware at all times—or, at the very least, should have been aware—of the trading volume and price ranges of the stocks traded… They knew or should have known that the profits and executions described in customers’ account statements, including their own, did not correspond to actual market conditions.”

         “Andrew made most of the phony trades in his account #1M0140. No money was invested into this account,  yet he redeemed over $14.5 million between 1998 and November 2008. A July 21, 1998 entry on the account statement shows that the Dell shares were purportedly ‘sold,’ generating a gain of $1,985,000. Three days later, on or about July 24, 1998, he redeemed $1,956,205 from this account.”

         “The trustee discovered $60 million transferred to Andrew Madoff or to entities on his behalf. Between 2001 and 2008, Andrew was paid $31,105,505 in salary and bonus. His compensation included bonuses of over $4.8 million in 2006, and over $9 million in 2007, alone. ALL DESPITE THE FACT THAT MADOFF SECURITIES REVENUE COULDN'T POSSIBLY HAVE SUPPORTED THAT KIND OF COMPENSATION for one of its executives, no less a handful of family members that 'ran the firm' (i.e. Bernie's two sons, Bernie's brother Peter, and his daughter Shana).

        Beyond this amount, Andrew seeks an additional $40,624,525 in deferred compensation.” (not a typo…he says he’s owed more money after the Ponzi scheme collapsed).

        Did Ruth, Mark, or Andrew really know that Bernie was perpetrating a fraud? Maybe..But, how could they not have known something was awry when they were getting brokerage statements showing trades made in their account(s) before those accounts were even opened? And if the "boys" were "savvy Wall Street traders", how could they have overlooked the millions of dollars in profits [that they happily withdrew from their accounts] for trades that were backdated to before they signed the account opening documents? (Fake Bernie Oct 31, 2011 posting)

Andrew Madoff Cancer (update 8/8/13)
        According to Dail Mail (UK) Andrew Madoff, now age 47, has stage 4 cancer. (He died of the cancer about a year later, 9/3/14.)

        'The younger Madoff was diagnosed with stage one mantle cell lymphoma in 2003 and earlier this year (2013), the cancer spread throughout his entire body. He told People Magazine. 'I've been receiving treatment since January, and it's a lot - six rounds of chemotherapy, then radiation, then more chemo before the transplant, then the stem cell transplant itself, which the article says shows signs of failing.'

        'Mantle cell lymphoma, which most often affects men over the age of 60, is a rare type of non-Hodgkin lymphoma that causes white blood cells to grow and multiply uncontrollably. It is aggressive and often comes back after patients go into remission. Survival rates are generally poor compared to other types of non-Hodgkin lymphomas and most people do not live longer than five years after diagnosis.'

Andrew Madoff with wife Catherine Hooper and mother Ruth Madoff
on what looks like a morning TV show Oct 31, 2011

-------------------------
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 12/30/09) Sons, brother, & Shana to be sued for 200 million by Picard (cont)
        Picard files suit against Peter, Mark, Andrew Madoff and Shana on 10/2/09. Sure enough he wants back from them 198 million (total) that they fraudulently got from the business. Suit says, "The Madoff ponzi massively enriched the Family defendants." (So what does this say about Picower who got about x36 times more money =[7.2 billion/0.2 billion] than the family!)

        Fake Bernie's blog opines that if the charges in this suit are correct Peter and the sons are going to jail for securities fraud. It's now known the family (plus Picower and Chaise) had special handcrafted portfolios and accounts. This suit details case after case of rampant backdating in their accounts where neither purchase date nor sale date are entered into the portfolio record until months later! These obviously phony transactions yielded tens of million to Peter and the sons. Also the Trustee says Misuse of funds (money laundering) permeated all of Madoff businesses including the trading business. The sons bought house after house (5 million at a pop) with cash pulled directly from the Madoff IA piggy bank account ("703 account"), sometimes characterized as a loan, but never serviced or paid back. They are all a bunch of slimeballs.

        These people are securities professionals. With account statements like this there is no doubt the Madoff family insiders had to know (at a minimum) that Bernie 'investments' were just a shame, that Bernie was shoveling millions into their accounts. Where did they think this money was coming from? You think, maybe it was stolen? Picard 10/2/09 suit against Peter, Mark, Andrew and Shana here:

http://www.scribd.com/doc/23988738/10-2-2009-Complaint-filed-by-Picard-against-Peter-Andrew-Mark-and-Shana-Madoff

        Excerpts from the above 10/2/09 suit in fake Bernie's blog here:

http://madoffmemos.blogspot.com/2009/12/bernie-madoff-excerpts-from-lawsuit.html

        A weird little tidbit in the suit -- some of the family used the Madoff's one man accounting firm, Friehling & Horowitz, to prepare their own tax returns. Why, maybe because their income was so weird they didn't want any outsider to see it?

(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.

(update 1/27/09) Peter Madoff in a court filing confirms that he is the 'subject' of a criminal probe by the US Attorney's office in Manhatttan.

        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 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.

Here is the (8/11/09) DiPascali SEC court filing
         http://www.sec.gov/litigation/complaints/2009/comp21174.pdf

        “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)

DiPascali released on bail (2/11/10)
        Government said DiPascali was cooperating and in summer 2009 asked for 2.5 million bail. Judge refused citing risk of fleeing. Judge relented in Feb 2010 to very restrictive bail: home only, GPS tracking collar, FBI to accompany when he leaves house, 10 million bond including houses and retirements of 9 cosigners. DiPascali and wife to give up all assets except about 300k.  Judge says the scale of the fraud was "momumental, indeed unprecedented". Here is the Judges bail order.

        http://graphics8.nytimes.com/packages/pdf/business/courtorderdipascali.pdf

        Government says (link) DiPascali has provided "substantial assistance to the government". Here is government's 12/14/09 cover letter to judge requesting bail. Contents of the letter are redacted (under seal).

        http://graphics8.nytimes.com/packages/pdf/business/letterdipascali.pdf

Madoff's net cash
        SEC DiPascali court filing does provide some hard numbers on Madoff's cash. What the SEC calls his "slush fund" was account 703 at JPMorgan Chase. All customer deposits and withdrawals were paid out of this bank account. This was the net cash Madoff had on hand. The court filing says as of "summer 2008" it contained 5.5 billion. But that withdrawals spiked after the market collapse of Sept 2008 and in the last three months of the ponzi (either from Sept 11 or Oct 1) Madoff paid out "more than 6 billion" .

(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

Daniel Bonventre (2/25/2010)
        Out of the blue today comes word of (criminal) arrest of Daniel Bonventre, age 63, who appears to be a financial guy in the Madoff firm. His title is 'Director of Operations'. He is described as overseeing the back-office record-keeping staff for the last thirty years. A search of this essay for his name comes up blank. He has been almost totally off the Madoff radar screen since the Madoff firm collapsed.

        I later read Erin Arvedlund in her 2009 Madoff book had reported that two Bonventre sons (or his wife sons from an earlier marriage) worked at Madoff Securities and were paid 400k each!

        It's reported that one way investigators identified who at Madoff Securities needed special attention was to look at how much Madoff paid them. This was probably very effective as in case after case he pays those whose loyalty he needs very well indeed.

        The criminal charge against Bonventre (below) detail how he intermingled funds between the trading firm and the ponzi (using fabricated records). He also personally beneifited to the tune of two million dollars and cheated on his taxes. He is credited with saving the ponzi from collapse in 2005 and 2006 by borrowing 262 million using bonds of some investor (maybe Picower??) for collateral. Also the complaint says that the trading firm lost money and over ten years 750 million dollars of ponzi money was siphoned off by Bonventre to the firm.

        To put these numbers in perspective the annual revenue of the Madoff trading firm was estimated by the WSJ as only 116 million. So I guess Peter and the sons, who ran the trading business, would have us believe they are so stupid and/or incompetant that they didn't notice that (on average) more than half the firm's annual revenue mysteriously come from nowhere!

        http://graphics8.nytimes.com/packages/pdf/business/20100225bonventrecomplaint.pdf

Daniel Bonventre, Madoff Director of Operations, is arrested (2/25/2010)

Daniel Bonventre (Aug 2013)

--------------------------
Notes from reading the Bonventre criminal complaint (2/25/10)
        This guy was in charge of the back room of the trading business and records show he personally signs checks for 10 million to investment advisory customers in 2006. (So much for the argument that the trading operation was run separately from the investment advisory business!)

        The income tax fraud is detailed and is small potatoes (considering the amounts involved in the ponzi). His total omitted income from his personal 1040's over five years is a few hundred thousand dollars. He can not have been a big cheese, just one of the Madoff worker bees.  (update --- prosecutors say in the Oct 2013 trial that he was making a million a year. On top of that he was writing his own bonus checks, one for 200k. This income just never shows up on W2s and 1040, because like most of the Madoff gang he was a tax cheat.)

        He is accountant by training with an associates degree in accounting.

        Detailed bank account numbers in the complaint indicate that the ponzi was running on a much smaller cash cushion than anyone thought (or in fact seems reasonable!). The numbers are that ponzi cash (at least in one bank) typically run between 0.5 billion to 1.5 billion after year 2000.

        Bonventre tells FBI that Madoff told him that hundred of millions (he shifted) were from 'commission income' from investment advisory trades in Europe, but complaint says Bonventre had access to all trading records of the firm and had to know this was not true.

        As the end of the ponzi approached (Dec 2008) this guy shifts 181 million from the trading firm accounts to the investment advisory accounts. A similar hundred+ million transfer had been made to the investment advisory accounts in 2005 as it had insufficient cash in its accounts to cover withdrawal checks. Ordinarily the money flow went the other way as the trading operation lost 39 million/yr (on average) in its last seven years of operation.

        An unnamed investment advisory client (which Madoff insider could this be??) sends in 150 million in Federal bonds in 2005 which Bonventre uses to make a 100 million bank loan to solve the immediate ponzi cash crisis.

        In first four months of 2006 260 million is paid out to four ponzi clients. All of this money came from the trading firm accounts. The loan peaks at 350 million, but by Aug 2006 the loan from the trading firm is paid off.

        To survive SEC audits Madoff, Dipascali and Bonventre together hatched a plan to generate fake documents. The two Madoff programmers who have been arrested were the ones actually generating the fake trading records.

        It's clear from the complaint that DiPascali ratted this guy out. (The complaint repeatedly says "according to DiPascili".)

        Bonventre had his own Madoff account and it looks like he had one of the stock accounts some Madoff insiders had. On Nov 20, 2002 Bernie writes him a check for one million. Two days later (!) a handwritten note is found instructing that his account records be altered to show a backdated gain of 1.2 million. The procedure is repeated a couple more time earning him an additional 800k. (Complaint is not clear but his account balances were often negative.) The include a note from him directing a (phony) 450k million gain be created on a 129k investment. (Oh yea, this is how the insiders do it).

        Each year this guy would transfer from trading's bank account about 100k to his personal bank account to top up his salary & bonus. He never reports any of this 'extra' income to the IRS.

My 2/27/10 posting to NYT Dealbook column on the Bonventre arrest.

        What I find remarkable in the Bonventre complaint is the disclosure that for a long time Madoff’s cash pile has been so tiny. How could he operate a 65 billion ponzi with cash of just a few hundred million? Whistleblower Harry Markopolos said he thought Madoff’s cash pile was typically many billion.

        The Madoff Trustee (Irving Picard) is suing Jeffry Picower (now his estate) for return of 7.2 billion (net) he withdrew in the last 13 years. Is this one Madoff investor (Picower) largely responsible for bleeding Madoff’s ponzi dry?  — Donald E. Fulton

----------------------------------------
Enrica Pitz
       (update 12/18/11) Press is that in two days she will take a plea pleading guilty to four counts of faking records to fool regulators and the SEC. Turns out, according to the trustee, she was DiPascali's mistress.
-------------
        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.

Update (2/11/11)
        Pitz, identified as a Madoff Securities controller, is named in the Trustee complaint (for billions) against Bernie's banker JP Morgan. She was involved in arranging a 100 million dollar loan by the bank to Madoff to keep the ponzi afloat.

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 (Aug 2013)

Annette Bongiorno (NY Daily News, 3/25/09)

This purports to be a much younger DiPascali and Bongiorno
(source --- ABC News)

(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.

(update July 2010)
        There are some interesting tidbits about Bongiorno in a suit filed by US attorney in NY to recover three million in cash from her.  The filing says she knew what was going on, telling stories to Madoff's direct investors she knew to be false. Since 1995 it says she has been (in effect) partially retired spending a lot of time in Florida. Her salary was peanuts (200k to 300k/year), but her big bucks came from her 'investments' with Madoff. In Apr 2008 she plunks down 6.5 million for  Florida condominium under construction, but she pulls out when Bernie goes down. .

        Over 23 years (since 1985) she 'invested' a total of 900k and over time it grew to 67 million! Wow, a factor of > x74 increase. She certainly was on Bernie's favorite list. Even if all the money had been invested at the beginning (very unlikely), this is a growth rate of 20.6% a year for 23 years. 14 million was withdrawn from her account with 53 million left in her account when Bernie is arrested.

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 Aug 8, 2013)
       A Madoff story appeared in the press today (rare for 2013). Prosecutors say Madoff was in a 'Love Triangle' with one of the five Madoff employees due to go on trial in Oct 2013. The five are the two programmers (Jerome O’Hara and George Perez), financial guy (Daniel Bonventre), Annette Bongiorno, and JoAnn Crupi. I'm betting it was Crupi. Finally a picture has surfaced that purports to be JoAnn Crupi.

 JoAnn Crupi? (Aug 2013)

(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.

Annette Bongiorno & JoAnn Crupi arrested (update 11/18/10)
        Annette Bongiorno in Florida and JoAnn Crupi in New Jersey were both visited by the FBI and arrested on same day (11/18/10).  This is almost two years after Bernie's arrest. As I write, the complaints have not been released. The news article points out that both received so-call 'loans' (no need to pay them back, a tax scam by Madoff) of a couple of million to buy real estate.

        Reading through the statement released by the DA upon the arrest of Bongiorno and Crupi (link below) I see that (finally) the IRS is involved and the Madoff gang is being charged with tax evasion. Tax evasion is one of the charges against them and an IRS investigator who specializes in ponzi investigations is identified as working on the case. And the penalty for tax evasion is steep: five years for each count and one of them has three counts and the other five. They are also charged with conspiracy, which is a good sign!

http://www.justice.gov/usao/nys/pressreleases/November10/bongiornoannetteandcrupijoannarrestspr.pdf

        Some details of how the ponzi worked are disclosed here. They would research stock prices in WSJ and then "backdate" purported purchases to set the returns at the target returns set by Madoff. The DA says Bongiorno backdated for her own personal account too, having put in 0.92 million and having withdrawn 14 million (that's cash folks!). (The DA statement contains a whopper of a typo saying restitution of 154 billion (not million) is requested from these two.)

** Was Annette Bongiorno Picower's account person?
        The description of Bongiorno's role fits nicely with we what we know about Picower's accounts and its manipulations. She managed 8.5 billion in accounts as of Dec 2008. This fits. It is alleged that she recorded "exceptional" gains prior to accounts being set up. The exact same charge against Picower is detailed in the Picower claw back suit. And she (sometimes) requested clients return statements so she could alter them by "often include additional backdated trades". And the DA says she would receive instructions from clients about the gains they wanted to see in their accounts. Again, bingo.

        I made the following two postings to the NYT article about the arrests.

        How come it took nearly two years to arrest Bongiorno and Crupi, they should have been easy targets. Both were long time managers on the 17th floor (under DiPascali) where the ponzi was executed, and both were bought off by millions in phony loans. How is it that not a single Madoff family member (beside Bernie) has been arrested? Many family members got far larger phony loans. How is it that not a single feeder has been arrested?

        How is it that the big gorilla in the room, the pair that ended up with much of the ponzi cash, Jeffry and Barbara Picower, who got not millions, but 7.2 billion says the Madoff Trustee, have not been visited by the FBI? Sure Jeffry Picower is dead, but Barbara Picower, as manager of the family Picower Foundation, filed and signed off on IRS 990s, which for years contained detailed phony Madoff portfolios.
Donald E. Fulton, Boston MA, Nov 18, 2010

Next day after reading the DA's statement I posted this:

        The statement released by the DA upon the arrest of Bongiorno and Crupi (link in story) contains something interesting not reported in the news stories.

         Its description of how Bongiorno ran her 8.5 billion in accounts shows that some of Madoff's favorite clients had to know that Madoff's returns were not real. The DA's statement says the Bongiorno would (sometimes) request clients to return statement so they could be altered, whereupon she would "often include additional backdated trades".

    If the DA's has it right, then some of Madoff's investment 'victims' were not so innocent as they pretend to be.

(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

David L. Kugel (update Nov 2011)
        Described as a trader (office on 18th floor?) with a degree in accounting and a licensed trader. The WSJ describes him as, "a former supervisory trader in the firm's proprietary-trading operation". The Trustee report (below) says he was an experienced arbitrage trader before joining Madoff in 1970, and at Madoff Securities he worked for years (stops trading in 1999 and become a manager at Madoff Securities) doing legitimate arbitrage trading.

        So here we have a guy who for 30 years works in the trading side of the house (alongside Peter Madoff) doing real trading for customers and Madoff's propriety accounts, while at the same time assisting the 17th floor (providing historical data to Annette Bongiorno and JoAnn "Jodi" Crupi) to generate fake arbitrage trading tickets for the ponzi. So the trading side of the house was not all that separate from the ponzi!! Also for years he had a margin account at Madoff Securities with a loan balance vastly exceeding SEC limits, yet he never got a margin call. What does this say about Peter and the sons, who ran the trading business?

        Kugel's specialty was faking the “convertible arbitrage” trading records, which he did for 1,300 'select customers' (says Trustee), which included his own family accounts (sweet deal!). He also worked faking trading records with Crupi and Bongiorno. His salary was 588k. He had withdrawn 10 million from his Madoff accounts in recent years. Trustee is suing him for 22 million. He shows up in the Madoff credit card records. He will plead guilty to fraud and is cooperating with criminal investigators. Because he has been with firm since 1970, when it was quite small, and is a trader, he is a possible link to Peter Madoff.

        In his plea Kugel will admit to faking trading records as far back as early 70's. Trustee documents fake Madoff arbitrage trades that occurred in 1977 in Kugel's own account. And even more damning is Kugel's account statements from 1997 onward (detailed in the Trustee charge) are as phony as a $3 bill, which the Trustee says would have been obvious to Kugel (especially since he was generating the phony records. This is proof that Madoff for more than 30 years has been running a fraudulent business, and is a strong indication that he has been a slimeball from day one.

        David Kugel's son, Craig Kugel, also had worked at Madoffs from 1996 working closely with Peter Madoff for a while. He had accounts at Madoff's for over a decade and the Trustee says "he was aware, or should have been aware" that the account records were incompatible with legitimate trading activity. Kugel's daughter also had an account with Madoff whose account statements were irregular. The Trustee alleges all the Kugel family "knew of the fraud" at Madoff Securities.

        Trustee clawback (below) against David Kugel, his wife and kids (61 pages).  His fake post-dated arbitrage trades were often sloppily executed. In one case in 1994 short sale volume of a stock was almost x100 times the actual trade volume.

        http://www.scribd.com/doc/42955029/Madoff-Trustee-vs-David-Kugel

Daniel Madoff
        Is this a member of the Madoff clan? Who knows? I just couldn't resist an unusual picture of a Madoff.

Daniel Madoff, dancer with Merce Cunningham on last tour

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!)

Trustee suit against Fairfield is amended adding more Fairfield Greenwich managers and partners (7/23/10 update)
        The 3.6 billion recovery suit against Fairfield Greenwich was hugely expanded (7/20/10) with a 228 page amendment (below). The suit is attempting to recover billions from (by my count) 19 managers and partners of Fairfield Greenwich who are now named as defendants. It's very detailed and in addition to the 228 pages of text has something like 100 exhibits (attached).

        http://www.madofftrustee.com/CourtFilings-Download.aspx?Docket=596

Excerpts from reading through the above filing
        -- "Noel was acutely aware of many facts and red flags that put him on actual and/or inquiry notice that BLMIS was engaging in fraud, and yet failed to conduct any proper, independent and reasonable due diligence or follow up."

        The exact phasing above is repeated for partner after partner of Fairfield including Jeffry Tucker and lots of members of Noel's family, not just his sons-in-law, but some of his daughters too who worked in the firm.

        -- In 1989 Tucker, Noel and Kolber are looking for an outside investment manager. It's Tucker's father-in-law (Norman Schneider) who introduces them to Madoff.

        -- In a recorded telephone call in advance of a 2006 SEC inquiry Madoff instructs the Fairfield people to tell the SEC that Madoff is merely "the executing broker" and that all investment decisions are made by Fairfield. The filing notes all the Fairfield people on the conference people "knew this to be false". Fairfield's accounts with Madoff were specifically characterized as "discretionary" accounts, so Madoff had full authority to trade with their money as he wished.

        -- "Not only did the defendants fail to conduct the required due diligence, they wilfully ignored information that was right in front of them, and then lied about it."

        The filing discusses a 400 million dollar ponzi (Bayou Group hedge fund) that was exposed in 2005, saying a Fairfield investor pressed Fairfield about the similarities between Bayou and Madoff (small accountant, no incentive fees, etc). Fairfield to respond to the investor gives Madoff's accountant (Friehling) a telephone call and is told they are a small to medium size firm with hundreds of clients. A little later Fairchild gets a Dun and Bradstreet on Friehling and find out they have one employee and total annual revenue was 180k, so Madoff's accountant is in fact quite similar to Bayou's, and they now know that Madoff's accountant has lied to them, yet they do basically nothing.

        The filing says Fairfield did 'nothing' (underlined) to confirm if Friehling was capable of auditing a firm managing an estimated (Fairfield didn't know how much money Bernie ran) 10 billion dollars, many billion of which was Fairfield money. Freihling had not been peer reviewed by the major auditing organization since 1993 because he had told them he didn't do audits. This information was public information, and the filing says just "basic due diligence" by Fairfield would have "revealed Madoff's auditor was a fraud".

        "The defendants knowingly and purposefully turned a blind eye to the fact that this strategy (split strike strategy based on basket of S&P 100 stocks with an 'out of the money' option collar) ... continued to yield positive returns without any correlation to the S&P 100."

        Fairfield had billions with Bernie and 'figured' (based on what Bernie told the SEC) that they had 42% of Bernie's split strike volume. Thus they were in possession to see that Bernie's in and out trading was huge and should leave footprints. It was a significant fraction (often 40 to 50%) of stock volume and nearly always hugely exceeded exchange option volume. There is a striking graph (p115) of Madoff's what they would have figured was Madoff's option volume vs the Chicago Board of Trade option volume. (Markopolos points out that even if the options were done over the counter as Bernie claimed, the counter parties would have been laying off risk on the options exchanges, so their would be huge option footprint.)

        In a very telling revelation the filing shows the written agreement between the Fairfield funds and Madoff held Madoff immune if the an option counterparty failed to perform. Thus the feeder funds were liable for loss if a counterparty defaulted, yet the filing says, even though Fairfield told investors that counterparties all came from an approved list, that Fairfield in fact never knew the identity of even a "single" option counterparty! Bernie wouldn't tell them who his counterparties were.

            The filing details a host of paperwork irregularities on the options. Bernie claims he is doing all his options trading over the counter, but the confirmation slips Fairfield gets show an options' CUSIP number, which means they were traded on an exchange. There inconsistency between agreements and confirmation slips as to whether Madoff in options trades is acting as an agent or principal. "Every trading confirmation" Fairfield gets shows Bernie is trading as a principal, but once he registered with the SEC in 2006 SEC rules required a written authorization for each trade and Fairfield never provided this authorization.

        Madoff tells the SEC there are only five employees in his investment advisory business, and Fairfield has a copy of this information. Who did they think was doing all the trading? Fairfield was telling customers that Madoff had "dozens" of PhD traders repeating a story Madoff told them. Fairfield never knew the name of even a single Madoff trader.

        Near the end Fairfield hires a consultant (Gil Berman) who reviews some of Bernie's confirmation slips. Madoff's paperwork (we now know) was always sloppy and Berman finds that sometimes Madoff options collar doesn't correspond to his equity holdings as the split strike strategy requires, and (importantly) these restrictions were written into a contract between the feeder funds and Madoff. (Berman finds that Madoff would sell equity with the collar in place or sometimes the collar would be for twice the equity held.) This "over-hedging" (options manipulations) were seen to consistently generate substantial profits (95 million in one month for Sentry duuring the 2008 meltdown), so the filing suggests all (or some) were likely deliberate so that Madoff could show a profit in a big down month. Berman suggests to Fairfield that Madoff "may be a fraud" and of course, Fairfield just ignores Berman.

**      The filing sums up: "For years the Defendants had overwhelming evidence that Madoff was not a legitimate investment manager." (p142)

        By the time of Madoff's collapse the Fairfield partners had withdrawn nearly all of their personal investments with Madoff. The net asset value of Fairfield's funds dropped "to almost nothing" when Madoff was arrested and he admitted he had not bought any securities. Fairfield investors lost "billions".

        The filing discusses two outsiders who had concluded that Madoff as a fraud. One is Markoplos and the other is identified as Edward Thorp, the "grandfather of quantitative analysis", who the filing says in 1991 (based on a one day review) concluded that "Madoff's claimed returns were nearly impossible and he was likely a fraud".

        "Investment professionals reasonably concluded that a fee structure where the true investment manager voluntarily chose to pass on massive amount of fees was a major red flag of fraud. Defendants knew that the very compensation structure from their relationship with Madoff, which permitted them to be so unjustly enriched, was itself a massive sign of fraud."

        "The above are some of the many illustrations showing that 'the street' fully and openly suspected Madoff was a fraud." (p160)

        After a year and a half, why are there no criminal charges against the Fairfield boys? Isn't blatant misrepresentation to investors to tune of billions of dollars not illegal, not fraudulent?

What's the goal of the civil action against Fairfield?
        I'm puzzled by what Picard is trying to accomplish here. He argues 3.2 billion paid out to Fairfield in the last six years is recoverable and he wants this money back!  OK, it's reasonable to try and recover the wealth the Fairfield boys made from the business, which the filing estimates over the years totals about one billion, but where does the other two billion plus come from?

        Is Picard (blindly) trying to recover money from Madoff indirect victims (Fairfield's customers) to pay to Madoff direct clients? This doesn't make sense. Or is the 3.2 (or 3.6) billion number, which he can legally justify, just a pro forma tactic, and he will be happy to just  bankrupt all the Fairfield defendants?

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.

Here's the whole Palm Beach crew of philanthropists (?)
Robert Jaffe, Ellen Shapiro Jaffe, and Carl and Ruth Shapiro

        "The (625 million) settlement (with Trustee Picard) covers Jaffe and his wife; Shapiro daughter Ellen Shapiro Jaffe; daughter Rhonda Shapiro Zinner, who runs the family foundation; her husband Michael Zinner, chief of surgery at Brigham and Women’s Hospital; a third daughter, Linda Shapiro Waintrup; and her husband, Daniel I. Waintrup." (Boston Globe 12/8/10)

        Shapiros' have given a total of 80+ million to Brandeis starting in 1950. A whole bunch of building on campus are named for them. This Jan 2008 article (11 months before Bernie is arrested) announces a new 14 million dollar gift and details their support and connections over the years. (This amount is in the same ballpark as the 75+ million that Picowers have given to MIT.)

         http://www.brandeis.edu/now/2008/january/shapirogift.html

---------------
Shapiro and Jaffe's settle for 625 million (update 12/11/2010)
        This week Carl Shapiro, age 97, his daugher and her husband (Robert and Ellen Jaffe) settled with the Madoff Trustee for 550 million plus 75 million to the the Justice Dept (I will need to read up on the Justice Dept settlement.)

Boston Globe columnist probes the ethics of taking tainted money (update 12/11/10)
       Here's an article by Steven Syre in the Boston Globe 12/10/2010, almost two years to the day after Madoff's arrest, raising (gently) some moral questions about the money that many Boston instutions have taken from Carl Shapiro, who over the years has spread his million far and wide in the Boston. Money now known to have been stolen from other Madoff investors.

In settlement, Shapiros are still giving
By Steven Syre, Boston Globe Columnist
December 10, 2010

        Here is today’s $625 million question: Did Carl Shapiro’s huge settlement with the federal government make things right?

        Shapiro, one of Boston’s truly great philanthropists, and his family agreed to write a check for that staggering sum this week. They are returning so many millions that had supposedly been earned from investments made by Bernard Madoff, who actually swindled the money from other clients.

        Whether $625 million is the right amount, and is this the fair way to settle the matter, are hard questions to answer for two reasons. First, many details about Madoff and the Shapiro investments remain unknown. Second, any story about vast amounts of public charity and stolen money mixed together is bound to make your moral compass spin.

        The most important thing we still don’t know: How much of the Shapiro fortune was money that Madoff pilfered in the infamous Ponzi scheme that blew up in 2008? The $625 million payment is merely a negotiated settlement of a legal dispute.

        Here’s how they reached that number: Irving Picard, a trustee who represents the interests of Madoff victims, had argued the Shapiros took a little more than $1 billion out of their Madoff account during the last six years of the scam. Shapiro countered his family had kicked in another $500 million to Madoff that Picard hadn’t counted. That netted out to about $550 million. Another party to the dispute, the Justice Department, received $75 million, bringing the total to $625 million.

        One important footnote: Picard made it clear he would not pursue money already donated to nonprofit institutions, a sum that runs into the many of millions in the case of the Shapiros.

        As neat as figures sound, a settlement based on the movement of money over the six years prior to Madoff’s arrest leaves a lot of financial history untouched. Shapiro, now 97, first made a fortune selling his Kay Windsor dress business in 1971 for $21 million and gave a good deal of the money to Madoff. Over decades, those accounts grew much larger, at least on paper. Picard stops following the trail backward at 2002.

        Shapiro says he was hoodwinked by Madoff all along, and no one investigating the case has alleged otherwise. But I have a hard time reconciling the idea that a smart businessman with relentless focus on detail could be completely snowed by his friend for so long.

        All along the way, some of Greater Boston’s most famous hospitals, museums, and universities have had their hands in Shapiro’s pockets, and the city is undoubtedly a better place for it.

        On a quick drive yesterday, I passed Shapiro buildings at Brigham and Women’s Hospital and Beth Israel Deaconess Medical Center. I stopped off at the Museum of Fine Arts to see its spectacular new wing, built in part with millions from the Shapiros. I drove to Boston Medical Center, where the nearly complete nine-story Shapiro ambulatory center will open in the spring.

       That’s only a sampling. Don’t ask me whose money really paid for it all. I don’t know.

       The $625 million settlement isn’t perfect. But it’s a worthy act by a family that spent much of its fortune — presumed or otherwise — to help others. The Shapiros stand apart from investment advisers who recklessly sent their clients’ money to Madoff and now hide under rocks when called on to take responsibility.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.
© Copyright 2010 Globe Newspaper Company.

---------------

My commentary on Carl Shapiro (9/8/14)
        With accountant Paul Konigsberg, who handled Shapiro's account, taking a plea in June 2014, and he and accountant Friehling, who was Madoff's personal tax preparer, both cooperating with prosecutors, and a six year time limit approaching (Dec 2014), and small fry in Madoff's office like Craig Kugel charged and convicted of  income tax evasion, there's the possibility the prosecutors might take one more whack at the family, especially all the wives, and insiders like Shapiro for income tax evasion.

        I would really like to see Bernie's first major 'investor' Shapiro (or his estate as he is 101 and his slimy son-in-law Jaffe) nailed since it can be argued that he is largely responsible for making Madoff. He started giving money to Madoff to 'invest' when Madoff was a nobody in his 20's, no financial training, no track record, but Shapiro recognized here was someone who would phony up gains and tax losses for him on demand. A real slimeball, but one a lot of charities in Boston love, since he has sprinkled millions of Madoff money onto them for decades. One time I read plaques on the wall at Boston Symphony Hall listing several orchestra chairs 'endowed in perpetuity by Carl and Ruth Shapiro', and this is the tip of the iceberg.

---------------
(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 billionsof 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?

(update 5/12/10) Friehling was not related to Madoff. It's 'owned by my brother-in-law' was just Bernie's cover story for why his accounting was done by a tiny firm, says Markopolos in his book. (This makes sense.)

        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)

        Here are two short (2-3 min) March 1, 2010 interviews by CNBC's Mary Thompson with Madoff whistleblower Harry Markopolus and his former boss Frank Casey. Both at the time well respected members of the Boston financial community.

In this interview Casey and Markopolus make the point that it was widely and strongly suspected by senior managers on Wall Street that Madoff's returns were not legitimate market returns.

                    http://www.cnbc.com/id/15840232?video=1428094776&play=1

In this interview Markopolus makes the point that rich Europeans were investing "dirty money" with Madoff

         http://www.cnbc.com/id/15840232?video=1428090550&play=1

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Markopolos has another coup (Oct 2011 update)
        Harry Markopolus is confirmed as a hero by a non-Madoff front page WSJ story Oct 12, 2011. State AGs and Justice Dept are suing two large NY banks (NYC Mellon, State Street bank) for blatant, systematic, illegal price manipulation to benefit themselves in currency trading.

        The claims is the banks routinely abused what they called their "dumb" clients, like public pension funds (hence the AG suits), during currency trades. The 'dumb' customers, who the bank knew never checked these things, were not charged the actual (dollar) trade price, but a price near the max (or min) for the day with the bank pocketing the difference. The suits seek 2 billion in damages.

        Big scandal, again revealing banks are totally unethical and will abuse and cheat their customers at every opportunity.

        Harry in 2006 says he got the whiff something didn't smell right from a single line in the the Yale investment manager (David Swensen) book, something about unpredictable trading costs. In 2007 he worked to contact bank insiders (at both banks) and turn them into informers. The lawyers Markopolus has teamed with are Michael Lesser (Boston, partner at Thornton & Naumes LLP, heads the firm’s False Claims Act / Whistleblower litigation section) and Philip Michael (New York). As whistleblowers, they could potentially receive 25% of the money recovered.
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Reading Harry Markopolos's book (update 5/26/2010)
        I am reading Markopolos's book now. It is very well written. It lists four authors, one of whom is Markopolos and another is Casey. Casey in his Amazon review of the book (an author is allowed to submit an Amazon review??) credits the books ghost writer.

SEC incompetence
       What is really striking from the book is the depth of Markopolos interaction with the SEC shows how really incompetent the SEC was (or is). Markopolos does not just mail in his complaint(s). He is a quant, a derivatives expert, working in the Boston financial community. He is (past) president of a 4,000 man professional financial organization in Boston. He knows people in the Boston office of the SEC because they regularly audit his firm. Top officers of the SEC in Boston office know and respect him. When his files him complaints, he is invited into the SEC to make presentations about them. He describes spending literally hours in the SEC offices up at a white board answering a million derivatives questions from a Boston SEC man guy who wanted to understand exactly what he was telling them. When nothing happens after a while, the SEC in Boston contacts him and encourages him to file again because there is a new guy (in Washington) who understands numbers.

 Meaghan Cheung at NY SEC
       Boston SEC could not get Washington SEC to do much, and the New York SEC who were responsible for investigating Madoff were just not interested at all. Meaghan Cheung (see photo below), the Yale and Fordham trained lawyer of NY SEC, was branch chief and responsible for following up on Markopolos complaint. When whe was tracked down by the NY Post, she claimed she was being scape-goated. But that's not how Markopolos tells it. Whereas the Boston SEC guy asked questions for hours and eventually understood the technical points Markopolos was making, Markopolos says Cheung never asked a single question. She would take Markopolos' phone calls, but it was clear to Markopolos at the time she had no interest in following up, which has now been confirmed by the SEC's inspector general's report. She is not being scape-goated, her financial/mathematical incompetence (a typical lawyer) was responsible for people losing billions.

Some tidbits:

Madoff monthly returns from Rene
       -- Markopolos & Casey first hear about Madoff and get a look at his monthly returns from a guy they know who works a small financial firm who has Madoff as one of their managers. It turns out this firm's CEO is the famous Rene-Thierry Magon de la Villehuchet, who will later kill himself when the ponzi is exposed. He and Casey are pals, both sailors, both salesmen. Rene's money all comes from European royalty. Casey tells Rene years before Madoff is exposed that Madoff is a fraud. Rene says he can't be and they don't talk about it anymore. Maybe this is one reason he kills himself. Unlike most other Madoff investors he had been warned that Madoff was a fraud, but he did nothing and continued investing his and his friends money with Madoff.

Design a product to compete with Madoff
       -- Casey wants Markopolos to design a competing product to Madoff so Rampart can get some of Rene's business (earning Casey a fat commission). Markopolos says initially exposing Madoff as a fraud was just to get Casey off his back, because what he was asking for couldn't be done.

SEC presentations
        -- Markopolos does not go to the SEC blind. He knows two SEC people professionally and socially from the Boston SEC office. They audit his firm. He's knows another because they are both officers in a professional society. When he first approaches SEC in 2000, Markopolos first calls one of his friends there and says he has a big story. The guy sets OK and schedules an interview a few weeks from then.

Presenting to SEC in Boston
          Markopolos when writing his first 8 page/6 flag SEC report in 2000 already knows he will be presenting it at a scheduled SEC Boston meeting to people he knows. One of these Boston SEC guys is a numbers guy and he takes Markopolos seriously. He sets up a meeting at SEC headquarters in Washington with a numbers guy he knows and he travels with Markopolos to the Washington meeting. The Washington numbers guy walks in and says he can't come to meeting because he is leaving the SEC. The SEC replacement team is exactly one guy, an SEC lawyer who knows nothing about finance, and both Markopolos and the Boston SEC guy know he doesn't understand a word of the (quite simple) presentation! Oh, yea!

Flaws in split-stricke
       -- At this time Markopolos says he did not know what Bernie Madoff looked like. He finds the split strike strategy on paper is poorly designed. Madoff only buys 35 stocks, but is hedging with S&P 100 options, so he is picking up some single stock risk. Analysis of his returns shows only a 6% correlation to S&P 100. It should be 30% to 80%. In a split strike strategy when the market has a losing month, your probably going to lose money that month too, because the stocks you own go down. Over 17? years the market has 26 down months and Madoff has 3 down months.

Options market too small
       Another red flag they discover early on is that the S&P call/put market is too small for the 5-7 billion they think Madoff is running. Even if Madoff bought over the counter (too expensive), his counter parties would lay off the risk in the derivatives market. The market is too small and experts do not see any fluctuations which they know would have to be there, because when they buy much smaller amounts they see them. And his returns are just too danm steady month after month for years. No financial strategy ever invented is this good.

Meet Ocrant by accident
        -- The Madoff story in the hedge fund publication comes about because Casey and its editor by chance share a cab at a European derivatives meeting. Michael Ocrant is the editor, and he is guy who writes the famous 2000 or 2001 story about the unknown Madoff hedge fund. Ocrant later joins the Madoff investigating team consisting of Markopolos, Casey and Neil Chelo at Rampart securities in Boston. It turns out that Ocrant is the guy who broke the story of Hillary Clinton running 1k to 100k trading cattle futures by as she claimed "reading the WSJ" while Bill Clinton was governor of Arkansas. Oh, yea!

Ocrant knows all the hedge fund managers
       Markopolos says only a handful of hedge funds at the time were running more than 2 billion, and Ocrant says he knew most of the big hedge fund managers personally. Casey tells Ocrant they know a guy who is running what they think is 7 billion like a hedge fund, but technically it's not set up as a hedge fund, which are partnerships. Until that day (around 2000) Ocrant, while he like everyone in Wall street knows of Madoff Securities, he had never heard that Bernie Madoff was running money.

Ponzi or front running?
       -- Almost from the beginning Markopolos, who's a quant, thinks it's a ponzi, but Casey, who's basically a marketing guy, thinks it's front running. What puzzles them all is motive. Madoff owns Madoff Securities. He's rich. Why would he risk going to jail?  They do know that the OTC shift from 1/8th to decimals a few years earlier has cost firms like Madoff's a bundle and their profits are down 92%. (12.5 cents quantization allowed Madoff Securities to pay 2 to 3 cents for order flow.) Another problem they suspected Madoff Securities might be having was capital. Most other market makers Madoff's size had been acquired by much larger firms leaving Madoff Securities pretty much alone. Casey thinks Madoff may be 'borrowing' the capital he needs to do his front running from his investors paying them 15% for it.

Talking to Fairfield Greenwich risk manager
       -- A couple of years before Madoff is exposed the Markopolos team get to question in depth a big Madoff feeder fund. Neil in his job has hundreds of millions to invest in hedge funds and Fairfield Greenwich wants his business, so they offer to let him talk with their risk manager. Fairfield Greenwich Sentry fund is 100% Madoff and at its peak has 7 billion invested with Madoff, his biggest feeder, more than 10% of all Madoff's money. Neil calls Markopolos before the call to see what questions he should ask, and Markopolos jots down about 80 questions. Neil spends 45 minutes on the phone with this guy.

How much money?
-- Neil asks him how much money Madoff is managing and he says he doesn't know. (Neil is incredulous).

In and out of market
-- When asked how Madoff gets such steady returns with his split-strike strategy, Fairfield Greenwich has a pat answer. Madoff has a proprietary model that tells him when to go in and when to get out of the market. Client records show Madoff typically goes into the market 6 to 8 times a year (buying a basket of 35 S&P 100 stocks + collar options) for varying lengths of time and the rest of the time (& always at end of year) is in Treasuries.

Monthly volatility
        A point Markopolos briefly makes, which I haven't ever seen discussed, is that Madoff's Fairfield Greenwich split-strike monthly returns would have to show a lot of volatility. Madoff claims to go into the market about 6 to 8 times a year for varying lengths of time and the rest of the time is in treasuries. Say he is in the market about half the time, then his monthly gains have to add up to 16% (12% to customers + 4% to feeders). For each of six market entries he has to 'earn' an average 2.25%. So some market months should show gains like 2.25% while a month in treasuries would be about 0.4%. This is a x5.5 monthly variation.

Perfect market timing, says Fairfield Greenwich
       -- Neil says to him, "Are you telling me that Bernie basically has had perfect market timing every month for the last 17 years!"  The Fairfield jerk doesn't answer. Neil then points out to him that if his market timing is that good, a split-strike strategy makes no sense. He could make a lot more money with just options.

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
(update 8/7/13)
        In a recent WSJ article about Picard trying to block a 410 million settlement by NY AG with Merkin for his victims, there is this tidbit: "In his court filing Wednesday (8/7/13), Mr. Picard alleged that Mr. Merkin "had actual knowledge that Madoff was a fraud."  Ya, think?
---------------------
        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 into 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!)
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Ascot Partners 2006 offering (12/30/12)
        NY AG Cuomo says Merkin's Ascot fund was set up in 1992 for the sole, but undisclosed, purpose of acting as a feeder fund (1.8 billion total) to Madoff. Someone not affiliated with Merkin or Ascot Partners (it says in a footnote!) has put a 2006 offering document of Ascot Partners online (here). In 2006 Ascot Partners has a 14 year track record investing only with Madoff. This was worth a read because here we have a little window into Mr. Merkin and his honesty.

Overview
         The (Madoff) split-strike strategy claimed to be employed by the fund is described incorrectly. Clearly the man is incompetent or more likely just doesn't give a damn, knowing the investment strategy description is just BS for the rubes. Madoff's firm is mentioned, but described only as a broker who keeps records and clears transactions. No mention of it being a money manager or making investment decisions. Oh yea, an honest man, not! The partnership's law firm is William D. Zabel's firm and Zabel is Picower's long time lawyer. The Madoff insiders are such a tight little group they use the same lawyers.

        While of course couched in lawyerly financial offering language, the document is written to deceive. It's thrust is that Mr. Merkin will be personally managing the money, personally handling the buying and selling of options and doing the other trading necessary to implement the various arbitrage strategies outlined in the offering. Totally false, this offering (probably crafted by Zabel's lawyers) bears little relation to the truth, which is that Merkin is just a pass-though guy, little more than a glorified salesman. Some of Merkin's clients later said they knew he was investing with Madoff, others said they didn't, so perhaps in person to selected clients, like other Madoff bagmen he used his access to Madoff as a selling point, but he was careful not to put this in writing.

        -- Ascot Partners is really just Merkin (not a 'registered' investment advisor says the offering). You are giving your money to him to invest as he sees fit. The offering puts it this way: "J. Ezra Merkin serves as the general partner of the Partnership (the "General Partner"). The General Partner has ultimate responsibility for the management, operations and investment decisions made on behalf of the Partnership." So here we see he claims "ultimate responsibility" for investment decision, a responsibility which he soon forgets as soon as Bernie is arrested.

        -- In the 54 page offering there is no financial tables, no history of past returns. I don't know if Ascot  investors (like Tuft's university) were stupid enough to invest on Merkin's reputation alone without full disclosure, or whether (more likely) there was a supplemental document with the numbers that is not online.

        -- The Ascot investment strategy is described this way: "The Partnership primarily follows a strategy in which the Partnership purchases a portfolio of large-cap U.S. equities drawn from the S&P 100. In order to hedge its exposure to these securities, the Partnership simultaneously purchases a put option and sells a call option on the S&P 100, each with a notional value that approximates the value of the Partnership's long portfolio. The purchase of the put option allows the Partnership to partially hedge its portfolio against downward movement in the S&P 100. The sale of the call option allows the Partnership to partially finance the purchase of the put option while at the same time partially hedging the Partnership's portfolio against any downward movement in the S&P 100."

        This is the Partnership's disclosure of Bernie's 'split strike' strategy, and in later court documents they so identified it as such. What I find extraordinary is that it is not described correctly, as written it makes no sense! It claims the sale of the call options in addition to partly paying for the put options provides partial hedging the Partnership's portfolio against any "downward" movement in the S&P 100. This is nonsense, the puts provide all the downward protection. The purpose is stated correctly in Wikipedia article on the 'Madoff Investment scandal': "The sale of the 'calls' is designed to increase the rate of return, while allowing upward movement of the stock portfolio to the strike price of the 'calls'.

        -- Merkin uses a Madoff trick of exclusivity. Minimum investment is 1/2 million, but they reserve the right to not take your money for "any reason or for no reason".

        -- A search for 'Madoff' in the offering finds only this: "Morgan Stanley & Co., Inc. and Bernard L. Madoff Investment Securities, LLC (the 'Prime Brokers') currently serve as the (unaffiliated) principal prime brokers and custodians for the Partnership, and clear (generally on the basis of payment against delivery) the Partnership's securities transactions that are effected through other brokerage firms."

        So a connection to Madoff's firm is disclosed but is described only as a broker (2nd after Morgan Stanley) who acts as custodian and to clear transactions done at other firms. No mention of Madoff's firm being a money manager or making investment decisions. Oh yes, this one fact tells us a lot about J. Ezra Merkin's honesty, when for 14 years Merkin has just been passing all the Ascot billions to Madoff to 'invest' as he sees fit. There is zero mention of Bernie Madoff's IA (investment advisory) business in the offering, which is where the money was really going.

        -- Counsel for the Merkin partnership is Schulte Roth & Zabel LLP 919 Third Avenue, NY. This is a familiar name, William D. Zabel of  Schulte Roth & Zabel is is Picower's long time lawyer. What a tight little group the Madoff insiders are, they even share the same lawyers.
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 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 more than 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.

405 million settlement pending (update 6/25/12)
         After three years (!) NYT article by Diana Henriques says a 405 million settlement of Cuomo's civil suit (for 500 to 470 million) is about to be announced. Merkin will have three years to come up with this money. This money appears to be coming (as best as I can tell) directly from Merkin's wealth (not from money paid out my Picard). Merkin sold his art collection in 2009 for a reported 310 to 350 million. Merkin's lawyer had said in 2009 Merkin was going to fight vigorously against this suit, saying they are "without merit" (Oh, yea!). Well he ends up settling for 80% of the amount sought. 405 million is reported to be about what he collected in "investment fees" over the years for shoveling the money to Madoff. The settlement specifies that this money is to go to Merkin's four hedge fund investors, which seems fair. Even more fair is that a larger percentage goes to those who did not know Madoff was managing the money than those who did! Note this settlement pays out to Madoff's indirect investors whereas Picard pays indirct investors nothing, his settlement money goes only to Madoff's direct investors.

        Picard, however, is not happy to have 400 million drained from Merkin's wealth as he has a separate suit against Merkin for 500 million to recovery money for all Madoff investors. The NYT article says Picard may seek to block the Cuomo settlement. Picard argues, "Mr. Merkin’s management fees were paid with cash that Mr. Madoff stole from other people and paid out to Mr. Merkin’s investors. Therefore, they contend, any settlement with Mr. Merkin should benefit all eligible Madoff victims, not just Mr. Merkin’s clients." The assets of Merkin's two other funds Ariel and Gabriel, reported to be quite illiquid, are in the hands of a receiver (Bart M. Schwartz). A June 2012 article is estimating Merkins investors will recover 40% of their losses up to 5M, above that there other rules apply.

        A Sept 2011 article reports Merkin still living in his 18-room duplex at 740 Park Ave.

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

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                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!

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(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 it's 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?).

(update 12/11/09)
            Prosecutors confirm that a criminal probe against Chais is underway (started "shortly" after Madoff was arrested) in a court filing asking for the SEC civil case against Chais be delayed until June 18, 2010 to give them time to finish the criminal probe. Possible criminal charges are: federal laws against conspiracy, mail fraud, wire fraud, schemes to defraud in connection with securities, conspiracy to commit securities fraud, money laundering and securities fraud.

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?

 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)

Update on Ira Lee Sorkin (6/28/11)
        NYT did an article on the Madoff judge explaining his 150 year sentence. I posted comment below (6/28/11).

        Ira Lee Sorkin sits beside Madoff while Madoff lies through his teeth, telling officials soon after his arrest that he did it 'alone' (pretending he don't know nothing about a team of account fabricators on the 17th floor). Later Sorkin writes the judge that Madoff deserves a short sentence because he has taken “full acceptance” of responsibility for his crimes. All I can say is lawyers are a piece of work.

        The sitting beside Madoff while he claims to have done it alone is from the new NYT Madoff book by NYT reporter Diana Henriques, where she describes the proffer hearing on day he is arrested. She said everyone in the room knew Madoff was lying when he claimed to have run a 50 billion dollar ponzi without help. (On its face this claim was totally absurd. For one thing he was out of the office in France for two months at a time during summer and monthly statements had to go out.)

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, 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."

Picower's history --- Forbes 2002 article '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

Picower bio site (2/17/13)
        This site, 'The Life and Death of Jeffry Picower: Madoff’s Frenemy?, has a good overview of Picower's role, including some bio information.

            http://hedgefundoperationalduediligence.com/life-death-jeffrey-picower-madoffs-frenemy/

        Curiously Jeffry Picower's educational background is a lot like Mitt Romneys. Bachelor degree from a 2nd teir school (Penn State) then graduate degrees in business (Columbia) and law (Brooklyn Law School). Like Romney he goes to work in the cracks of business figuring out ways to make some money using his knowledge of law. In Picower's case he begins designing tax shelters in the 1980s for the now defunct accounting firm of Laventhol & Horwath. Just a few years later in 1990 Laventhol & Horwath goes bankrupt and fires all of its 3,400 employees.

(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 conclusions" 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.)

William D. Zabel (Board Chair) & son Richard Zabel @ Human Rights First event

Update on son Richard Zabel (1/17/2017)
        Richard Zabel  (son of Picower lawyer and trustee of the Picower Foundation) has apparently gone on to be an effective and highly regarded prosecutor. Many years after being appointed in 2009 by U.S. Attorney (Preet Bharara) to be head of the southern District of New York Criminal Division a long article in Jan 16, 2017 New Yorker details the insider trader case against S.A.C. Capital headed by Steven Cohen brought by Zabel. Many employees of S.A.C. Capital had already been convicted of insider trading and the article was about Zabel's attempt to criminally indict its head Steve Cohen, a billionaire and one of the biggest fish on Wall Street, for insider trading.

        If Jeffry Picower can be said to be the benefactor, or 'father', of the Picower Institute (ignoring for the moment the regrettable fact that nearly all the wealth the Picower Foundation showered on MIT came from an illegal ponzi scheme), then William D. Zabel is the Picower Institute's 'godfather'. William D. Zabel, age 73, is not exactly a legal unknown. Zabel, Harvard Law School cum laude and Princeton Univ BA summa cum laude, is a name partner of a 350 lawyer NYC law firm (Schulte Roth & Zabel) founded in 1969, trustee of 100 million dollar Soros Charitable Foundation, trustee of New York University, trustee of The New School, chair of board of directors of Human Rights First, and many other honors. He even wrote a book, "The Rich Die Richer and You Can Too", by William D. Zabel, 1996. And Zabel and Madoff were both trustees of the Picower Institute for Medical Research.

        Zabel in his personal legal work has long specialized in working with the super rich. He did George Soros' divorce (Soros is the 29th richest person in the world says Forbes) and is a trustee of Soros' charitable foundation. And of course Zabel has been closely associated with Jeffry Picower for at least 20 years, some call him Picower's consigliere. Zabel and his firm wrote the Picower defense to Madoff Trustee's 7.2 billion clawback lawsuit. William D. Zabel filed the papers in 1989 establishing the Picower Foundation and has been a trustee of the Picower Foundation for all its years. Statements released to the press by the Picower family at Jeffry Picower's death came from Zabel, who identified himself as Jeffry Picower's personal lawyer.

       In an 9/29/09 email to me from Sam Cooke (& indirectly Prof Bear) of the Picower Institute for Learning and Memory it was suggested that Jeffry Picower should be considered innocent until proven guilty. But I say look at the facts, including Picower's 60+ page reply to the court that doesn't even attempt to rebut or explain the detailed allegations of fraudulent account manipulations leveled against him by the Irving Picard, the court appointed Madoff Trustee. Consider the following, which is either the most amazing coincidence or a demonstration of the kind of legal protection you can buy when your a billionaire.

Amazing lawyering
      Consider the amazing feat of lawyering Picower's lawyer Zabel just pulled off. Zabel managed or helped  (for details see articles by Mary Jacoby at MainJustice) to get his own son, Richard B. Zabel, appointed in early Oct 2009 by U.S. Attorney (Preet Bharara) to head the Southern District of New York Criminal Division. That's right Zabel, whose client Jeffry Picower is facing indictment as one of the Madoff insiders and main beneficiary of the ponzi, manages to get his own son (!) appointed to head the prosecutors office that is running the Madoff investigation and is responsible for issuing Madoff related criminal indictments!

      Is this unbelievable lawyering or what? Maybe it's a first. Billionaires just do not live in the same world as the rest of us folks. Of course, Richard Zabel recused himself from the case because his father is Picower's lawyer, but somehow I remain skeptical. As a little side benefit William Zabel gets some protection for himself too, because as trustee of the Picower Foundation he had a responsibility to see to it that foundation's assets were prudently invested. (And he kind of screwed up on that one.)

      And how does Jeffry Picower reward his long time lawyer for this incredible lawyering? He drops dead two weeks later! You can't indict a dead man, so all of Zabel's incredible lawyering is wasted. I wonder if Jeffry mailed the check to Zabel for 'services rendered' before going for his last swim.

      Picower Institute's 'godfather', William D. Zabel, has been looking at the Picower Foundation's 990 fabricated portfolios for 20 years! These portfolios with their too good to be true gains and inconsistencies were a revealing and unique window into Madoff. Zabel was in the perfect position to see these red flags. If he didn't see them, maybe it's because lawyers often make it their business not to 'see' certain things that could be troublesome. A lot of Madoff insiders and hangers on in their quest to get filthy rich apparently decided it was better not to know exactly what Madoff was doing, even though it was probably clear to most of them that Madoff was running a scam of some sort.

William D. Zabel, Picowers' lawyer
        Zabel in his 70's is a big time NYC lawyer, founder of the 450 lawyer NYC firm, Schulte Roth & Zabel LLP. I list some of his achievements above, and as of 2011 Board Chair of Human Rights First, an apparently well know organization with connections to Caroline Kennedy, a lot of theater people, and Kenneth Feinburg, who was Special Master of the government 9/11 Victims Compensation fund and a Vice Chair of Human Rights First. Wikipedia says Human Rights First was originally called the 'Lawyers Committee for Human Rights', which probably explains why it seems to be dominated by lawyers!

        William D. Zabel, assisted by Susan C. Frunzi, has long been the lawyer for Jeffry and Barbara Picower. Jeffry Picower left Zabel 200k in his Will. William D. Zabel for nearly 20 years was a trustee of the Picower Foundation, benefactor to MIT and many other organizations. According to Jeffry Picower's Will Susan C. Frunzi, also of Schulte Roth & Zabel, is to replace Zabel as the (legal) Trustee of the new Picower Foundation to be formed with remaining Picower wealth after the 7.2 billion settlement with the Madoff Trustee.

        William Zabel as a Trustee of the Picower Foundation for nearly 20 years was in a perfect position to notice that something was not quite right with its (Madoff) 'investment' portfolios included with its annual, public, IRS filings. As the report I wrote documented, over many years newly acquired stocks always went up in the first year, 27 of 27 stocks with an average gain near 50% in just a few months! Somehow neither Zabel nor his team seemed to notice the nearly billion dollar Foundation's short term investment returns were absurd. Or if he did, he apparently never let it interfere with his position as lawyer to one of the world's richest men, nor did he inform the authorities about possible investment fraud.

        For nearly two decades Zabel was in a rare, almost unique, position to see into the Madoff fraud. Madoff had (sloppily) crafted for Picower (and maybe a small group of insiders and family) a special 'buy and hold' portfolio. As far as I can determine, Picower was the only Madoff insider who included this information about the Madoff fabricated investment portfolio in his annual (public) IRS charity filings. Zabel in his posting describes Picower as an extraordinarily successful investor. He is one of a handful of Trustees of the Picower Foundation since its founding in 1989, and it has grown into nearly a billion dollar portfolio. He is a friend of Picower's. I would find it incredible in these circumstances that he would not be very curious as to how Picower is investing, and this would lead him to (carefully) review, and maybe track, how his friend Picower invests and with what result.

        Schulte Roth & Zabel LLP web site has an announcement (here) about the 7.2 billion Picower settlement. It is quite curious. We find that Jeffry Picower was a multi-billionaire not because he bled the Madoff ponzi nearly dry, ending up with a huge fraction of the billion in cash it ever collected, but because he was "an extraordinarily successful private investor"!  Strangely it includes info about Jeffry Picower's private investments through Goldman Sachs, where he was one of their biggest, if not the biggest, of their private investment clients, using for capital what turned out to be (in effect) a 7.2 billion interest free loan from the other Madoff investors. And with this interest free billions in cash he got from Madoff over 30 years he actually managed to increase it by 2+ billion. Wow!

        Some excerpts Schulte Roth & Zabel announcement (SRZ SETTLES PICOWER CASE FOR $7.2 BILLION, Dec 17, 2010):

        -- (Settlement) allows Barbara Picower, the executor of her husband's estate, to return all monies her husband received from the Madoff Ponzi scheme and donate the vast bulk of his remaining fortunes to charity.

        -- Mr. Picower, who died suddenly in his pool of a massive heart attack in the fall of 2009, was a businessman and an extraordinarily successful private investor.

        -- When the settlement was announced, Goldman Sachs acknowledged that Mr. Picower, a client of Goldman's investment management division for nearly three decades, had generated investment returns in excess of two billion dollars through primarily self-directed investments in public securities.

-- "Jeffry Picower was neither complicit in nor did he know of Madoff's Ponzi scheme," Zabel said. "Madoff is pointing the finger at someone who never was charged with wrongdoing, no longer is living and can't defend himself. His widow, Barbara, generously entered into a global settlement, well beyond what the law required, to give back every cent of the money received from Madoff."

-- "In the spring of 2009, the records available led us to allege that Mr. Picower might have or should have known of Mr. Madoff's fraud. With the benefit of additional records, I have determined that there is no basis to pursue the complaint against Mr. Picower, and we have arrived at a business solution instead." (Trustee's statement)

-- "What we think he meant," Zabel said, "was that there was no illegal conduct by Mr. Picower or knowledge of the Ponzi scheme."

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.

(see also Who is April C. Freilich? far below)

        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 yearsago. 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) reportsthat 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 Cohmadunder 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 my 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

        Since none of the Madoff family or firm managers have been arrested in last 10 weeks, are we supposed to infer from this that they have all told the truth to the SEC? Somehow I'm skeptical.

Stanford ponzi -- similarities to (2/27/09)
        It's interesting to compare the Madoff ponzi with the recently revealed Stanford fraud/ponzi, involving CD's in Antigua bank run out of Memphis. According to the WSJ (2/27/09) the SEC is still trying to figure out if this is a ponzi. To date the SEC says it is a fraud "of shocking magnitude". (update) It's a ponzi, the SEC civil complaint against Stanford has been updated and now alleges a "massive ponzi scheme" (Washington Post, 2/29/09)

        The antiqua bank issued CD's some paying 8.25% interest. Like Bernie they have a tiny (Antigua-based) auditor. The bank says in has 30,000 depositors! Some customers are being allowed to redeem their CD's and some are not. Stanford is a big cricket guy, 2nd largest employer in Antiqua and has six private jets.

        The Stanford investment funds of 5.8 billion were divided into three tiers. About 14% (tier 1, 800 million) was held in cash, 7% (tier 2) was invested with about 20 outside money manager supervised by Laura Pendergest-Holt in Memphis, and 79% (tier 3, 4.6 billion) was managed by only two people James M. Davis and R. Allen Stanford. The 4.6 billion was (supposedly) invested 3 billion in real estate and 27.6% (1.6 billion loan (supposedly)) to, guess who, R. Allen Stanford. (NYT 2/27/09) (update) "Investigators allege that Stanford and Davis diverted at least $1.6 billion of investors' money through personal loans to Stanford." (2/29/09, Washington Post)

        "Stanford, chairman of the Stanford Group, and James M. Davis, the firm's chief financial officer, misappropriated billions of dollars of investors' money andfalsified the bank's financial statements to conceal the fraud, the agency said in the complaint filed in federal court in Dallas." (2/29/09 Washington Post)

        According to Miami Herald (2/28/09) a lot of the Antiqua bank CD were sold out of  a large Miami office, and "Michael Zarich, the company's senior investment officer, has told authorities he didn't know where 90 percent of Stanford's portfolio was invested." Here's a sweatheart -- senior investment officer and he doesn't know (or so he claims) where 90% of the firms portfolio is invested --- either totally incompetant or a lying sonofabitch.

        Reported numbers (in WSJ) as of 4/3/09. People came out of these meetings saying we are insolvent and based on other reports the value of the real estate shown may have been vastly inflated.

                            Invested in Antiqua bank CD's                    8 billion
                            Assets (based on Holt pie                           3 billion real estate
                               chart at Feb 09 meeting)                     + 1.6 billion load to Stanford
                                                                                               + 0.35 billion (down from 0.85 billion)
                                                                           ------------------------
                                                                    asset total            4.95 billion

            SEC Feb 17, 2009 complaint is here  I read it. It says Stanford's self-styled CD's are regard by the SEC as securities. The only people who know anything at all where or how most of the money was invested was Stanford and Davis. At end of 2007 6.7 billion in CD's had been sold to 50,000 (!!) customers (134k av/customer). Here from the complaint is the Stanford  claimed investment returns on its "globally diversified portfolio of assets" and interest paid on its 'CD's'.

        It's Bernie all over again. Incredibly steady returns (12% to 16%) year after year for 15 years. But in 2008 they did report a loss, all of 1.3% (with large cap funds in US and Europe off 40%). In both 1995 and 1996 they report earning 15.71%. (I guess they didn't bother to put in a lot of effort faking these returns.) In 2007 their management fees were 292 million, much of this sales commissions. In its 2007 annual report, signed and approved by both Stanford and Davis, it describes its asset classes: 59% equity, 19% fixed income, 7% precious metals, 17% alternated investments. (No real estate is listed.)  In Dec 2008 to raise cash for redemptions Holt starts liquidating 250 million of the 800 million tier 2 funds. Asked in a meeting why tier 2 is being liquidated and nothing from tier 3, she says tier 2 is more liquid as tier 3 is partly in real estate.

        Stanford sold 1 billion worth of a fund which they reinvested with Vanguard and Putnam. SEC says they sold it by lying about its past performance. According to the figure below from the complaint this fund was really something beating the S&P by 27% in 2000 and 19% in 2002. What Stanford did in their marketing material was after the fact pick good performing funds for these years, and then tell customers that there were the funds their fund had been invested in.

(update 4/3/09)
        WSJ today has a long article explaining the sale tactics used by Stanford's 430 (!) 'financial advisors' to sell Antigua CD's. The CD's they were selling paid 6% more than CD rates in US, but they sold them with sales tactics that would put time-share sales to shame!

        Salesmen who have talked say salaries and bonuses were great, but it was came with huge daily pressure to sell more CD's. Huge pressure to sell, sell, sell, of course, is big red flag for a ponzi. The sales tactics alone show that something smells here, and clearly all the 'financial advisors' knew this. Why not round them all up? In 2007 a self regulatory group, which are always toothless, fined Stanford for his CD marketing materials, saying there were "misleading, unfair, and unbalanced."

        Some Antigua CD's paid 9.87% interest! Sales people earned a commission of 1% of the sales price, and if they sold enough would earn 1% every year the CD was active! Advisors sometimes flew all expenses paid with clients for three day in Antigua so the clients could meet bank officials. If the potential sales exceeded 5 million, the flight to Antigua would be by private jet!

        As of today Stanford has not been arrested. He cried when interviewed claiming no way this was a ponzi, exact quote is, “I will die and go to hell if it's a Ponzi scheme.” Stanford said he will likely be arrested within two weeks. His chief financial officer (James M. Davis) is expected to make a plea deal. Stanford's Florida 'house' (Tyecliffe Castle) is 57 rooms and 24,000 sq ft. 100 million in personal planes. Forbes estimated Stanford's personal wealth at 2 billion. The IRS says Stanford and his wife owe about 225 million in back taxes. (This guy makes Bernie look like a piker!.)

        One former salesman (Hazlett) tells in Houston Press of a meeting with Holt because a client of his in SA was going to pull out 5 million if he didn't get some answers about how the money was invested. Holt tells him it's "proprietary", then when Hazlett says he wants answers too, "she burst into tears and left the room."  Davis calls him 5 minutes later and ask (get this) "Do you believe in God?" Davis asked in a dry drawl, his voice rising with passion. "Do you fear God, Chuck?" Hazlett goes to the SEC about 2003, and of course, nothing happens. The Houston Press story details four other people who suspected Stanford was running a ponzi, one of whom had his story printed up in a Venezuela newspaper. A red flag he finds is that the board of directors is Stanford, his father, and some guy living on a cattle ranch in Mexico.

        What the losses are at this point is hard to fathom. The SEC claims this is an 8 billion ponzi. Stanford says none of his investors have lost any money. There are 32,000 accounts of these 28,000 are "released". (These may be brokerage accounts.) Does that mean they are free to withdraw funds?? That would be a hell of a run on the bank. 4,000 accounts, which are apparently invested in Antigua CD's, are frozen. A Texas judge reaffirmed (4/7/09 ) these 4,000 accounts totally 1.7 billion (425k average) are to stay frozen.

        Maybe a little asset inflation was going on (factor of x23 in one year!):

        Alvarado (Stanford general counsel) wrote to Davis in a Feb 4, 09 e-mail that he was confused by revelations from the meeting that a capital infusion into the bank from Allen Stanford and $2 billion of the bank’s assets were made up of real estate projects the bank had acquired the year before for about $85 million. (Houston Chronicle 4/9/09)

        * The NYT sub-headline is Stanford says SEC is lying, but if it's true then Davis did it.
                        (Oh, yea!)
        * Mr. Stanford said that he had put his depositors’ money into “real assets backed up
                by real investments.” Stanford denied an accusation by the SEC that he had taken
                a $1.6 billion loan from his company without disclosing it, adding, “the money was
                not going to me personally; it was going into investments.”
                       (Some financial guy he is)
        * “If bad things were happening, he never brought them to my attention,” Mr. Stanford
                said of Mr. Davis.
                        (I guess by 'bad things', he means like maybe fraud and stuff....)
        * “He (Davis) did his job, and I stayed out of his hair.”
                        (Sure I'm the high paid CEO, but schucks I really don't know nothing about
                        how this company is run. Talk to that guy over there...)

        Davis says Stanford told him each quarter what the numbers to put in and he did as instructed. (Davis is cooperating with the investigation) Stanford says the financial reports were prepared and signed off in Mississippi by Davis. No criminal charges have been filed against either Stanford or Davis and it's now two months since the SEC civil suit was filed in Feb, but there are criminal charges pending against Holt. Curiously in the NYT story there is no mention of Holt, surely the reporters must have asked Stanford about Holt.

(update 6/19/09)
        Big news today is virtually all the top Stanford group people have been arrested by FBI for fraud and related charges. Stanford and Laura Pendergest-Holt are charged with fraud and obstruction. James M. Davis, 60, chief financial officer is charged with conspiracy to commit mail, wire and securities fraud and obstructing an S.E.C. investigation. Gilberto Lopez, 66, chief investment officer, and Mark Kuhrt, 37, chief accounting officer, also charged with fraud and obstruction, and Bruce Perraud, 42, was charged with destruction of records. They charged some regulatory official in Antiqua too.

        Get this: "(Stanford's) lawyer, Dick DeGuerin, said, ... he and Mr. Stanford had not yet read the indictment but that his client was innocent." (NYT 6/19/09)  Translation --- we don't know what he's charged with but whatever it is, he didn't do it!  Ah, yes, lawyers.  Banker/businessman Stanford is reported to have started his business career running a chain of body-building gyms.

'Plan for restitution'
        Looks like Stanford investors have gotten to congressmen and want US taxpayers to bail them out!

        "We write to you (head of SEC) on behalf of the thousands of American citizens who are entangled in the alleged fraud and deceptive practices of Allen Stanford and his various financial service companies. Thousands invested their entire life savings or a substantial portion of their savings in Stanford Certificates of Deposit (CDs).

        These investments are at risk and we request the SEC provide a plan for restitution for the CD holders and clarify the types of accounts the Receivership holds." (letter signed by 16 members of Congress led by Louisiana senators David Vitter and Mary Landrieu. (CNBC 6/19/09)

(update 1/18/12) Brief update on Stanford ponzi
        I have not followed R. Allen Stanford at all since 2009. Today a story in NYT says he is (finally) to go on trial next week, the judge has ruled he is competent to stand trial. Turns out he has been in jail since 2009 since he is considered a flight risk. He has court paid lawyers, but unlike the ordinary crook he gets a team of four taxpayer funded lawyers. He has gone through like a dozen legal teams, even his current team wants to quit. His current lawyers claim he's not fit to go to trial because

          a) He got in a fight with an inmate, and (son of a gun, wouldn't you know it !) he can't remember things before the fight
          b) He was taking proscribed anti-anxiety drugs and (son of a gun, wouldn't you know it !) it made him unfit to stand trial
          c) He got depressed being in jail, and (son of a gun, wouldn't you know it !) his depression has made him unfit to stand trial

        What a sweetheart this guy is. The prosecutors and jail officials say he faking memory loss. His claims he is innocent, and his lawyers say he will take the stand. The key witness for the prosecution will James M. Davis, the former chief financial officer of the Stanford Financial Group.
----------------------------------------
Where did the money go?
        Bernie in his 'blog' answers this question:

                "It went back to the investors".

Bernie speaks --- a true Republican (3/1/09)
        Hear Bernie speak --- a YouTube round table discussion with Bernie in 2007. He explains how it's impossible in today's market to violate rules without getting caught....

        http://www.youtube.com/watch?v=ab1NTIlO-FM

        Of course, what he is arguing is in his own interest. It amounts to: Hey SEC and regulators, no need to do anything about any nasty rumors you might have heard about me, because " it's impossible in today's market to violate rules without getting caught."

footnote -- CBS 60 Minutes did an interview with Markoplos and have other Madoff material on their site including this tidbit: The organization that sponsored Bernie's little video 2007 talk was the Philoctetes Center and its main benefactor, the and Betty and Norman Levy Foundation, was fully invested in Madoff.

Norman Levy (2/11/10)
        "Lucinda Franks is reporting on The Daily Beast that investigators suspect that the late (died 2005, age 93) billionaire real estate mogul and philanthropist Norman Levy may have been part of an international web of Madoff accomplices who helped him transfer money into accounts around the world to launder the operations, and perhaps stash some of it away." (Anthony Weiss, 4/24/09)

        "Levy was a towering figure in New York real estate—at one point he owned the Seagram Building—and he and Bernie Madoff had a special bond. ... Madoff was long known to have been Levy's "fixer," obtaining everything from choice restaurant reservations to emergency medical care. Levy had offices one floor below Madoff's in New York’s Lipstick Building. It was Levy who introduced high-profile investors to Madoff." (Lucinda Franks in Daily Beast, 4/23/09)

        "The trustee (Picard) recovering assets for Bernard Madoff's investors on Wednesday said he had reached a $220 million settlement with the children of the late real-estate tycoon Norman Levy, who had invested with Mr. Madoff since the 1970s." (AMIR EFRATI, WSJ, 1/27/10)

        Ms. Levy-Church and her husband, Ken Levy-Church, supported JEHT Foundation each year with a contribution from their Madoff funds.

Madoff with Norman Levy

JP Morgan settlement discuess Levy (update 1/8/14)
        As part of a 2 billion dollar settlement between JP Morgan and the Justice Dept for violation of banking rules in their handling of Madoff's account Norman Levy turns up. In a long statement of fact that the bank signed off on he is identified only as "Private Bank Client", who dies Sept 2005, but the suit by the Trustee identifies Levy. Levy had account in an outside bank and at JP Morgan. Madoff and JP Morgan were assigned to be co-executors of Levy's will for which they would be paid 15 million.

        According to the settlement mid 90 (in 1995 Levy would be age 83) huge transfers were repeatedly made between his accounts and Madoffs over the course of a few hours, called by one article 'round-tripping, check-kiting transactions'. In one month (Dec 2001) 900 million takes about seven round trips, with Levy's account showing 6.8 billion dollars in deposits for the month. It's not clear what the exact purpose of these transfers were other than to inflate the value of his accouts possibly to get more interest and higher collateral value. It smells like on of many little favors Bernie did for his favorite clients. The outside bank flagged this both to JP Morgan and Levy as suspicious, neither of which, of course, did nothing.

Fairfield Greenwich statement (3/1/09)
        CBS 60 Minutes also links to a statement by Fairfield Greenwich. It's a classic.

        First, it's undated and unsigned and it comes not the corporate headquarters in Greenwich, but from the NY office. Heaven forbid that when things get rough Noel and the boys at Fairfield would take some responsibility and put their name to paper, better to keep hiding. Second, the very first sentence is standard trite opening 'we were victims too'. There's one hard piece of data. In 20 years Fairfield investors received over 3 billion in withdrawals, this on a (paper) investment valuation of 7.5 billion in Dec 2008. Third, they say that contrary to speculation they engaged in "continuous, ongoing ('ongoing'  -- reaching aren't we!) monitoring of Madoff's activity" Curiously they say not one word about what this continuous monitoring consisted of. Fourth, they describe Madoff credentials as "impeccable", but Markopolos says everyone he talked to on Wall Street (& he provided many names for the SEC to contact to verify this) suspected Bernie was a crook. Fifth, Bernie they say had an "unblemished course of dealing over many years." Translation, he always promptly met withdrawal requests. Sixth, their reaction could not be more vague, "we are working with the authorities" (who? are you fully cooperating?), "our counsel" (who exactly is this?), and "related organizations". Well that's certainly clear. CBS asked to speak to Noel, but surprise, surprise, he refused. He's hiding out on a secluded island says CBS.

Florida Homestead scandal (3/1/09)
        Again from 60 Minutes web site. Bernie and brother Peter both have their Palm Beach multi-million dollar homes in their wife's name (Peter took his name off his deed fairly recently). Florida has a way to protect your home from creditors, and one critical steps says CBS, is to quality under Florida's Homestead law. But to do that you need to prove your Florida home is your primary residence. Since both Bernie and Peter both work out of NY, you would think this would be impossible, but mirabile dictu, the Palm Beach board thinks their wives primary residence is in Florida.

        Even more interesting is that Ruth Madoff was turned down for Homestead two years ago because she could not prove it and reapplied two months before Bernie is arrested. Even though just about everyone in the world knows that Bernie and Ruth since Dec 11, 2008 have lived in NYC full time, a month later on Jan 12, 2009 the Palm Beach board granted Homestead status to Ruth. This smells to high heaven!

        Here is the FL law concerning homesteads:

        "The Florida Constitution provides that a civil creditor cannot force the sale of a person's homestead to collect a civil judgment," Jonathan Alper, an Orlando attorney who edits a Florida blog, told the Post. "There is no dollar limitation, so that homestead properties are exempt from forced sale by creditors regardless of how much money the debtor invests in his homestead." (UPI  3/17/09)

        A seizure headline makes it seem that the Florida Homestead protection didn't work, but it's not that simple.  "Legal sources told CBS News that today’s seizure of the yacht is a clear sign the feds aren’t bound to state laws and effectively renders the home exemption moot." Curiously Ira "told CBS News the couple had no objection to the seizure or sale of the Florida home." I later learned why Ira did not object. The house is to be sold, but it is still legally undecided as to who gets to keep the proceeds of the house sale, Ruth Madoff or the government!

Ruth Madoff claims 62 million is hers to keep (3/2/09)
        In recently released court documents Ruth Madoff is claiming a total of 69 million (probably understated) belongs to her alone, and she should be allowed to keep it because it's not related to Bernie's fraud. This includes the NY apartment (7 million), 45 million in municipal bonds at Cohmad Securities (what? see my post below), and 17 million in Wachovia bank. Unclear if this includes the 15 million she withdrew in the six weeks before Bernie went under, maybe this is the 17 million at Wachovia.

        So where did Ruth get this money if not from Bernie's fraudulent gains? Maybe her cookbook sold really well! I posted the following comment which I thought I posted to Bloomberg article on Ruth's claim, but on checking I find I was somehow redirected to WowOWow (Women on the web) and that where the post is!:

        Notice that Ruth Madoff says much of her money is at CohMad Securities. Something really smells about this. Cohmad is a small Madoff feeder sales organization with just a few salesman. It's not a bank, it's partially owned by Bernie, it shared offices with Madoff Securities in NY. The MA Attorney General has an ongoing investigation, which Bernie bagman and Cohmad principal Robert Jaffe is stonewalling, to determine if Cohmad really was independent of Madoff Securities. (Donald Fulton 3/3/09)

        His explanation for having the hard drive is a little hard to swallow. He says when old equipment was removed, the staff could just take it home. But why would he have lying around a hard drive from several years ago. It would be totally obsolete and hard drive prices have dropped through the floor. It's vaguely possible that he has been using it for years, but then its value to the attorneys would probably be close to nil.

'I've got a guy' 3/5/09
        Recently saw a story (lost the reference) that nicely captured some of the flavor of why/how some people invested in Bernie. The catch phrase was, when people were discussing investing with their friends, was "I've got a guy ...."  It was 'I've got a guy' investing.

My posting 3/5/09
        Posted following on a site called Minnesota Gossip that published (2/7/09) a list of Madoff 'victims' in Southern California, mainly because other commentors were unhappy about poor innocent victims being listed (even though it's public information).

Suggest everyone read the Washington Post op-ed, Madoff's Willing Partners, by Len Fisher

http://www.washingtonpost.com/wp-dyn/content/story/2008/12/19/ST2008121903128.html

        Fisher says: "I contend that the losses would have been less severe, and might not have occurred at all, if many of the Madoff's investors had not been cast from the same mold that Madoff was."

        In other words the people on this list may be victims, but they're not 'innocent victims. It was widely suspected Bernie was running some sort of scam, and these people wanted in. Too bad for them if they didn't understand what might happen if the scam were to end. (March 5, 2009, anonymous)

        There has been no press stories in these last three months that anyone in the family, Madoff Securities, or the feeder funds is cooperating in any way. Maybe it's happening, but I suspect it's not. The only pubic record I know concerns Jaffe and the MA AG. All the MA AG wants to know is was Cohmad Securities really independent of Madoff Securities. There is no criminal charge against Jaffe or anyone else, yet it appear that Jaffe has been able to evade doing even one interview.

Pending plea (3/8/09)
        The press stores this week are that Bernie is expected to plead guilty next week. That means no trial. According to a legal 'expert' on cable a plea deal can also be a way for Bernie to continue to stay in his apartment for many months while he 'supposedly' cooperates. (Unfortunately, cooperation, as the TV reports it, seems to be all about recovering money not criminal responsibility, which is mentioned occasionally in print media but almost never on TV.)

        WSJ in a front page article about the pending Madoff plea (3/7-8/09) includes the following insider tips:

            * "Government believes other individuals were likely involved (you think!) and Mr. Madoff may be trying to protect them". (Do you think Bernie is going out of his way to protect the holy trinity of bagmen (Jaffe, Noel, and Merkin)? I don't think so, this can only mean his sons, brother, and wife and maybe his niece and nephew.)

        * "Government is looking into the potential involvement of his wife, his brother and two sons." (What a criminal family? The facts are skimpy, but some allege Bernie's mother and father were securities crooks too.)

        * "Prosecutors have subpoenaed and begun interviewing employees who worked for Madoff in the investment-advisory part of the firm." (have begun? this three months into the investiation)

Money recovery (3/9/09)
        And we've seen how Bernie cooperates on money recovery, everything has been put into his wife's name (tens of millions in cash, NY apartment, Palm Beach house, and god knows what else) and that money his hers claims Bernie's lawyer Ira! What wasn't in her name and portable, like jewelry, was mailed out as 'gifts' to the family member to safeguard. And since Ruth Madoff is free to come and go, God knows what else she has carried out of the apartment.

More pre-plea news (3/10/09)
        CNN reports today that Bernie tomorrow is expected to plead guilty, but the government is making clear that there is no deal, this is not a plea. Jeffrey Tubin says this probably means Bernie is not cooperating and that he is trying to protect his wife, brother, and sons. Why plead guilty? The talking heads speculate Bernie does not want to sit through a long trial (how can they possibly know this?) and (more likely this is right) that having lots of people testify under oath may blow apart his story that he did it alone, thus increasing the chances his family will be prosecuted.

Bernie pleads today (3/11/09)
        Double column lead front page headline in NYT today is Bernie is expected today to plead guilty. By 1:00 pm the article has over 400 posted comments. So not to be left out, I posted:

        "After three months, why are there not criminal charges against the ‘willfully blind’ holy trinity of Bernie bagmen, Noel, Jaffe, and Merkin? These are the guys who skimmed off the cream, who got filthy rich by charging hedge fund fees without the necessity of actually running a hedge fund." — Posted by Donald E. Fulton (NYT 3/11/09)

The article has the following tidbits:

        -- Ira's mother & father had invested nearly a million (apparently many years ago) and this account was cashed out in 2007 with the money going to Sorkin's sons.

        -- Ira defends arabs too, and accused terrorists to boot --- "(he defended) Monzer al-Khazar, a Syrian convicted in November of supplying arms to undercover agents posing as anti-American terrorists." Which is a little surprising because the article includes this: Ira serves as chairman of American Friends of the Hebrew University and "he makes frequent flights to Israel, whose tourism he has helped promote through ads and testimonials." (NYT 3/10/-9)

        -- Apparently Ira, now 65, doesn't like to work too hard. He has three associates at his firm helping him with Bernie, "Daniel J. Horwitz, Nicole P. De Bello and Mauro M. Wolfe — are part of the team defending Mr. Madoff." (Several times I have seen Horwitz listed as a Madoff lawyer.) And what exactly is it they all do?

        On 12/15/2008 the UK Telegraph reports Horwitz as saying, "Mr Madoff's lawyer, Dan Horwitz, called his client "a person of integrity."  Do you think that maybe, just maybe, lawyers lie?

Feeder fund diagram (3/10/09)
        This feeder diagram was created by two guys at Toomre Capital Markets LLC site, which has lots of good Madoff info, identified as Lars Toomre and Aldon Hynes. This site also has an article on a (possible) Florida feeder, shown below, Michael Sullivan who they tie to Avellino and Biernes. Interestingly Madoff recruiting was going on a a Florida church that either Avellino or Biernes attended with 150 investors sucked in.

        NYT references Toomre Capital Markets in a Madoff story today saying, “Who takes their accountant on a ski trip?” said Lars Toomre, head of Toomre Capital Markets, a Greenwich, Conn., financial risk analysis firm that maintains a Web site on the Madoff scandal. “Konigsberg is always around Madoff.” (NYT  3/11/09)

NYT Dealbook columnist (3/11/09)
        Peter J. Henning, a professor at Wayne State Law School, Mr. Henning specializes in issues related to white-collar crime and is a former editor of the White Collar Crime Law Prof Blog. He write of Ruth Madoff's request to keep 'her' ten of million of dollars:

"This has to be a better joke than any ever told by Henny Youngman."

        -- Gov alleges that 250 million of ponzi money was used to prop up the 'separate' trading business. That makes it subject to capture. (It also is tears a huge hole in the defense stories of Bernie's brother and sons who claimed the two businesses were run separately and that's how come they didn't know Bernie was scamming.)

        -- "Entering a plain guilty plea to the criminal complaint without any agreement to cooperate also means Mr. Madoff could be a witness for anyone else charged in connection with the Ponzi scheme, including any family members who might be charged. If prosecutors indict others for assisting him, the defense lawyers could call him to testify that he was the only one responsible for the fraud and that he deceived those who worked for him as much as the investors.

       Would a jury actually believe Mr. Madoff? All a defendant has to do is raise a reasonable doubt about his or her own guilt, and having the primary perpetrator take all the blame could be an effective defense to charges of complicity in the scheme. Odd as it may sound, Mr. Madoff could be a valuable defense witness if the government seeks to convict others (like his family) for assisting in the execution of the Ponzi scheme."

        After three months, why are there not criminal charges against the ‘willfully blind’ holy trinity of Bernie bagmen, Noel, Jaffe, and Merkin? These are the guys who skimmed off the cream, who got filty rich by charging hedge fund fees without the necessity of actually running a hadge fund.— Posted by Donald E. Fulton

        ---"A substantial part of the fraudulent scheme was committed from outside the United States."

        What are to make of this? If Bernie acted alone, how could it be that "A substantial part of the fraudulent scheme was committed from outside the United States"? Maybe Bernie did business when he made the occasional trip to the London office or on vacation at his home in France!

        --- (Bernie) "was an organizer or leader of a criminal activity that was otherwise extensive."

        --- In vague language the amount of money is listed as in excess of "170 billion"! (maybe this includes all the incoming and outgoing money over the years added up?) Next day the report is 170 billion is sum of all money going through the whole firm. NYT adds that Bernie's lawyers sent a letter complaining about the 170 billion figure. Why?

        Excerpts from NYT stories next day ((NYT 3/13/09)

        Judge Chin  --- “He has incentive to flee, he has the means to flee, and thus he presents the risk of flight. Bail is revoked.” (Ira, of course, argued that Bernie should continue to live in his luxury apartment.)

    Finally, the judge said, “Mr. Madoff, tell me what you did.” Mr. Madoff began:

        --Your honor, for many years up until my arrest on Dec. 11, 2008, I operated a Ponzi scheme through the investment advisory side of my business, Bernard L. Madoff Securities L.L.C.

        -- Madoff: The essence of my scheme was that I represented to clients and prospective clients who wished to open investment adviser and individual trading accounts with me that I would invest their money in shares of common stock, options and other securities of well-known corporations, and upon request, would return to them their profits and principal.

        -- Madoff: Those representations were false because for many years and up until I was arrested on December 11, 2008, I never invested those funds in securities, as I had promised. Instead, those funds were deposited in a bank account at Chase Manhattan Bank.  (Well Chase, just how big was Bernie's account?)

        -- Madoff: To the best of my recollection, my fraud began in the early 1990s. I therefore claimed that I employed an investment strategy I had developed, called a “split strike conversion strategy,” to falsely give the appearance to clients that I had achieved the results I believed they expected.

        I claim it the fraud started (or went big time) about 1989 when Cohmad Securities and Fairfield Greenwich formed specifically to sell Madoff. Fairfield on its web site (used to claim) that they were in part responsible for development of the split strike conversion strategy!

Bernie's earlier strategy
        The Fortune magazine article "How Bernie did it"  (April 09) has this interesting little tidbit about what Bernie said his investment strategy was in the early years:

        In years prior to 1982 Madoff claimed he was doing so-called convertible arbitrage. He (supposedly) would invest in high-yield issues that were convertible into common stocks while simultaneously short-selling the common stock. Investors then earned "the spread between the higher dividend paid on the convertible securities and the lower dividend on the common stock, plus interest from investing the proceeds of the stock short sale."

        I don't believe it. It's just too simple, too mechanistic, and probably too obvious. It certainly would be obvious to management of the companies involved, though they may have not been able to exploit it because of trading cost, and here Bernie had a big edge. But even at best it seems like it a low yielding strategy.

        This is totally simplistic. He's just going to time the market!! Going into and out of S&P 100 index with backup call/put hedges. No skilled investor could possibly believe this would work month after month for years on end! Yet, mirable dictu Bernie has thousand of investors! Why, when I see all these 'innocent' victims being interviewed doesn't someone ask them about this?

        -- Madoff: To conceal my fraud… [769 confessional words later] … I caused the fraudulent investment advisory side of my business to charge the investment clients $0.04 per share as a commission. (And how many fictitious shares did you supposely trade, Bernie? Heaven forbid Bernie should be specific.)

        -- Madoff: At times in the last few years, these commissions were transferred from Chase Manhattan bank account of the fraudulent advisory side of my firm to the account at the Bank of New York, which was the operating account for the legitimate side of Bernard L. Madoff Investment Securities — the proprietary trading and market making side of my firm. I did this to ensure that the expenses associated with the operation of my fraudulent investment advisory business would not be paid from the operations of the legitimate proprietary trading and market making businesses. It is my belief that the salaries and bonuses of the personnel involved in the operation of the legitimate side of Bernard L. Madoff Investment Securities were funded by the operations of the firm’s successful proprietary trading and market making businesses. (Bernie, this makes no sense)

        I liked this posting --- "If Frank DiPascali doesn’t cut a deal and rat out the Madoff family, he is a fool, and will spend serious time in jail" posted by jeff P (NYT 3/13/09)

        I posted this:

        The investment strategy he says he “promised” clients he used is totally simplistic. He’s just going to time (!) the market, going in and out of an S&P100 index with backup call/put hedges! No skilled investor could possibly believe this would work month after month for years on end. Ben Stein in a NYT op-ed explains how (unnamed) people tried to recruit him to invest in Madoff. When they explained Madoff’s strategy to him, he basically laughed, telling them it was impossible. Markopolos concluded in 5 min it was impossible too.

        So what does this say about Madoff’s ‘innocent’ victim/investors? It says to me they suspected a scam, but didn’t care, they wanted to ride the gravy train for as long as it ran. Posted by Donald E. Fulton (NYT 3/13/09)

        This means a substantial portion of the income of his brother, sons, nephew, niece, and other top trading people must have come for years directly from the ponzi! Why doesn't the government file RICO charges against the whole bunch of them?  I have see reports that this would simple and justified, then the mansions and other assets of his sons and brother could all be seized. By delaying all the government is doing is giving them time to hide these assets overseas.

        The NYT article broaches the implications of this to his family's involvement this way:

        "And, in an accusation that extends his crime's shadow to the edges of the business where his brother and sons worked, prosecutors accused Mr. Madoff of using some of the money he gathered through his Ponzi scheme to support the supposedly legitimate wholesale stock trading operation that made his name on Wall Street. Specifically, prosecutors said that Mr. Madoff "caused more than $250 million" he collected through his Ponzi scheme from at least 2002 through 2008 "to be directed, through a series of wire transfers, to the operating accounts that funded the operations of these businesses."" (NYT 3/12/09)

        Washington Post today reprints its best Madoff stories over last three months, including one of the best, Madoff's Willing Partners, By Len Fisher, 12/20/08, who correctly (in my view) fingered the investors as (in some sense) being in on the scam.

        Jane Bryant Quinn in her (12/21/08) column goes after the investment advisors saying there were two glaring red flags that any competent investment advisor would have understood: One, Madoff's accounting firm, Friehling & Horowitz in New City, N.Y., was a rinky-dink shop, as a simple Google search shows. Two, Madoff held your securities in his own advisory firm. That's not the way reliable advisers handle publicly traded investments. Adding:

         --- The advisers who fell for him have a lot to answer for.
         --- (Re Fairfield Greenwich) How come they didn't hire someone to trot down to New City to see who was auditing the books?

        My answer to Jane is the explanation is simple. These investment advisors knew something smelled, so better not to ask any questions, and the money is real, real, real good, so let's ride this gravy train for as long as it runs!

Press interest in Madoff associates continues (2/28/2011)
        Newsweek issue of 2/28/11 runs a multi-page feature story about Sonja Kohn, titled 'Bernie's Bag Lady'. The article says over 23 years she brings in 9 billion of European money to the ponzi and makes millions in commissions. Compare that to the billions Barbara and Jeffry Picower make (withdraw in cash from the ponzi). Barbara is able to write a check for 7.2 billion to get the trustee off her back. Reports in the press say her husband's personal trading account (ten years ago!) was worth ten billion. I guess having a no-interest loan of ponzi billions for decades was a good deal, and surprise (!) Barbara Picower has returned not one penny of the earning on this money!

        The Newsweek Cohn article has this nice page and half graphic (below) that pictorially shows Madoff insiders and others related to the ponzi. Of course, Jeffry and Barbara Picower are both there.

Gov files notice of siezure of Bernie's houes and other property (3/16/09)
        Attached to the NYT article, Government Files Notice Seeking Madoff Assets, is this sobering posting below, which makes a good case that the simple strategy of putting assets in his wife's name may be very effective in allowing the family to hold onto many of these assets.

"Filing a notice does NOT mean the government gets the property. It just means that is the property against which the government intends to assert a claim. Period.

In an WSJ, dates of purchase were noted. The house in NJ was acquired back in the 70s and is solely in her name. Odds are on that the government can’t touch it as it was not ‘fruits of the crime’ which Madoff says starts in the early 90s and the government vaguely says started ’sometime in the 80s.’

Also listed was the date of purchase for the Manhattan apartment - again way back in the very early 80s - something like ‘82 or so. Government will have to prove WHEN the fraud started. If this was acquired before the fraud started, as a rule the government will be out of the box and can’t touch it as it is in her name.

And so it would go with the entire list. Things acquired before the fraud started and solely in her name are hers. (And would need to have been in her name alone before the fraud starated. If they were joint and he transferred his interest to her after he egan committing fraud, the government may be able to reach part of the interest in an sset but not all to the extent she had an interest before (1) the fraud began and (2) he transferred his interest to her after the fraud began.

As for things acquired after the fraud began, the government has to show that they were acquired with ‘fruits of the crime’, eg: money from the fraud. If for example the money in her name was given to her by him through the 60s, 70s and 80s and it has grown through investing it, it is hers. The government can not simply seize everything she owns because she was married to him. They have to prove that the source of the money for the ‘thing’ (house in Florida etc) was the fraud or the money in her name came from the fraud.

The other side of the business with the trading appears to have been legitimate and would have yieded a very substantial income to him, her (as an officer of that business being mentioned once somewhere), his brothers, sons and other relatives. If the money and the money that purchased assets after the fraud began in the other operation was the souorce of her assets, the the government can’t touch it.

There is NO bill of attainder in the US. The Constitution says so - clearly and explicitly. Under a bill of attainder, the property of those related to someone convicted of a crime (usually treason was the case) was forfeited to the Crown simply because they were related even though the family member had done nothing wrong and was NOT convicted of any crime. (Sounds like what is being demanded by the howls of the mobs in the US on this case doesn’t it?)

Anyway, it is explicitly forbidden in the US Constitution to have a Bill of Attainder. Therefore, no matter how much the masses may shriek in outrage and yell ‘but but she was married to him and deserves to be punished for being married to him” or “his sons, brothers, in-laws etc are related to him and should have figured out what he was doing and should have this and should have that”, the law is clear and such Bills of Attainder are prohibited. IF they were not involved - and it must be PROVEN they were involved and the happy speculation of the mob is not enough - then their assets which were NOT acquired with money from his crimes are theirs and can not be seized. "
— Posted by AnnS  (NYT 3/16/09)

RE: — Posted by AnnS.

Sadly, you are correct. However, there has to be a trail of breadcrumbs somewhere, and if she magically made tens of millions while the majority of folks lost tens of millions then my guess is that investigators will find the missing links.

Was the property PAID IN FULL before the fraud began? And WHEN did the fraud begin? My guess is that Bernie was a Fraud all his life. (I second that) I can’t wait to see where this goes. Waiving the constitution to protect herself won’t work if there is ONE SINGLE trail that ties her to the STOLEN money." — Posted by Nel

Notes on Bernie's asset evaluation (3/13/09)
        The NYT headline blare that Bernie assets at end of 2008 were 823 million. This number comes from court documents filed by Bernie's lawyers to get him out of jail, so this is Bernie's valuation of his assets. Available here.

        85% of the total (700 million) is just one asset the trading firm Madoff Securities that Bernie owned outright. Who knows prior to his arrest what the firm was worth, but as of the end of 2008, which is when the asset statement applies, the value of Bernie's trading firm was probably pretty close to zero. So the 700 million valuation is a total fantasy. (Later in the document it's explained that the 700 million evaluation is "based on remaining capital")

        Bernie's (whoops, I mean Ruth's) yacht in the Mediterranean is worth 7 million! In contrast their Florida 'fishing boat' (hey, this one is actually owned by Bernie!) is only worth 2.2 million. And in the NY appartment, guess what, Ruth owns both the Steinway (39k) and the silverware (65k)!

        So why would Bernie place such a ridiculous valuation on the firm? Pride?

        What? --- $100,000 in credit card debt.

        All real estate valued in integer million, example, NY apartment 133 E. 64th St, Apt 12a at 7 million (This is on a tree line street between Park and Lexington, 2 1/2 block east of the Central Park zoo.) --- What Bernie couldn't be bothered to call in an appraiser?

        Furniture and art in NY apartment valued at 4 million, including a 39,000 Steinway piano. Who plays the piano, anyone, or is this for show?

        Bernie was not big on cars. He has boats at every house with total value about 11 million, but he has only three cars, expensive names but all old, that he values total at only 25,000! The explanation is apparently that he leases cars, because he shows 10,000 auto leases as liabilities.

        A classic ---- Loan from mommie to Mark and/or Andrew for somewhere between 4 and 7 million to buy properties in New York and Nantucket. Not only is the amount imprecise by about a factor of two, no dates given, the locations of the properties vaguely described, but Ruthie seems not to know ("and/or") which son(s) she loaned the money to! Getting a little senile are we?  (I posted this as comment to NYT 3/13/09 article)

        Ruth has 45 million in securities (all municipal bonds in Cohmad account), Bernie has securities too, but more than 200 times!! less, only 200k. Bernie claims not be to be able to evaluate his holding at places like Fidelity because he has "no access to his records". What?

        Under cash flow Bernie claims (date not specified) zero salary, zero commissions, zero pension! He did not take a salary from his job, this is hard to swallow!  In fact the only income shown is about a million interest on the municipal bonds.

        Bernie's (average montly) electric bill for only his NY apartment is 700!! What? His telephone bills monthly are 700 and 370 for cable! Curiously, his NY house and Florida house also have electric bills in the 700 month range.

        Do you believe this?--- (av monthly) Entertainment costs are 70! What about the huge group trips to Swizerland for skiing and huge parties at his NY home reported by others?

        He spends 885 dollars a month for a gardener for his 64th NY apartment! How many plants does he have!
---------
        Bernie is asked to list gifts (to family, etc) over $1,000 given in last 36 years.
        Response: “To be resolved with commission staff”

        Bernie is asked to attach his Federal Income tax forms for last 36 years.
        Response: “At this time, records are unavailable”

        This asset declaration has been submitted and signed off by Bernie’s head lawyer, Ira Sorkin. Doesn’t the government have some recourse against Sorkin for filing non-responsive crap like this? — Posted by Donald E. Fulton (3/16/09)

a Bernie mistress
        I have little interest in this topic, but for completeness here is the Amazon link to a book by Sheryl Weinstein, former CFO of the Hadassah, the Women's Zionist Organization of America. She invested her personal money and her organization's money with Bernie and claims to have had an affair with Madoff for a couple of years in the early 90's. Guess who is one of only the nine Madoff 'victims' that got to testify at Madoff's victim impact sentencing --- Why it's Sheryl Weinstein! Very curious.

        http://www.amazon.com/Madoffs-Other-Secret-Money-Bernie/dp/0312618379

        According to Wikipedia (Bernard Madoff), Hadassah may be what Picard calls a 'Madoff winner'. It says Hadassah put in 40 million in 1997 and withdrew 140 million in the eleven years since.

        For what it's worth fake Bernie's blog 'reports' there's a link (text messages and phone numbers) between Sheryl Weinstein, now age 60, and golfer Tiger Woods. (Madoff Mistress Tied to Tiger Woods 12/2/09)

Irving H. Picard
        To fill out the cast of characters, here is Irving H. Picard, a partner at the law firm of Baker Hostetler, who is the liquidator. Bloomberg news says he has been "appointed by the Securities Investor Protection Corp (SIPA)", which I find a little surprising. His bio on his firm's web site puts it differently, saying, "He is currently serving as the court-appointed trustee under SIPA in the liquidation of Bernard L. Madoff Investment Securities LLC."

Comments on Bernie guilt plea by Dean of Mass School Law (3/16/09)
        Very interesting article on Bernie's plea by Prof Lawrence R. Velvel, dean of Mass School of Law. I have seen this guy on his regular Comcast TV show. He is very critical of judge Chin for accepting Bernie guilty plea.

        He says refusing to accept Bernie's guilty plea would have forced a trial. This would, he says, result in a huge amount of information about the ponzi and how it was run becoming public. Since Velvel thinks Bernie's family almost for sure was involved, the threat of a trial he argues might very well have gotten Bernie to cooperate in exchange for reduced sentences for family members.

        Velvel guesses (he didn't bother to check the law!) that  a judge probably can, and maybe must, turn down a guilty plead when the defendant is lying or concealing facts. He argues Bernie repeatedly did just that in his vague little say-nothing 'confession'. He also makes this powerful point about the '46% interest' charge, which I remember reading, but missed its significance:

 46% interest
        "Another point, raised by the government in papers it filed prior to the hearing, so that Judge Chin could have read and absorbed the point at his leisure before the hearing, is similar in import.  The government said Madoff had promised some people returns as high as 46 percent.

         Huh?  Forty-six percent?  Are you kidding me?  Who were these people?  Mafiosi with leg breakers or worse?  People who knew what was going on and demanded such huge “earnings” in return for silence? (very, very good point) Complete dummies who would believe you could make 46 percent year after year? -- it is inconceivable that anyone could be that stupid, could believe this could be done honestly and legitimately. So the questions of who were the people who were promised returns like 46 percent, and why were they promised this, scream for an answer.

        But Judge Chin was oblivious."  (Prof Lawrence R. Velvel 3/16/09)

        "People briefed on the matter say they expect more cases to follow as prosecutors and F.B.I. agents focus on Mr. Madoff’s family members and employees despite his assertion that he carried out the fraud alone." Boy the feeder boys and the family must be peeing in their pants now, or preparing to flee! (NYT 3/18/09)

        Wow, here's an irony, Horowitz, who was Bernie's accountant for 30 years, may have been spared arrest because he died (from cancer) on the very day Bernie plead guilty in court.

        Turns out that Friehling did a little writing (hat tip, Bernie's blog)  This is hours after his arrest. I bet this April newsletter link is going to come down pretty quick. Here's his advice to other accountants (a classic, even if it's barely literate):

        "When we see our clients and they ask us to stretch the truth, we are just cheating ourselves.... When those clien(t)s who want to feel like they got one over on the government and ask you to stretch (or shrink) the numbers a little bit, remember not only your professional ethics and responsibilities, but your personal ones as a citizen of the United States."
'Cheating on Taxes Is Cheating Ourselves' by David Friehling, Rockland Chapter President, Newspaper of the NYSSCPA, April 1, 2008

        "Mr. Friehling “essentially sold his license to Madoff for more than 17 years while Madoff’s Ponzi scheme went undetected,” said James Clarkson, acting director of the S.E.C.’s office in New York." (NYT 3/18/09)

Civil case too
       The SEC is piling on with a civil case against him, really against the now one man accounting firm, to recover his fees for the phony accounting.

Yes, a clawback?
        In another good sign the SEC also seems to be trying to recover investor withdrawals by Friehling and his family in recent years. Friehling was an insider, but the charge is against his family too. This, of course, may apply to a lot of the feeder guys too. Sounds a lot like an investor clawback.

        "The civil complaint, besides citing the deceptive audits, also accused Mr. Friehling of collecting “ill-gotten gains” in the form of substantial fees — $186,000 a year — paid by the Madoff enterprise, and by taking millions from accounts he and his family maintained with Mr. Madoff. According to the S.E.C., Mr. Friehling and his family had accumulated more than $14 million in their Madoff accounts by last November and had taken more than $5.5 million from them since 2000."  (NYT 3/18/09)

(update 5/12/10) What these numbers really say is that Madoff was paying (buying off) his accountant not through fees, but with phoney 'investment' earnings. While Friehling's fees were less than 200k/yr his 'investment earnings' were averaging 2.2 m/yr (600k/yr of that taken in cash) over the last 9 years.

(Update on Friehling 1/7/13)
        An odd story. In Nov 2012 23-year-old son of Bernie Madoff's longtime accountant, David Friehling, a medical student in Ohio committed suicide by shooting himself. He left a note, but it was not released. He may have lost respect for his father who faces long jail time and who probably can't pay his medical school bills, but still....

Too delicious (3/19/09)
        Bloomberg news reports the following about one of Madoff's victims, a Steven Greenspan professor emeritus of educational psychology at the University of Connecticut, who invested (& presumably lost) more than $250,000.

        Stephen Greenspan is author of the 2008 book “Annals of Gullibility: Why We Get Duped and How to Avoid It” (Bloomberg News 3/19/09)

        If insiders were to be charged with being ‘willfully blind’ to the high likelihood that Bernie's returns were fraudulent, I don’t think the government would have any trouble getting juries to convict. Virtually all of Bernie’s family is on the victims' list, therefore they would have to know from their investment records that Bernie, consistent with what he told clients, (supposedly) traded all the time in/out of S&P 100 stocks with option collars and made his money by precisely timing his trades. They may not have known the total funds under management, but it was a matter of public record in SEC filings that the money management side of the firm was managing 17 billion as of Jan 2008.

        The government can bring in experts to show how many traders and how much computer equipment would be necessary to execute tightly timed trades of 17 billion in equity and options. I have no clue how large these numbers are, but if they are large, then the government has got a good case against the family and other management people working at the firm. As trading professionals they would know roughly how much in the way of resources would be needed to do this trading. It should not be hard for the government to show that people at the firm had to know those trading resources just did not exist on the 17th floor. Just on the strength of a simple ‘no trading means fraud’ argument, I think the government could get a raft of family convictions.— Posted by Donald E. Fulton (NYT Dealbook 3/19/09)

    “In light of the defendant's age (70) and the length of a potential sentence (150 years), he has an incentive to flee, and that because he has the means to do so, he presents a risk of flight , and therefore should not be released.”

        And what of the millions in jewelry that Bernie and Ruth apparently have in the apartment, one million of which they already mailed out to the family while Bernie was under house arrest?  Oh, the mailed jewelry was just "a few sentimental personal items", Ira had told the court months earlier. And what of the "ample opportunity over a long period of time to secret substantial resources outside the country", and millions more in jewelry that might be lying around the apartment (Bernie's asset statement listed over two million in jewelry belonging just to Ruth), and what of the possibility that Mark or Andy might make an early payment or two on the few million that mom and dad have loaned them to buy mansions? Well, apparently Ira's only answer to these (unasked) questions is, Bernie's "financial assets have been frozen". Somehow Ira I'm not convinced. (Bernie is this really the best your big cheese, high priced lawyer can do to keep you out of jail?)

Electronic ankle bracelet
        As an aside, I am puzzled why the electronic ankle bracelet that Madoff is (supposedly) wearing is not featured in the context of flight. Is there remote communication with the bracelet? How often? What range? Is it easily cut off? How long would it take before this was discovered?

        But the main line of attack is apparently this: Assistant U.S. Attorney Marc Litt told the judge that the giant Ponzi, or pyramid, scheme began "at least as early as the 1980s." If the ponzi started before the house was bought, then the government can argue the house was bought with proceeds of a fraud.

Bernie sculpture (3/14/09)
        Palmer Murphy, sculptor, is selling limited edition bronze casting 'banks' of Bernie. (Hat tip, fake Berie) Pretty nice. Bank has opening on top for money, but an inoperable plug at bottom. "Your money goes in, but does not come out." is the sales pitch! This one sold on Ebay for $277.

Paul Szep's take on Bernie

Peter Madoff's assets frozen (3/25/09)
        In a civil case against Peter Madoff the judge today (temporarily) froze Peter's assets, and he is directed to reveal the location of any assets he may have 'secreted' away. (Good luck with that one!)

        Some investors have come forward with 20 year old investment management withdrawal checks that were signed by, guess who, Peter Madoff!  (Oh, yea, he doesn't know nothing about the investment management business.)

London office (3/27/09)
        The more I hear about the London office (Madoff Securities International) the more puzzling I find it. What was the purpose of the London office anyway? Sure it gives the firm some marketing heft to be able to claim it's international in scope, but was was its real purpose? It purports to be a legitimate, separately owned, separately capitalized business, neither part of the NY trading business nor Bernie's investment business. It had no clients except for the Madoff family. It's supposedly a trading business solely for the benefit of the Madoff family.

        I suppose you could argue Bernie has to invest his family money somewhere, so why not a business he supposedly know well, trading. But why in London? Well he hires supposedly a famous London banker who hires supposedly top traders. Maybe Bernie want to see how a real trading business is run? The rest of Bernie's family invests in him, but Bernie doesn't do the same? Maybe he sees in ending in the future?

        Today the London liquidator are reporting it had 28 employees, 14 of whom were (apparently real) traders and assets of about 100 million pounds (140 million dollars). Firstly let's look at the number of traders, 14 trading with 140 million capital.  It was a matter of public record that Bernie claimed in 2008 in his money management business to be trading 17 billion in equities. This is x120 more capital than London office. If each (supposed) traders in NY traded with the same capital as Madoff traders in London, then the NY money management office would  need something like [(17 billion/0.14 billion)  x 14 traders = 1,700 traders]! Yet Bernie's money management business had a total of only 20 to 30 people.

        Are we supposed to believe that 'top banker' Stephen Raven and other traders at the firm (London and NY) never notices this unbelievable disparity?  Why has no one asked the London or NY traders about this? And what about the SEC, they didn't notice this either? Just how damn stupid do you need to be to work for the SEC?

        London liquidations say according to public filing the London office in 2007 only earned 2% on their capital (2 million profit trading 100 million capital), which is pretty terrible. Bernie pays 10% to his clients.

        Yet according to the London liquidators the London office bought and maintained personal items (property) for family members too?  What's this all about, perhaps just a tax scam, paying for person items with business funds? Bernie visit twice a year, I've read on the way to his house in France. So the London office makes his trip tax deductible....

        London is partly owned by Paul J. Konigsberg, the accountant for the Madoff’s charitable fund plus the Madoff family members including wife Ruth, his brother Peter, and his sons Mark and Andrew. Giving Konigsberg a piece of the actions smells like buying off another accountant. Reinforces my hunch that the mysterious 100 million flowing through the Madoff family foundation, whose accountant is Konigsberg, smells and maybe has something to do with London. Liquidators say they see hugh cash flows between NY and London, one billion last year. This seems to make no sense if London was as claimed an independent firm earning a profit trading with their own capital.

Stephen Raven
        London office was run by Stephen Raven (salary 420k), who NYT describes as a well-known London banker. Soon after Bernie was arrested the UK Evening Standard headlined an article about the London office: "Magic Madoff’s family ‘piggy bank’ in the heart of Mayfair"

        "A quiet corner of Mayfair and a set of offices over a smart art gallery. Here, in Berkeley Street, is the headquarters of the US investment veteran's London arm, Madoff Securities International. He (Bernie) kept around £80 million in cash in the London firm and used it to fund deals to benefit himself, his wife Ruth and sons Mark and Andrew. At the head is one of the City's most respected names, Stephen Raven. He is 70 now. He had a distinguished career before joining Madoff. He was on the London Stock Exchange Council for 16 years." (UK Evening Standard, 12/16/08)

        "Raven has stressed that all trading done from Berkeley Street was carried out with money provided by the Madoff family (translation London had no client except the Madoff family). Companies House records show the London firm has a share capital of just over £50 million, most of which is held by Bernie Madoff (share value in a private firm is just a made up number). He also holds the only voting shares. The Standard was told the operating capital was just over £80 million. If the money is still there - and there is no reason at this stage to suspect it isn't (London liquidator can't find it!)- it may well form part of the assets Madoff's creditors will ultimately claim."

        Stephen Raven, the head of Bernard Madoff's British operation, has called on Mr Madoff to confirm that he did not embezzle $150 million (£99 million) of the UK unit's cash or, if he did, to own up and return the cheque.(International and UK Law on January 09, 2009)

        Employee interviews by U.K. liquidators have focused on “apparently unwarranted payments to third parties” (2 million paid to Ruth Madoff one month before Bernie arrested) and on instructions to staff that they communicate with Madoff Securities through personal e-mail accounts and not through company e-mail, Picard said. (What does Raven have to say about the this?) (Bloomberg news 3/27/09)

(3/28/09 update) Massive transfers back and forth between NY and London
        WSJ reports the London liquidators as saying in 2008 about 1.0 billion dollars was transferred from NY to London and 1.1 billion transferred the other way (London to NY). This looks suspicious as hell. This is transfer of something like 7 or 8 times of all of London's capital back and forth. What possible (legitimate) business reason would there be to do this?

        The London investigator, Powell, says London was a cog in a giant washing machine. In NY Picard says it may turn out that some or all of the transactions between the two companies (NY and London) were part of Madoff's fraud. Bad news is that WSJ says that neither NY nor London investigators really understands what these transfers mean, because they still don't understand what Bernie was doing. Good news is that London can, and according to the WSJ is likely to, bring charges against those in the UK. Raven this has to mean you....

Madoff political contribution list
        Here is a useful link to political contributions going back many years. This link takes you to Madoff, but you can enter any name. The two biggest entries (by far) for Bernie are 25k in 2005 and 2006 to DEMOCRATIC SENATORIAL CAMPAIGN COMMITTEE.

        http://www.newsmeat.com/fec/bystate_detail.php?st=NY&last=madoff

Why were family and favorite investors not cashed out?
        I was thinking about the 173 million in signed checks that the investigators said were found in Bernie's desk. If you are running a ponzi that in the end collapses, you know in advance (probably weeks), that this may be coming. How do you know? You know because your attempts to raise new cash can't keep up with withdrawals and your liquid asset pile that funds withdrawals keeps shrinking and shrinking. In Bernie's case the depth of the coming recession was clear to everyone by late fall 2008, so Bernie had little hope that the withdrawal rate would decrease.

        The signs the end was near probably began to be apparent in Nov 2008 about a month before Bernie was arrested. Around this time we have Ruth beginning to make millions in withdrawals and 100+ million of the London office money, most of their capital, is called back to NY. A couple weeks before collapse we have feeders like Jaffe and Noel pressured for more cash. The point is there is had to be days to weeks of warning that the end was likely coming.

        What are we to make of the 173 million in signed checks found in Bernie's desk? Since many of Bernie's close family had accounts with him, and he probably had favorites like Yeshiva Univ, why in the last days and weeks were they not cashed out?  Bernie only need include a note that he was planning to retire and was winding down his asset management business. It doesn't make sense that Bernie left his family holding the bag, when it appears he had the cash available (173 million probably would have nicely covered Yeshiva and his family members who typically had a few million each) and the time to cash them out.

        The only speculation that I can come up with is that the end may have come much more quickly than he guessed. The key may be the 7 or 8 billion withdrawal request (from unknown source) he told the arresting FBI about. {Who knows maybe this is a made up story, as most large bank and fund investors had only a few billion} Some investors through feeders I have seen were restricted to withdrawals at the end of the quarter. Even if no such restriction was in place, Bernie certainly would be able to argue that it was not reasonable that he could fund such a large withdrawal in a few days. So the question remains, why were his family and favorite investors not cashed out, why were the 173 million in checks not send out?  Was this maybe just a screw up?

Tracking the money
        A seemingly minor story may have a big implications for finding offshore funds. Already funds have turned up in Gibraltar and Isle of Man.

        "A Manhattan federal judge granted Picard the right to control the stock of Madoff's London company, something that effectively puts Picard in the position of being the customer of any private bank where MSIL had accounts -- and in a position to ask for account information -- said one legal expert." (Newsday 3/28/09)

Galvin goes after Noel & Greenwich (4/2/09)
        One of the real protectors of investors is MA Attorney General Galvin (and another plus is that he posts his court papers on the AG web site). Today he has filed suit against Noel and Greenwich alleging wilful blindness in earning hundred of millions in fees while failing to due any real due diligence and that they acted essentially as a marketing arm of Bernie rather than the independent financial advisor they presented themselves to be. Taken all together their actions rise to the level of "fraud". Yea!

        Bloomberg article on Galvin's filing summarizes: 'Fairfield Greenwich was "blinded by the fees" they were earning'. They tolerated Madoff's evasions (when they asked him questions). They ignored any fact that would have burst their lucrative bubble. Galvin's 'blinded by the fees' is probably legally equivalent to 'willful blindness'. (Bloomberg News 4/4/09)

        I did some reading of the Galvin filed court papers, a total of 110 pages which include lots of Fairfield marketing material to clients. It includes (I think) enough stuff to hang them, at least in civil law suits. Some interesting tidbits:

        -- Fairchild does "in-depth.... due diligence and risk monitoring"
        -- Due diligence and review is done by "individuals knowledgeable in the underlying
                    strategy and positions"
        -- Fairfield does "ongoing monitoring of the manager's activities"
        -- Fairfield has "privileged access to all aspects of a manager's operation and
                    investment process"
        -- Fairchild gets "full transparency from its managers"
        -- Fairfield conducts "detailed analysis of market risk...operational compliance"
        -- Fairfield does "quantitative reviews of a manager's past performance obtained
                    from independent sources"
        -- Fairfield does a "series of manager interviews and reference calls"
        -- Particular attention is paid to the extent to which each manager control's are
                    suited to maintain market risks"
        -- This close level of communication and access is the cornerstone of Fairchild's
                    ongoing relationship with a manager"

        Here's a classic. Fairfield starts off its due diligence section on "Structural and Operational Risk" by quoting some report that substantial hedge fund losses have been caused by misrepresentation and fraud. The implication, of course, is that the objective of their 'Structural and Operational Risk' evaluation is to avoid fraud!

        -- Detailed Due Diligence:
                        Qualitative and quantitative reviews cover people, processes, portfolios,
                                and procedures
                       Hundreds of hours are spent on due diligence
                        (they do) asset verification, review operational procedures, information
                                technology
                        (they) attempt to dissect a candidate manager's investment performance,
                                how he obtains alpha, what risks he takes
                   ** Independent prime broker trading records are examined.
                   ** Trading records for a number of months are selected and analysed
                        An attempt is made to confirm assets under management
                   ** (They) seek to determine how the daily trading volume and inventory held
                                compares to the float of a particular security
                       (They) use in-house models, look at return attribution of individual securities,
                                evaluate risk under extreme market scenarios, do a full suite of Var
                                analysis and stress tests
                        Fairfield seeks to understand if hedge funds posses key controls in the areas
                               of portfolio management.
                        Independent NAV calculation
             *** Review broker reconsilations to ensure completeness and the existence of all
                            securities
              *** Review audited financials and auditor management letter comments
            **** Review accounting controls from trade execution, ... to funds books and
                            receipts
                ** Review bank reconsilations for irregular or outstanding loans
                ** Anti-money laundering policies and procedures

        -- The purpose of Fairfield in-depth due diligence and risk monitoring program is to ensure that funds offered to our clients are "as advertised.  (Oh, yea!)

On and on Fairfield Greenwich goes like this for pages. All total nonsense!
 

        In November 2008, Fairfield managers sent an e-mail to its sales team for distribution to clients that said Fairfield’s auditor, PwC, “conduct a biannual review of the internal controls and systems” at Mr Madoff’s brokerage firm. According to the complaint, only one person at Fairfield ever spoke to Mr Madoff’s auditor, David Friehling, and he took the auditor's word that the one-man shop had hundreds of clients.
 

42 Questions
        -- Galvin bores in on an Oct. 2 meeting that Fairfield had with Madoff after one of its investors withdrew $75 million because the firm couldn’t answer 42 Madoff-related questions.

       Above is very interesting. Apparently a Fairfield investor drew up a list of 42 questions he wanted answered about how Madoff operated, including: Identities of “key personnel” overseeing the secretive “split-strike conversion” investment strategy, procedures for trade processing and compliance practices. Fairfield apparently forwarded the questions to Bernie, who stiffed them, so the investor withdrew his money. This prompts a meeting (about the 42 questions) in Bernie's office in Oct (2008?) with Walter Noel, Jeffrey Tucker, and Mark McKeefry and by phone Fairfield Chief Risk Officer Amit Vijayverjiya. (So this tells us who the big cheeses at Fairfield were at the time. Clearly Noel was not retired.) Frank DiPascali sits in with Bernie.

        The nature of Bernie's answers, which Galvin reports satisfied Fairfield!!, is indicated by these excerpts (from Bloomberg article):

        “Have there been any changes to these models/algorithms in the past 3 years? If yes, please describe,” the Fairfield executives asked, according to the report. “Yes,” Madoff replied, adding that he’s “always looking at the models and fine-tuning them.” coffin

        "Did Madoff require dual signatories on documents and, if so, who were they?" the Fairfield Greenwich investors asked. “Yes, names not provided.,” they wrote, summarizing Madoff’s response.

       ** “Who is responsible for actually placing the trade order of the SSC?” the Fairfield Greenwich Group queried, referring to the split-strike strategy. “Traders,” Madoff replied, “under the direction of supervisors.”

        ** "Madoff, 70, was asked about his successor. He said it involved “family,” the report says. “No one has a right to know,” Madoff said, according to the report.

Cuomo goes after Merkin (4/6/09)
        Tidbits found reading Cuomo's 4/6/09 court filing charging Merkin (below):

        http://online.wsj.com/public/resources/documents/WSJ-20090406-MerkinComplaint.pdf

        -- Merkin was just a "glorified mailbox"
        -- Ascot formed in 1992 was always just a feeder to Madoff
        -- Merkin's other funds (Gabriel and Ariel) were marketed by him as investing in distressed
                debt, but in 2000 Merkin directs 1/3 rd of their assets to Madoff without telling clients
        -- "Through his misrepresentations, concealment, self-dealing, reckless conduct, and gross
                negligence Merkin abused (his investors) and breached the fiduciary duty he owed them"
        -- Merkin lives at 740 Park Ave, his office is at 450 Park Ave
        -- funds organized with investors as "limited partners", Merkin as "general partner"
                 Merkin is also sole shareholder and director of the funds
        -- charged 1.5% of capital and 20% on gain, but not Ascot (So when Bernie reported 10%,
                 for Ariel and Gabriel Merkin skimmed off 3.5% and client got 6.5%!)
       -- In 1989 starts his first fund Ariel. A year later (1990) he is already giving "some" of the
                Ariel money to Bernie to manage. In 1992 he starts a Madoff only fund (Ascot)
        -- Cuomo confirms that Bernie claimed strategy was a timing strategy. The complaint
                    says Madoff gave the appearance of "exquisite" market timing -- buying stocks near
                    the bottom of the day and selling near the top.
        -- Merkin had 1.7 bil in Ascot (all Bernie) and 2.7 bil in Ariel and Gabriel (25% Bernie)
                     (It would be interesting to find out Merkin's other investments and return)
        -- Ascot had 300 investors with an average of 5.6 mil each (total 1.7 bil). AG office
                    interviewed over half the 300 Ascot investors, and 85% said they did not know
                    Madoff was managing their money, which of course means at least 15% did know.
                   35 of the 300 were non-profits, several of whose boards Merkin sat on
        -- Merkin invested only a "small" fraction of his own money with Bernie
        -- Merkin in his interview with AG admits that he never intended Ascot to use the
                    money management approach outlined in its offering documents
        -- Merkin tells clients he spends nearly all his time on his money management activities
        -- Offering Ascot documents repeatedly claim individual investments are dependent
                    on the judgement of the managing partner (Merkin).
        -- Ascot clients got annual statements that listed only Treasuries "purportedly held by Ascot"
                        (I can see how this would be very deceptive. Your statement list US treasuries!)
        -- Merkin had a small trading operation (two traders mentioned) at his 450 Park Ave office.
                    The document says they traded for Gabriel and Ariel, but Merkin told visiting Ascot
                    clients that all the Ascot trading was done "right here" pointing to the traders, but later
                    in the document its revealed that as of 2008 95% of Gabriel and Ariel's funds are
                  managed by outside money managers. Merkin is directly managing at most 5%!
        -- Investors would sometime hear rumours that Ascot was managed by Merkin and would
                    confront him, sometimes going to his office for a meeting. The document lists
                    example after example where Merkin lies to these people telling them Madoff has
                    nothing to do with Ascot or was just a "clearing broker".
        -- In presentations to investors Merkin would claim 60% of Ascot funds were from his
                    personal family trusts!
        -- To some investors who knew Ascot was managed by Bernie Merkin told them Bernie
                    only made investment decisions, that the assets of the fund were in a "Morgan
                    Stanley bank account in Ascot's name". The document says that this lie was believable
                    because investors wired money to Morgan Stanley when investing in Ascot.
        -- Merkin told one investor that Ascot's auditor visited Madoff's office two or three times
                    a year to do due diligence. This the document says was a total lie. Ascot's auditor
                    never visited Bernie.
        -- Merkin may in the 1990's have invested in merger arbitrage with Ariel and Gabriel as he
                    claimed. However, this business was managed by Victor Teicher & Co. Teicher
                    has had lots of press in the last few months as he was convicted of insider trading
                    and for a while ran his business from jail. In fact in 1985 (before Merkin starts his
                    own money management business) he works out of Teicher's office marketing
                    Teicher's funds!
        -- Majority of Ariel and Gabriel funds in recent years have been managed by Cererbus Capital
                    owners of Chrysler.
        -- The other major money managers of Ariel and Gabriel (after Bernie and Cererbus) is
                    Cohanzick Capital, who worked out of Merkin's office. (This is interesting. Sounds a lot
                    like Cohmad! A little googling shows it's a five man operation run by a guy named
                    David Sherman, and ten years ago it was just Sherman)
        -- Merkin "double dipped" by investing some Aerial funds into Ascot, this allowed him to
                    collect double the management fees (what a little dipshit Merkin is)

    ** -- Markopolos is confirmed in his allegation that many in Wall St though Madoff was a crook.
                    The documents lists many insiders, including Teicher & "former chairman of a major
                    Wall St firm and his son who invested in Gabriel with Merkin, repeatedly warned Merkin
                    for 20 years (!) that something was wrong at Madoff, his returns were not believable
                    and Teicher saw other red flags, like 'daily' trades always came in a few day late. The
                    chairman & son though going to treasuries at the end of the quarter was a big red flag
                    (as had Markopolos) because it reduced transparency and from an investment point of
                    view it made no sense.
        -- The Wall st chairman (above) specifically asked Merkin why Madoff used a tiny accounting
                    firm, so this fact was known to Merkin.
        -- Complains says Merkin breached his fiduciary duty to non-profit A (clearly Yeshiva
                    Univ). Merkin and Madoff were friends and both on the Yeshiva board. The
                   breach is that Merkin took management fees for Ascot from Yeshiva, when Yeshiva
                    could have invested directly with Bernie for no management fee.
        -- Merkin commingled his personal money with his hedge funds taking out 91 million to
                   buy artwork for his apartment.
        -- Index has a whole section on Merkin's Self Dealing
        -- Teicher also said Merkin’s former accountant Andrew Gordon reported Madoff’s investment scheme "looked like a fraud to him."

        Bottom line --- Merkin, the 'Lion of Wall Street'  was doing basically nothing in the way of management of any of his three funds with 4 billion in assets. He starts off in 1985 working for Teicher who runs merger arbitrage funds and who gets thrown in jail for how he does it. In the early days Merkin is essentially just a feeder to Teicher in 1985 working out of Teicher's office. Soon Bernie is added to the feeder list. One of Merkin's three funds is entirely invested with Bernie.  Merkin says he chats with Bernie on the phone once a month (ah, yes, due diligence). 95% of the money of the other two funds are managed by outside money managers including Bernie who gets 25%, but the majority of Ariel and Gabriel funds are managed by Cerberus Capital (owner of Chrysler and in whom Merkin is a big investor)!.

        Merkin is not a money manager at all. He's another Jaffe. He's just a big, fat, ugly, lying sonofabitch marketer/middle man who worked the NY jewish crowd especially the non-profits.

        The Cuomo report is devastating in its detailing of Merkin's fraudulent (criminal) behaviour over 20 years. So why is this a civil and not criminal complaint?  What does Merkin's lawyer have to say about the filing? Well, reaching deep in the lawyer bag of hackneyed phrases, he comes up with 'this complaint is without merit'.

My posting to NYT (Dealbook) article about Cuomo's Merkin filing(4/7/09)

        Suggest everyone read Cuomo's devastating complaint against Merkin. It shows the 'Lion of Wall Street' is not a money manager at all. He has zero financial skill. He's just a Jaffe/Noel marketer/middle man.

        He starts off as a feeder in late 1980's and early 90's to merger arbitrage funds run by Teicher, then in early 1990's starts to also feed Bernie big time. He ignores repeated warning over 20 years from his Wall St investors and even from Teicher that something is seriously wrong at Madoff Securities. 95% of his non-Madoff investments are farmed out (mostly to Cerberus and Cohanzick Capital). He keeps a couple of traders behind a glass partition at his office at 450 Park Ave to convince the rubes the trading is done "right here".

        Merkin pushes Ascot (100% Bernie), because unlike Cerberus and Cohanzick Capital, Bernie works cheap allowing Merkin to charge hefty hedge funds fees without the necessity of actually running a hedge fund.

First clawback (4/10/09)
         Press is reporting what they claim is the first clawback lawsuit by liquidator, Irving Picard. On its face it looks a little peculiar (to me). It's against a client, identified as Vizcaya Partners, based in the British Virgin Islands and the investor's bank, Gibraltar-based Banque Jacob Safra. that make a 150 million withdrawal in Oct 2008.

        Oct 2008 is not that close to Bernie's arrest and 150 million is peanuts when I suspect that Bernie's withdrawals in 2008 may have totally something like 17 billion! Maybe Picard is starting there because Gibraltar is rumored to be a tax haven. In Bernie's arrest papers in Dec 2008 there was mention of a pending withdrawal in the preceding weeks of 7 to 8 billion. Now this is a withdrawal! Of course maybe this story is bogus as it apparently comes from Madoff himself.

        Next day NYT in a confusing article has more info about the Safra clawback. It first says  "people close to the case said it did not signal the beginning of a campaign of so-called clawback lawsuits."  It explains that in bankrupcy cases withdrawals occuring 90 days prior to filing have special 'preference' status. Then at the end of the article there is this:

        "Criminal charges filed against Mr. Madoff in December quoted him as telling employees soon before his arrest that he was worried about recent redemption demands totaling $7 billion. If he honored those redemption requests within the 90-day window, the Vizcaya complaint could be the first in a worldwide siege of these “preference” lawsuits." (NYT 4/10/2009)

        The SEC sees conflict of interest (SEC has referred the matter to the justice dept) by Becker. He owed a share of a 2 million dollar Madoff account inherited from his parents. He recommended to the SEC (and to some extent they adoped it) that the trustee's 'dollar in/out rule' be modified to factor in inflation, increasing the value of the original 'cash in' by the official inflation rate. This payout method is called the 'constant dollar' approach in the report. It is calculated that Becker (or his family) would have benefitted by reducing the amount the trustee could clawback to the tune of 138k if the constant dollar apprached had been adopted.

Fortune's How Bernie Did It (4/23/09)
        Fortune reporters have done a long investigation of Bernie, apparently doing many inverviews, and have written a terrific long story of Bernie's life and business. It has lots of detail of how he got started in the 1960's. Here's the whole article on the CNN site.

        http://money.cnn.com/2009/04/24/news/newsmakers/madoff.fortune/?postversion=2009042407

        There are two other big pieces of Madoff news today (4/23/09). One is that Fortune 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, generating upon request phony loss statements for clients so they could avoid paying taxes. In effect Fortune is reporting that not only did some of Madoff's clients know they were investing with a crook, they were crooks themselves! (more details in the DiPascali section above)

        "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." (Forturne, 4/23/09)

        A few days into the lockdown of Madoff Securities offices with the FBI and SEC swarming all over and everyone told to leave everything in place, Peter Madoff is caught trying to sneak out boxes of documents.

        "Peter instructed several employees to carry four boxes and two shopping bags filled with documents downstairs, where his driver was waiting with his own Ford Explorer. The driver was halfway to the offices of Peter's lawyer when the authorities discovered what was happening.

        A lawyer for Peter Madoff, John Wing, calls the incident "a misunderstanding" between Madoff's office and the FBI." (Do lawyer lie?) (Fortune 4/23/09)

        "According to this source and a second one familiar with the investigation, these special deals for select Madoff investors have become a central focus for federal prosecutors." The article conflates the oddball 46% gain mentioned in court filing by prosecutors (discussed in the article by Mass Law Dean) with the tax loss statements, but from a tax viewpoint this makes no sense. It may very well be that Madoff made occasional big payouts to favorites (who recruited others?) characterizing them has big returns.

        Fortune reports thing were generally pretty slow at Bernie's 17th floor money management business, that people tended to disappear for long lunches and long vacations.  But about 6 to 8 times a years there would be a burst of activity with long hours. DiPascali is supposedly have said to Bernie (maybe in jest), 'no more customers'.

Bernie's early years
        Fortune says that Bernie was sucessful in his money management business from the very beginning, meaning the amount he was managing, at least as reported to SEC, who knows if this is accurate, continued to grow, from 127k (1967) at age 29 to 555k at age 31 (1969) to 1.1 million in 1973. Too bad the numbers aren't given for 1973/4 bear market. As shown below, the S&P 500 declined 48% from Jan 1973 to Sept 74 prettty steadily. If Bernie did well during this bear, then this would be a very strong indication that his (so called) money management business has been a scam his whole life.

Clawbacks begin (4/24/09)
        Pickard has sent out letters to investor requesting they send back 100% of withdrawals over last six years or face legal action. What's weird here is the reported total (1/5 billion) is ridiculously small. I think about 17 billion was withdrawn in 2008 alone! Is Picard only going after those whose withdrawals (in last six years?) exceeded their investment? The story is not very clear and is based on inside info at this point. Most people the reporters talked to expected very little money to come back without legal action.

        -- Irving Picard, the trustee, has told 223 investors to return as much as $735 million or face legal action, a person familiar with the matter said.
        -- The Wall Street Journal reported yesterday that Picard said that investors who had a net loss from Madoff’s funds wouldn't be asked to return money.
        -- Picard hasn’t excluded nonprofits from clawbacks, though he has said he will “consider” whether an investor is an individual or a nonprofit organization.

Forensic accounting of Bernie's records (5/9/09)
        The SPIC hired a forensic accounting firm to review Madoff Securities and Bernie's personal records. He also conducted extensive interviews trying to reconstruct Bernie's finances. The court filing is here and with more attachments here.

        This filing shows clearly that Bernie used his business as his personal piggy bank and had all sorts of schemes for withdrawing tens of millions for his or his family personal use (& to buy off key company personel) without he or the family having to report it as income. (The Madoff Securities accountant, of course, not a problem because he was bought off cheap at 12k/month. Here we have probably a key reason Bernie used a rinky-ding accountant!) In this filing we have a clear proof that not only Madoff, but all of his family are tax cheats.

Here are some notes:

        -- Madoff securities fully owned by Bernie. Formed in 1960 (Bernie was born about 1938, so Bernie is only 22 years old in 1960.)

        -- Bernie and Ruth joint return reports business income of 9.4 mil for 2007. They find records of 5 million in cash drawn from the business in 2007. His only source of income was his business. His cash withdrawals from the business are irregular (meaning I guess he does not pay himself a salary).

        -- Madoff uses business funds for loans of millions to family that are repayable to him personally. This includes 9 million to Peter in Dec 2007 and millions more to Shana and Jennifer Madoff and firms owned by Ruth Madoff. There is no record than any interest or principal on these loans was ever received by the corporation. (In other words this looks like a way for Bernie to withdraw millions in cash from the business without paying taxes on it. He's a tax cheat too!)

        -- Madoff Securities had large accounts at two different banks, one handled in/out of investor funds. 500 million went back and forth between NY and Madoff's London office in last six years. (This is probably only a small fraction of the in/out cash of the investment advisory business during this time.)

        -- Sons Mark, Andrew and Shana are in business together (Madoff Energy) as equal partners. Business funds to the tune of 1.7 million set them up.  4.7 million in business funds also used to meet capital calls of a Ruth Madoff account (Sterling American Property). 6 million in business funds bought two of Bernie's boats,  millions to buy part use of his airplane, 0.4 million to pay Andy's lawyers and another payment of 4 million to lawyers for Andy in Sept 2008 appears to be a camaglagued cash for the purchase of 4 million apartment Andy bought that month on East 74st. Same deal for Mark in summer 2008 with 6.5 million to buy Nantucket house. The business spends 1 million to buy country club memberships for Bernie, his wife, Peter, his wife, in four different clubs. Business paid W-2 for his maid, boat captain, etc. On and on the list goes.

(update 3/22/11) Weird Andrew Madoff story
        Flipping channels I stumble on ABC news on its 11:30 pm feature news show (3/22/11) doing 10 minutes on a firm called Black Umbrella, interviewing the owner, a personable woman named Catherine Hooper, touring the offices in NYC. Turns out that Hooper has been engaged to 44 year old Andrew Madoff since 2008, before Bernie was arrested, and Andrew works at this firm (director of operations), which is why of course ABC was interested. They mentioned she has experience in fishing (ran fishing store Urban Angler), flashing a picture of her in a rubber rafting boat.

        They show Andrew Madoff walking on the street, and say he is in the office but won't talk on camera, and Hooper won't talk about him either, so it just turns into a fluff piece on their little company that prepares 'disaster plans' for rich people with kids.

         -- Business money goes out the door too to non-family that need to be bought off. 2.2 million to JoAnn Crupi (and Judy Bowen) to buy property in NY. Cupri is probably one of Bernie chief fabricators as she has worked in the investment advisory business for 25 years. Wow, even the W-2 for Frank diPascali's boat captain.

        -- Payroll was padded too with family members who did not work: 165k/year to Peter Madoff's wife. Some non-working family just got company American Express cards: Marion Madoff, Deborah West Madoff, Richard Carroll (Marion is Peter's wife, who are the other two?), and of course all Bernie's and Peters' family members got AM Express cards too.

My posting to the NYT Dealbook article on this filing (5/6/09)

Notes on reading the filing:

        JoAnn Crupi for 25 years an employee in Bernie’s asset management business is bought off with a 2.2 million (no need to pay it back) ‘loan’. I’d say the odds are pretty good JoAnn Crupi was one of Bernie’s account statement fabricators. I read she worked for Frank DiPascali, and he’s bought off too by having his boat captain on Bernie’s payroll.

        The forensic accountant says he has only one of Bernie’s Federal income tax forms. What? Isn’t the IRS helping with this investigation?

        Now we see the real reason Bernie has a ringy-dink accountant who he was able to buy off for only 12k/month. Taxes! Bernie and his whole family are tax cheats. Bernie doesn’t take a salary, he washes his cash through the family. The business makes a 9 million ‘loan’ to Peter who then ‘pays it back’ direct to Bernie. Take that IRS!

What's the deal with Madoff victims and SPIC (5/10/09)
        The SPIC has released a long letter explaining their policies on payout. The are a quasi-governmental organization that collects premium from securities brokers to provide protection (up to 500k) to customers if a brokerage fails or it hit by fraud. Do you see any securities in Bernie's asset management business? No one does, not even the SPIC. It was a straight ponzi, and recent court filing by the trustee are saying it probably has been for at least 30 years. (My guess is that Bernie has been running some sort of scam from day he started managing money and that's 1960, 48 years ago.)

        So why is the SPIC paying out to Bernie's investment customers? Bernie didn't do securities, he just pretended to do securities. Apparently the SPIC has (for some reason) expanded their role from protecting customers of real securities brokers to also protecting customers of those who pretend to be securities brokers. The SPIC in their letter just say they decided to treat the Madoff case as though it were a securities case, but state forthrightly that they know it is not. Is this driven by politics, PR, what?

        The SPIC very reasonably allows customers to claim only up to the amounts that were actually invested less an withdrawals. You can't claim the amount on your last fabricated account statement Bernie sent you. This seems eminently reasonable. And the SPIC letter explains in detail why it would be unfair to use account values. For example they say a ponzi naturally benefits early investors at the expense of later investors. So for them to pay out on the basis of account statements would in effect (they say) be a continuation of the ponzi, a favoring of early investors, most of whose account value is mythical nonsense, over recent investors who loss is real dollars. According the NY Post "SPIC is required by law to pay victims up to $500,000 in securities or $100,000 in cash." Note that here the SPIC is preparing to pay 500k in cash, x5 the legal limit!

        These arguments are somehow lost on a lot of Bernie's investors. They want to claim the amount on their account statements. Bernie told us we earned 8% in 2008, so we want to be paid our 8% for 2008 and our 10% or so for all earlier years they whine. According to this story in the NY Post (May 9, 09) not just a few Madoff investors are taking this line, but 350 of them! What kind of people are these? They ought to thank their lucky stars they have any protection at all, because the SPIC was under no real obligation to pay them anything, much less up to 500k in cash.

        Lawyer Helen Chaitman seems to be the spearhead of the 350 victim whiners. According to her web site one of her specialities is bank fraud, and she is doing this work pro-bono. Ms Chaitman investing skill is such that "she says she lost her life savings" (3 million) investing with Bernie. What, she never heard of diversification?  Was she attracted by Bernie's reputation as something of a scammer, front runner, the man who trades on inside information?

        A site featuring Chaitman with lots of interesting videos is "Madoff Calition for Investor Protection" site.
                         (http://madoffcoalition.com/)

Helen Chaitman -- victim lawyer
        In Dealbook Ms Chaitiman is allowed to make the case that "Wall Street is cheating the Madoff victims". She lists three way in her view Madoff victims are being cheated: one, by not being paid quickly (Picard says he needs to reconstruct all of Madoff records, which is a time consuming task), two, only being paid on the net amount invested (yes, Ms Chaitman thinks using Bernie's fabricated account statements is the way to go!), three, Picard is suing some so-called victims to recover funds. (Actually Picard has announced he will only consider suing if you withdrew more than you invested. By law he is restricted to only clawback withdrawals made in the last six years. And of course, all of the money clawed back is to be used for the benefit of all of Bernie's investors, all of which Ms. Chaitman 'forgets' to mention.)

        A lot of Madoff's so-called victims are his family, a wide range of feeders, and various hangers on. Is the SPIC actually going to sent 1/2 million dollars to all these people? I assume this is fine with Helen Chaitman.

(update 1/13/11)
        A 1/10/11 story in the Palm Beach Post News about the judge approving the 7.2 billion settlement with Barbara Picower quotes Helen Chaitman as follows:

        "Picower stole their money" (quotes in original) Palm Beach Post News quoting Helen Davis Chaitman, who now says she represents 14,000 Madoff victims. (Chaitman filed suit against the Picower estate, saying she represents the 13,000 Madoff investors whose claims have been denied by the Trustee.)

'New Winners' day in court (update 2/3/10)
        Chaitman and the other Madoff victim 'net winners' finally had their day in court to argue that Picoard's 'net equity' method of paying victims is wrong. One interesting news item from the hearing is this:

        At the hearing the Trustee (Picard) said they might be able to recover as much as 10 billion dollars, which would be half of what Madoff's (direct) investors lost. I presume the big chuck of this 10 billion is the 7.2 billion they want from Picower to add to the 1.5 billion they now have.

        "The lawyer for the trustee, David Sheehan, said that net winners "got other people's money as though they were profits." Ruling against the trustee would be akin to "taking the fraud that Mr. Madoff perpetrated and reinforcing it," he said. His remarks elicited heckles from victims, who were silenced by the judge.

        Morality...can't play a role in departing from the statute," argued Karen Wagner, a lawyer for owner of the New York Mets baseball team (Fred Wilpon) from the law firm Davis Polk & Wardwell LLP. A Mets-related partnership that invested with Mr. Madoff gained a net of $48 million over the years, according to court filings by the trustee." (Amir Efati, WSJ, 2/3/10)

        As I understand it, this case is about a literal reading of the statute (you can claim what your account statement says), which was written to allow claims for various broker frauds, against common sense, recognizing that applying it literally to a large ponzi is hugely unfair to many victims.

        I'll venture a wild ass guess (as of 2/11/10) that the judge may split the difference. Coming down on the side of the Trustee, but maybe altering the net equity formula to put in a 'discount rate' to adjust investments over time. Nope (5/10). Judge Lifland has ruled against Chaitman and for Picard. The decision will be appealed

"Madoff trustee mistreating victims, lawmakers say" (9/23/2010)
            Above is title of a Reuter's news story. Picard was testifying before a congressional subcomittee.

       "Picard may sue 1,000 so-called "net winners," or former Madoff clients who withdrew more money from the firm than they put in. Hundreds of former clients, in contrast, believe they should recover sums shown on their final account statements, even if those amounts were bogus.

Some SPIC data (5/10)

       "As of Friday, Picard said he has approved 2,061 claims and rejected 10,392. Those who received a maximum $500,000 from the Securities Investment Protection Corp. have been reimbursed a total of $682 million. Their losses: $5.3 billion." (Palm Beach Post, 5/12/10)

        Note if Trustee recovers the numbers being bandied about today (1.5 billion + 2 billion from Picower (not sure)) then, these 2,000 net losers may get back about (3.5 billion/5.3 billion) = 66 cents on the dollar! Wow! That would make the recent investors pretty well whole leaving the long term investors with most of the ponzi loss. (I have not seen any speculation at all on this.)

Madoff court filings
        A lot of Madoff court filing are on the Scribd site, the NYT often links to them. (Search --- Scribd.com Madoff).

        -- Madoff customer statement for Nov 2008.
                    Very interesting. seven pages of stock & options purchases (implementing split strike strategy) and several dividends. Clearly Madoff had more than low level clerks doing his fabricating. This is clearly largely automated. Who were Bernie's programmers?

        -- Complaint of Town of Fairfield Conn.
                    They allege that several feeders, including Fairfield Greenwich, all thought Bernie was achieving the results he claimed, but they allege all the feeders knew, "or willfully refused to know", that the split strike strategy and the account statemenst Bernie was releasing were fake. They allege the feeders believed Madoff was illegally using insider information to take advantage of the customers of his trading business (They don't say so, but what they are referring to is the wide spread rumour that Bernie was front running his trading clients.)

        They allege Peter Madoff knew, or willfully refused to know, that his brother was running an "illegal investment service" (well that's sure specific). They detail more 'loans' to the sons that I have seen elsewhere: (years 2005 to 2008) Mark Madoff several totaling 22 million(!) and to Andrew Madoff loans of 9.6 million.

Frontline -- Madoff Affair (5/12/09)
        PBS did a nice job with their hour long special Madoff Affair (PBS 5/12/09). The got Bienes of Avellino & Bienes, which was a Bernie feeder shut down by SEC in 1992, to talk to them. He idiotically claimed his association with Bernie made him rich because God wanted it that way. He says when they were shut down in 1992 Bernie was able to cash out all their (thousands) of clients to the tune of over 400 million dollars. Of course, on the recommendation of these guys, many people put their money right back with Bernie directly, so how much cash Bernie had to come up with is not clear.

        Lucinda Franks, who writes for the Daily Beast about Bernie, appeared on camera briefly.

        The Madoff Affair can be seen on the web here. The Madoff Affair PBS site is also an excellent Madoff resource since they include a timeline and lots of supplemental material. Included is a link to the famous 2001 Hedge fund newsletter article (by Michael Ocrant) about Bernie (which I had never seen before).

Settlement with Banco Santander (5/26/09)
        This spanish bank, which now owns Sovereign bank, had invested with Madoff for about the last ten years. Their Nov 2008 Madoff statement (tells us that Bernie's back room got out a statement in early Dec) showed assets of 2.9 billion. Curiously even though their deposits over the years exceeded their total withdrawals by 1.3 billion, the trustee still sued them to recover 275 million, which is the amount they had withdrawn in the last 90 days. They just settled for 85 cents on the dollar, which will increased recovered assets by 235 million. They are one of the banks making their (retail) Madoff customers whole. In the agreement the trustee says they did not know about the fraud, and the trustee makes no claim that they should have known.

The NYT story says the following:

        "The settlement frees the Optimal funds from any future claims by Mr. Picard and also allows the funds to go forward with their own claims against the Madoff estate, which total around $1.5 billion. The funds will get an initial distribution of $500,000 for their claims - the maximum allowed under the Securities Investor Protection Act." (NYT 5/26/09)

Eleanor Squillari -- Bernie secretary (Vanity Fair, June 2009)
        Vanity Fair June 2009 has a very interesting long interview with a Bernie's personal secretary for 25 years, Eleanor Squillari, identified in the article as "Italian American", translation -- not jewish. Bernie's office and her office, just outside of Bernie's , are on the 19th floor with Peter and the boys, not the infamous 17th floor where the investment management business was.

        She says if Bernie wanted to talk to Frank DiPascali, who lived on the 17th floor where he and the Annette (fat one) ran the investment advisory business, Bernie normally would go down for a visit. Only near the end did Frank DiPascali come up to Bernie's office on the 19th floor for long meetings. From her description of the meetings of Bernie and DiPascali in the fall of 2008, it's clear that the guy who ran the 17th floor (under Bernie) was DiPascali not Annette Bongiorno. Her job with her staff of six was making up the phony statements.

        She noticed a change in his demeanor a few weeks before his arrest. The top family members had offices on the 19th floor, 80% of which was the trading desks occupied by about 50 traders (total NY staff was 150 she says). Mark and Andy sat on a raised platform in the middle of the     traders. Ruth had a large office on the 18th floor, where Shana and the company lawyer, Rick Sobel, had offices too. Also on the 18th floor was Jaffe's feeder Cohmad with 6 people.

        "A few years ago, she (Ruth) stopped coming in full-time, but she would still show up once or twice a week." (Yikes, until a few weeks ago Ruth Madoff came in full time? What did she do in the business?)

        "Ruth did the office bookkeeping. She paid the bills. I don’t know what else she was doing, but she definitely handled all the invoices that came in."

        "Just then Peter walked by, and we stopped him in his tracks. “Bernie has been arrested for securities fraud, and that’s all I know,” he blurted as he rushed off. Then the S.E.C. arrived."

    "(Next morning) at least 25 angry investors down in the lobby were screaming for someone to come and speak with them. I finally found Peter and asked him, “What am I supposed to be telling all these people?” He just threw up his hands and walked away." (Peter's reaction is apparently screw them.)

        "I went down to 17 and put my card key up to the box on the wall next to the door. There was a click, and when I opened the door I was taken aback: the place was empty. The day before there had been a full staff down there. Now there was only Frank DiPascali, who handled the investment accounts. A cocky Italian-American in his early 50s, he was dressed in jeans and Top-Siders and had a cell phone glued to his ear. “Frank, the phones won’t stop ringing!,” I said. “What should I say to them?” He stared at me without taking the phone away from his ear. “Tell them nobody’s available,” he snapped."

    (She calls Bernie at home and he calls her back) “Did they look in my appointment book?” “Yes she says.”

        "It was at that moment that all the pieces began to come together. I realized that Bernie had staged the whole thing. ... Suddenly I knew why he had written in his appointment book the week of the arrest, “Remember to pay employees,” which was totally out of character for him, because he never paid employees himself. And now it made sense why he had left his appointment book out on his desk for the last couple of days. Normally, he never went anywhere without it. I figured he had left it behind for the F.B.I., so when his sons told them their father had suddenly started paying employees for no apparent reason, the agents would find proof of it in the appointment book. It also now made sense why he had written the name Ike in his book for meetings on two different days that week. Ike was Ira Sorkin, Bernie’s lawyer and longtime associate. Bernie was planning to be arrested, but he wasn’t sure which day it should be arranged to happen."

        "The antique trunk in Bernie’s office, where he kept his important financial documents, had been opened and torn apart." (This is interesting Bernie keeps financial documents in an antique trunk in his office!)

        "When I started, Annette Bongiorno had the office next to my reception area, and her staff had an office in the back. I often typed letters for Annette, and I would give her title as “administrative assistant.” Everyone called her department “bookkeeping.” In fact, she headed Bernie’s investment-advisory business."

        "It wasn’t until 1993 that I became fully aware that there was a second business, in which Bernie invested money as a favor to a limited number of individuals." (She learns about this when Avillino and Bienes are shut down by SEC in 1992, and she is involved with 'tons' of their former clients who call the office to open accounts with Bernie.)

         "If Bernie said something to Ruth that annoyed her, she’d say, “Go fuck yourself,” or “I don’t give a shit.”

        "Whereas the upper two floors were modern, with everything state-of-the-art, on 17th floor the corporate image didn’t seem to matter. The desks were close together, the computers were antiquated, and the printers were old ink-jet jobs, not the laser printers we had in our offices."

        "The two people who ran the 17th floor, Frank DiPascali and Annette Bongiorno, had once lived next door to each other, in Queens. Annette handled Bernie’s seasoned clients and managed her staff on 17. Short, tough, and overweight, she was rigid and guarded at work. She and Frank had come a long way, considering that neither of them graduated from college. Frank, who handled Bernie’s newer clients, including the hedge funds, or feeders, had a 61-foot boat with a crew and a seven-acre estate in Bridgewater, New Jersey. Annette had a $2.6 million house on Long Island and a $1.25 million vacation home in Boca Raton, Florida, which she called Casa di Bongiorno. She drove two Mercedeses and a Bentley, and much of her wealth had to have come from Bernie, whom she had worked for since he started his business, in the 1960s."

        "Annette’s staff of six were mostly low-level, clerical women, many of them working mothers, who probably made no more than $40,000 a year. They were young and naïve, with no background in finance, so they weren’t able to connect the dots. Annette allegedly instructed them to generate tickets showing trades that had never been made, at least two of them have reportedly told prosecutors, and they simply did as they were told."

        "In Frank DiPascali’s area was a staff of four."

        "At the end of each month, the investors’ statements were generated and printed by a big computer encased in glass in the middle of the 17th floor. Annette would bring up statements to people in our offices who had accounts, including Peter, Shana, and the boys."

        "When Bernie was traveling, he would often call me about specific files. “Go to my desk and put me on speaker,” he would say. Then he would instruct me to go to a certain drawer and a certain file. “It will be three folders back,” he would say. “O.K., now go 10 pages in and read me that page."

        "We never once got wind about Harry Markopolos, the now famous fraud investigator who warned the S.E.C. for eight years that Bernie was operating a Ponzi scheme."

        "That fall (2008), those feeders and hedge-fund managers began flocking to our office more than ever before. When Bernie wasn’t meeting with people who could bring him more money, he was meeting with Frank. September turned to October and then November, and the stream of important visitors grew.

        I noted in my diary that Sonja Kohn came over from Europe. A kindly Jewish grandmother in her 60s, with puffed-out hair and eclectic outfits, she funneled about $3.2 billion of her clients’ money to Bernie through Bank Medici, which she ran in Austria. She was always thrilled to meet with Bernie, and always sent in staggering quarterly invoices—never less than $800,000 for her commissions.

        I remember Bernie met about that time with the distinguished French financier René-Thierry Magon de la Villehuchet, who had invested $1.4 billion with him" (this is the guy who kills himself 11 days after Bernie's arrest)

        Walter Noel and Jeffrey Tucker, of Fairfield Greenwich Group, which had a total of $7.5 billion invested with Bernie, also visited the office during the fall of 2008, sometimes bringing select clients with them.

         Merkin and Bernie talked regularly throughout the fall of 2008, either by phone or in person."

        "He spent more and more time with Frank DiPascali. A few days before his arrest, he threw the stack of morning mail I’d brought him back on my desk. “I don’t want this anymore,” he said.

(Here's a peek at the real insiders...)
        "On the Monday before his arrest, Bernie chaired a board meeting in our offices for the Gift of Life foundation, which matched donors to recipients in bone-marrow transplants. The people on the board were a veritable Who’s Who, including Ezra Merkin; Fred Wilpon (owns NY Mets and friend of Bernie's); Charles R. Bronfman, the billionaire Canadian co-chairman of Birthright Israel International; Warren Eisenberg, a founder and co-chairman of Bed Bath & Beyond; Richard Joel, president of Yeshiva University; Michael Minikes, former C.E.O. of Bear Stearns; Barbara Picower, head of the Picower Foundation; and Robert Jaffe, Bernie’s longtime feeder from Boston and Palm Beach."

Fred Wilpon (owner of NY Mets)

        "(At above meeting Jaffe hands her envelopes with gifts for staff to be passed out later. Those on the 17th floor got the biggest.) "Three days later, when Bernie was arrested and Jaffe learned how much he had lost of his and his clients’ money, he angrily dispatched his son to pick up the gift certificates designated for the staff on 17th. Jaffe clearly did not want to share any goodwill with people who may have participated in a scheme that had cost him millions of dollars."

        "Amid all the confusion I spotted Noel Levine, a thin gentleman in his 80s who owns a real-estate company called Troon Management and who shared office space with us. He had just lost double-digit millions to Bernie and was walking around in a daze. I thought back a few years, to the time when Levine’s secretary had been caught embezzling $6 million of his money."

        Soon after the arrest Ruth calls her to get Bernie's cell phone PIN so she can can it switched to keep if from being frozen. The secretary says she can't help her, so Ruth asks to talk to someone else, when she refuses to help too, Ruth yells “You will do what I tell you to do!” (ever the bitch), and then she hung up."

        "(FBI guy) asked me how much I had been making at Madoff. “Just under $100,000 a year,” I said. I thought he was going to fall off the chair. “That’s it?” he asked. They had to know from my salary that I wasn’t involved in the Ponzi scheme. The people at Madoff who had been highly compensated were the ones they were looking at." (Yup, that's smart)

        The Trustee's lawsuit according to two sources (both lawyers) includes allegations that Wilpon "knew or should have known that Madoff was operating a fraud". In an extraordinary development details are missing because the lawsuit at Wilpon's request has been 'sealed'. The article says the NYT has gone to court to try break the seal and make the allegations public. The wording in the article is provocative, saying the clawback suit is for 300 million in "fictitous profits" plus additional millions (total perhaps reaching a billion) for reasons not stated (or probably known, hence the NYT suit to unseal).

        -- " Mr. Wilpon, who has long portrayed himself and his family as victims of Mr. Madoff"

        -- "Mr. Wilpon and Mr. Katz, whose families over many years were close to Mr. Madoff’s.  ... Mr. Wilpon was friends with Mr. Madoff. They had raised their families together in Roslyn, Long Island, and came to share memberships at country clubs and on philanthropic boards."

        -- "According to the lawyer involved in the case, Mr. Picard’s lawsuit will claim that Mr. Wilpon and Mr. Katz ignored or failed to heed what amounted to “red flags” in recent years about the potentially suspect nature of Mr. Madoff’s operation. The red flags, according to the lawyer, included concerns raised by officials at Merrill Lynch, the investment bank, and Peter Stamos, an investing partner of Mr. Wilpon’s."

        -- "And across those years, Mr. Wilpon, Mr. Katz, their families and their businesses opened an extraordinary array of accounts (500 accounts, see below) with Mr. Madoff. And, according to numerous associates, Mr. Wilpon brought close friends and others he trusted or admired to Mr. Madoff to get in on his strikingly reliable and seriously profitable investment operation."

        -- “Bernie acted differently with Fred (Wilpon) than he did with his closer circle of friends — the Shapiros, the Blumenfelds, the Picowers,” she (Eleanor Squillari) recalled

        -- According to an analysis of the list of Mr. Madoff’s 15,000 clients, done by Jamie Peppard, a former financial auditor who has studied the Madoff case, more than 500 accounts can be tied to Mr. Wilpon and Mr. Katz.

        -- Wilpon was even leveraging his Madoff returns. He used his Madoff accounts to obtain bank loans which he used to invest more in Madoff. He knew a gravy train when he saw one! He is reported (NYT) to have had 500 million with Madoff when he went down. He even put 92% of the 401(k) of his ordinary employees with Madoff.

      --- Madoff returned the favor. Instead of Wilpon having to go to the bank for loans (he didn't want the scutiny), Madoff would loan him millions dressed up a phony 'investments' in Wilpon real estate. (This is Bernie to a tee. No transaction is as it seems.)
----------------------
        My (1/28/11) NYT posting to both articles about 'sealed' huge clawback suit against Fred Wilpon containing allegation that he was one of the Madoff insiders who knew what was going on and benefited hugely. Like Picower Wilpon had a huge number of accounts with Madoff, something like  100 in Wilpon's case (with 500 accounts having some tie to him).

        I posted this to the 2nd article before reading it, and was amazed to find this article actually discusses this very meeting (Mon)! For the 2nd article the NYT interviewed and quoted Eleanor Squillari (even included a picture of her). I suppose there is the remote possibility that my writing about this meeting here and in the first posting may have tipped off the reporters about it. As are as I know the only mention of it has been a paragraph in the long Vanity Fair article of a year and half ago.

Reverse timeline of week Madoff is arrested

Dec 11, 2008 (Thur) --- FBI agents arrest Madoff
Dec 10, 2008 (Wed) --- Bernie 'confesses' ponzi to his sons
Dec 9, 2008 (Tues) --- Bernie reportedly 'confesses' ponzi to his brother Peter
Dec 8, 2008 (Mon) --- Madoff's personal secretary, Eleanor Squillari, in an eight page June 2009 Vanity Fair article. describes a 12/8/08 meeting in Madoff's office. Attendees are a who's who of Madoff insiders and include: Barbara Picower; Ezra Merkin; Robert Jaffe; and Fred Wilpon.

Richard Sobel’s Experience
      Corporate Counsel
      Bernard L. Madoff Investment Securities
      (Privately Held; Financial Services industry)
      April 2007 — March 2009 (2 years)

Paying claims (5/28/09)
        Picard today gave an interview to NYT about  how the claims process works. Here are the key numbers:

        "As of Thursday, Mr. Picard had verified customer losses totaling $759.5 million in claims. Most applicants so far have qualified for the maximum benefit, bringing SIPC’s total commitment to $122.1 million."

        "Victims who invested through feeder funds are not eligible for SIPC coverage, but think they should be. Although he almost certainly must turn them down, Mr. Picard has encouraged them to file claims anyway in case the courts side with them after the ironclad filing deadline has passed."

        "With SIPC paying the bills, clawbacks will be pursued only if there is a reasonable prospect of a significant recovery, Picard said."

I posted the following two comments in NYT Dealbook article (5/29/09) about Picard's payouts.

 #4       Picard is only paying Bernie’s direct investors and not those who came in via feeders! What?

        Let’s look at the big picture. Bernie’s investors fell into two classes those who knew their money was managed by Madoff and those that did not. In the latter class are some, but not all, of the feeder clients, but clearly all of Bernie’s direct clients knew Bernie was their money manager.

        It’s now well confirmed that for years many on Wall Street considered Madoff’s returns to be tainted, that he was widely suspected of being a scammer, a front runner, or was trading on inside information. We must assume that many of Bernie’s direct clients knew this too. Bernie was a bad boy, and they wanted in. In a Washington Post Op-ed Ken Fisher put it this way, “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… And by continuing to invest with Madoff under this belief, those institutional investors became complicit in that cheating.” (Madoff’s Willing Partners, by Len Fisher, 12/20/08)

        And these are the people Picard is paying off, while those who had no idea Bernie was managing their money get nothing? — Posted by Donald E. Fulton

#5     Re: Helen Chaitman — She and her band of 350 Madoff investors think using Bernie’s fabricated account statements is the way to figure loss. In 2008 when nearly every investor was getting creamed, Bernie’s made up number (thru Nov) was 8%, so they think Picard should pay them the 8% they ‘earned’ for 2008. What a bunch of whiners.

        Picard’s decision to ignore them and to figure investor loss on net cash in/out is the right call. — Posted by Donald E. Fulton

Big time losers (6/5/09)
        Big time loser tidbit info from Vanity Fair:

        "Mets owner Fred Wilpon lost hundreds of millions, but the Madoff spokesman tells Margolick that his son, Jeff Wilpon, who runs the Mets, maintains his longtime ties with Mark Madoff (though, according to a Wilpon-family friend, he has tired of Mark’s excessive self-pity.)

        New York developer Edward Blumenfeld, who also lost a fortune, invited Mark Madoff to his Passover Seder in April." (Vanity Fair July 09)

Markopolos at BC seminar (6/5/09)
        Markopolos, who has as good a handle on Madoff's ponzi as anyone, doesn't really know how much of Madoff's 65 billion was real money. His guess is 10 to 35 billion (basically 20 billion +/- 10 billion). My guess is 20 billion too. He also had an interesting speculation on what will happen to any money stashed overseas.

        “If I’m his private banker in Panama, (I’m thinking): ‘I know Mr. Madoff isn’t getting out of prison to collect the money, and I know his family denies having anything to do with this scheme, so they’re not going to show up, either. So guess what: It’s my money now.’ I call that ‘cheating the cheater’ - and that’s sort of poetic justice, I think.” (Markoplos at BC seminar, 6/5/09)

        The change requested by some Madoff investors in how loss is figured in the Madoff ponzi will likely lead to a huge increase in claimed losses and would benefit, and perhaps tilt the claim balance toward, the big boy insiders of this ponzi.

        Consider the case of Yeshiva University. Soon after Bernie’s arrest Yeshiva announced their loss at 110 million dollars, but after thinking about it a few days the university said in a prepared statement that “it had $14.5 million invested with Mr. Madoff at the time of his arrest. …. It now appears that any ‘profits’ above the $14.5 million were fictitious,” said Yeshiva’s vice president for business affairs and chief financial offer, J. Michael Gower. (Yeshiva World News, 12/30/08). The difference between these two numbers is huge, including what Yeshiva characterized as ‘fictious profits’ boosts their loss by 758%.

        The advocates for change predictably mention how the change is needed to benefit some old timers, who if destitute are destitute mainly because they failed to following the number one rule in investing, which is to diversify. What is not mentioned, of course, is the effect of the change on the big boys. Consider Jeffry Picower and the Picower Foundation. They are not eligible to claim loss by Picard’s rules because over the years they had net 5.1 billion in withdrawals, but if withdrawals don’t count, then, mirabile dictu, Picower is eligible to claim the billion dollars or so his account statement showed at the end. According to the trustee Picower’s Madoff account statements on occasion also showed, at his request, phoney (tax) losses of billion (!) of dollars.

        Consider Stanley Chais. Picard’s complaint says 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’, repeat his mythical gains “averaged” 40% [Friends, if you do the math 1.4^30 = 24,201. How would you like your money to 'grow' by a factor of 24 thousand times.] It’s hardly worth mentioning that sometimes his statements showed gains of 300 percent, that 35 times in ten years Chais family accounts had annual returns of more than 100 percent and 125 times when the returns exceeded 50 percent.

        The Chais and Picower cases alone, which we only know about from trustee suits, demonstrate clearly that Bernie’s account statements were a will of the wisp, totally without substance.
       — Posted by Donald E. Fulton

Excerpts from above:
            Picard definition of 'net equity' "improperly deprives the customer of all appreciation in his portfolio as of the SIPC filing date."  What portfolio?

            Their key argument, repeated for each client, is that "account statement reflected positions in real securities at verifiable prices", and  "prices (of securities on the account statements) could be readily verified against objective and publicly available market information". No mention at all of the fact that that the trustee has found in his analysis of account statements that hundreds of cases have been found where prices were not verifiable.

            "Trustee has engaged in a complex, time-consuming and wholly unnecessary analysis of deposits and withdrawals in each account, many of which were opened decades ago."

            Filed 6/9/09 by Neville, Lax and Madox of Lax & Neville LLP, 1412 Broadway, NY. Their web site shows these guys specialize in securities law.

After reading the suit I also posted this (#25):

        I read the investor suit referenced (link in post #5). A point made repeatedly in the suit is that it was reasonable for clients to have faith in their account statements because the “account statements reflected positions in real securities at ‘verifiable’ prices”, which “could be readily ‘verified’ against objective and publicly available market information”. But is that true?

        Picard’s forensic analysis of the account statements provided by Bernie to several feeders have revealed they contained “hundreds” of pricing and trade settlement date errors. Equities on all statements were nearly all NY Stock Exchange stocks whose daily trading range is readily available, so obviously any transaction prices on statements outside these ranges were not verifiable and should have been seen as a huge red flag. Picard uses this point as a key argument in several of his suits to support his contention that certain feeders either knew, or should have known, that Bernie was a fraud. It’s true this argument loses some of its power when applied to individual investors, but nevertheless investors with million dollar plus accounts, which Picard says is most of the claimants, clearly have the wherewithal to hire outside professionals to review their investments.

        Bernie’s back room is now known to have consisted of a just a handful of people under Annette Bongiorno and Frank DiPascali. The trustee’s review of account statements shows Bernie’s back room team was sloppy and inaccurate. This is not so surprising when we consider their backgrounds (usually described as unskilled clerks), lack of technology (likely working with pencil and paper), and objective (fabrication of records). So it’s fair to ask if such sloppily prepared account statements should have reasonably been accepted as truthful.
    — Posted by Donald E. Fulton

        In a related article 6/19/09 Bernie's trading business is ready to start up again at the same location! Former head of TD Waterhouse now runs it, and a top guy from Fidelity is involved too. They are talking about hiring back 50 or so of the old Madoff team, but they are going to "carefully vet those they rehire" (Boston Globe 9/16/09). For some strange reason they decided to drop the Madoff name, the new name is Surge Trading. Apparently the real asset that Bernie's trading firm had was a proprietary software/model, and this is the asset that was bought by the new investors for 25 million.

Two new suits against Jaffe and Cohmad principals (6/22/09)
        Two civil fraud suits filed today, one by the SEC (here)and the trustee (here) against the Cohmad team. SEC targets Jaffe and Cohmad principals, Maurice (78) and Marcia Cohn (49). The trustee also targets a long list, more than 25, which includes a lot of the Cohens and Delaires. The NYT says the trustee's list includes virtually everyone who ever worked at Cohmad, but it includes a lot of trusts too, so my guess is that extended family members are included. Both suits want all to recover all commissions and "disgorge their ill-gotten gains", SEC saying 100 million and the trustee hundreds of millions. How's this going to work?

        Cohmad was in effect Bernie's in-house marketing arm, but was set up as an apparently separate brokerage business to hide the nature and scope of Bernie's advisory business. Maurice (Sonny) Cohn, who owned part of Cohmad, was a member of NY Stock Exchange, specialist on American stock exchange and a former neighbor of Bernie. Turns out that Peter Madoff owned 9% of Cohmad and was a director of Cohmad!  Bernie owned 15%. Cohmad over the years brought in 800 direct Madoff accounts, 20% of Bernie's direct clients. Cohmad shared quarters with Bernie's trading business, but some Cohmad principals had access keys to the famous 17th floor and were often seen down there. Jaffe, while to the outside appearing to work for Cohmad, was often paid commisssions directly by Bernie.

        Both suits say Jaffe and the Cohmad principals knew or should have known that Bernie was not legitimate, that he was a fraud. Key points:

            -- Cohmad commissions depended on net cash flow, if withdrawals exceeded cash inflow, commisions stopped.
           -- Bernie told them not to accept any clients who work in the financial industry.
            -- Jaffe "was privy to" falsified and back dated account statements because these were found in his personal accounts.
            -- Jaffe's personal accounts also got higher returns than those of his clients. (I've seen this before. It was apparenly not uncommon for Bernie to reward his feeders with sweetened returns.)
            -- Jaffe, as son-in-law of one of Bernie's earliest  (1960's) and largest investors, Carl Shapiro, was added to the Cohmad team at Bernie's "direction" and given a 1% ownership stake in it, though Jaffe apparently did a lot of work directly with Bernie.
            -- Bernie was, in effect, the "boss" of Cohmad. In 2006 he orders the Cohmad people to stop using email, "for anything".
            -- Cohmad also did a lot customer service. One suit sarcastically notes that "17th floor employees were not particularly effective at customer service."
            -- In SEC filings Cohmad always represented itself as a retail broker (who cleared through Bear Stearns). Cohmad did in fact have, sort of on the side, a 600 account retail brokerage operation (and Ruth Madoff appears to have been one of their clients!), but Cohmad in their filings always hid their relationship with Bernie's advisory business, which was really where most of their revenue come from.
            -- In recent years Cohmad filing were signed by Marsha Cohen as CEO, but it appears that in earlier years Cohmad was run by her father, Sonny Cohen. Sonny Cohen, like Jaffe, also did extensive business directly with Bernie. He personally brought in "hundreds" of clients. The suit argues both were effectively employees of Madoff. (In other words the Cohens were direct, if junior, business partners of Madoff.) Records show Bernie paid Sonny Cohen in the last six years 14 million, while Cohmad got an additional 80 million for 'account services'.
           -- Cohmad was registered with SEC, so Bernie's clients coming via Cohmad would see an SEC registered firm. Cohmad was also careful to keep no books detailing its relationship with Bernie. Cohmad representative would meet with potential clients saying that they represented Madoff and never mention Cohmad. Many direct Madoff clients who came in this way, say they never heard of Cohmad and thought the people they talked to worked for Madoff.
           -- Madoff, Sonny Cohen, and Jaffe were friends. On applications to country clubs, they would list each other as 'personal references'.
            -- One charge against non-principal Cohmad employees is based on the how their fee database was set up and commisions paid. No legitimate broker, it is argued, would maintain records on a net cash bases, totally ignoring account values. On this basis alone it is argued that "Cohmad representative knew, or should have known, that Bernie was a fraud."

Government sentencing memorandum (update 6/26/2009)
        Notes from government court filing (here) by NY assistant AG related to sentencing of Madoff.
            -- approx "170 billion flowed into" the ponzi account
                        (170 billion cash in seems awfully high, but it could be possible. It's an average of in real deposits over 20 years of 8.5 billion, or skewed into a triangle over 20 years, it's capital in going from 0 in 1988 to 17 billion in in  2008. This still seems very high. If the know feeder inputs are added for a year, do they come anywhere near 17 billion?  Wait, later in the document the government says analysis of 1,341 accounts (27% of direct accounts) for 13 years shows a net cash in of 13.2 billion. This is an average of only 1 billion a year, far below the 8.5 to 17 billion)
            -- ponzi started at least as early as 1980
           -- at end Bernie had 4,900 direct clients and their account balances added up to 65.8 billion
            -- document repeatedly says Madoff generated "millions" of pages of false information
                        (millions, really? Lets check:  5,000 clients x 12 monthly statements x 8 pages/statement = 400k pages per year, OK over the years I buy millions)
            -- "Although Madoff could have ended his scheme at any time, he chose not to do so" (well sure, he could have ended it, if he chose to go to jail a younger man!)
            -- "within days (of Dec 11, 2008) investors would have been unable to redeem "billions" and would have complained. (In other words the ponzi collapsed because he had "billion" of withdrawals pending that he could not meet. Just as I had guessed. Again I ask, which investors were trying to withdraw billions at the end. These names have never been released.  It might very well be that rumours of him going down were out and these 'billions' in withdrawal requests were really a 'run on the bank')
            -- government identifies his NYC home as "on Park Ave in Manhattan". (The government lawyers, who work in NYC, are so stupid that they don't know where his NYC apartment is! Address is 133 E64th, which is on the corner of 64th and Lexington Ave, see picture above)
            -- investor funds were used to pay the salary of Bernie's "sister-in-law who did no work" for the firm. (Is this Peter's wife?)
            -- Why should Madoff be treated leniently? Good ole Ira Sorkin argues as follows (as summarized in this document):
                    a) didn't flee, turned himself in, submitted willingly to FBI
                    b) cooperated fully with bail conditions
                    c) pled guilty, taking "responsibility" for his actions
                    d) "took steps" to assist in "preserving" and liquidating assets
                                (Ole Ira conveniently 'forgets' Bernie and Ruth tried to mail a million
                                  in jewelry and 170 million in signed checks were found in his desk. The document says
                                   in rebuttal, if the FBI had not arrested Madoff the next day those checks might have been
                                    distributed.)
                    e) "met with" SEC inspector general and he is "cooperating" with Picard (this is news to me)
        -- numerous clerical employees "and others" assisted Madoff in the fraud.
        -- The prosecutors make mince meat of all these arguments.

        I posted the following to this article:

        "I quote from the Government Sentencing Memorandum: (Bernie had) “well-appointed homes in Montauk, New York, Palm Beach, Florida, Cap d’Antibes, France, and on ‘Park Avenue’ in Manhattan.” Bernie lived on Park Ave? Google Earth doesn’t think so, it shows his building (133 E64th) on the corner of E64th and Lexington.

        The NY prosecutors are so stupid that even after six months work, they don’t know where Bernie lived!"

 — posted by Donald E. Fulton   (NYT Dealbook  6/27/09)

Ruth Madoff makes deal to keep 2.5 million (6/30/09)
        Apparently the best deal Ira could negotiate for Ruth was 2.5 million in cash for her to give up claims to about 80 million in property (four houses including NYC apartment where she was living), contents of the property, and bank accounts with 15 million or so in cash. (I  think many millions in loans to the sons are also included but have been unable to find the filing to confirm this.) The deal was made with 'federal prosecutors', but the WSJ and NYT both said Picard and others could still come after the 2.5 million with civil suits.

        A couple of days later (7/2/09) marshals arrived at the door of the NYC apartment and kicked her out. Yea! No word on where she is going to live. One poster wondered if the millions in jewelry the Madoff tried to mail out in Jan was still there and recovered. (no word) Maybe this NYT poster has figured out where Ruth is going:

"This is window dressing……

The 2 Madoff sons owe “loans” of $30 Million to the Father; the sons have penthouses / townhouses of their own.

She probably moved into their penthouse down the street." (7/2/09 NYT poster)

        When Bernie and Ruth took millions from the business, it didn’t go on their W-2’s where it would be taxed heavily. No, no, it came out of the business via so-called ‘loans’ from the business to Peter and other family members, who repaid the loans direct to Bernie and Ruth. (This is the beauty of having a do nothing business accountant who has been bought off.)

        Ruth, Peter, and much of family are likely guilty of millions in income tax evasion. So where’s the IRS? — Donald E. Fulton (#11 NYT Dealbook 7/2/09, Ruth's apartment seized article)

        Indirects have gotten almost no press. Finally a sympathetic story about indirects appeared WSJ (Little relief for feeder fund investors, by Ianthe Dugan, 6/2909) It notes that many of the tax breaks don't apply to indirect investors, because some small business provision of the code is being applied to writing off the loss against back gains has a 15 million dollar maximum. the feeder mostly exceed the 15 million limit, so this limits the favorably tax treatment the indicts can claim.

        In his July 4 column in NYT financial columnist Joe Nocera again address the issue of Madoff victims. He notes about indirects,

        "The so-called indirects —people who invested with Mr. Madoff via a feeder fund — aren’t eligible for any help from the trustee. Their only recourse is to sue the feeder funds — though Mr. Picard is also trying to reclaim money from the feeder funds. (whoops)

        Nocea is also annoyed by the Madoff direct victim's whining. He points out that at victims' meeting where they work to get Picard to change the payout method it's never mentioned that this means less money to the poorest victims and more for the rich. The WSJ indirects column had a table of Madoff numbers, including: net cash loss totals 13 billion in 1,341 direct accounts. This is an average of about 10 million each account! (Of course, the average is strongly affected by the few feeder. No median account value was given.) Nocea talks about the huge tax breaks the Madoff people are getting, advantages that no other Ponzi victim ever got, he says, but it's never enough, they want taxpayers to pay them more.

        Merkin just (7/1/09) sold his art collection (or a big portion of it) for 310 million in a private sale agreed to by authorities. 190 of the 310 million has been put aside in escrow for possible use for victims. (Why 190 million?)

Paying out on net cash basis (7/3/09)
        Joe Nocera, NYT financial columnist in an excellent column, reviews the arguments pro and con for Picard basing payouts on the basis of 'net cash'. Nocera first looks at it from the victim's viewpoint and then Picard's, and he comes down firmly, as do I, on the side of Picard:

        "I can’t see how anything else is fair. Mr. Picard’s approach means that the investors who will receive at least something back from the Madoff estate are the “net losers” — the ones who aren’t saddled with just hypothetical losses, but with real losses from having put in more money than they took out. Besides, isn’t there something just a little insane about basing recompense on statements ginned up by a crook?" (Joe Nocera, 7/3/09)

        "When Bernie and Ruth took millions from the business, it didn’t go on their W-2’s where it would be taxed heavily. No, no, it came out of the business via so-called ‘loans’ from the business to Peter and other family members, who repaid the loans direct to Bernie and Ruth. (This is the beauty of having a do-nothing business accountant who has been bought off.)

        Ruth, Peter, and much of family are likely guilty of millions in income tax evasion. So where’s the IRS?" — Donald E. Fulton (post #12 to Marshals seize Madoff penthouse)

        "If Picard has his facts right, then the Madoff investors who came in via LA bagman Stanley Chais deserve nothing. Picard reports that for more than a decade Madoff send special investor statements to Chais, at Chais’ request, that never once (underlined in the Picard court filing) showed a loss in thousands of equity trades.

        This is worth repeating: Chais’ LA Madoff investors (apparently) got monthly statements that over a decade contained thousands of equity trades and not one of those thousands of trades ever showed a loss! This does not say good things about the honesty of Madoff’s LA investors.

        Why this Picard allegation has gotten almost no press baffles me."
— Donald E. Fulton (post #6 to Joe Nocera article, Madoff Victims, Get Over It)

Post #6?

        I read a filing by Neville, Lax and Maddox representing Madoff investors against Picard. They argue it was reasonable for Madoff clients to have faith in their account statements because the “account statements reflected positions in real securities at ‘verifiable’ prices”, which “could be readily ‘verified’ against objective and publicly available market information”. This argument is repeated over and over again in the filing.

        But surely having faith in your account statements depends more than just equity ‘positions’. What about buy/sell transactions on your account statements? The SEC has disclosed, in a suit against LA bagman Stanley Chais, that Madoff clients who came in via Chais got account statements for their Madoff investments that never, repeat never, showed a loss in “thousands” of equity trades over a decade. The SEC suit underlined ‘never’ and called this a “glaring red flag” that these account statements were not believable.

        Picard’s forensic analysis of many of Madoff’s account statements have revealed they contained “hundreds” of pricing and trade settlement date errors. Madoff equities were all (or nearly all) NY Stock Exchange stocks whose daily trading range is readily available, so obviously any transaction prices on statements outside these ranges were not ‘verifiable’ and should have been seen as a huge red flag. Picard uses this point as a key argument in several of his suits to support his contention that certain feeders either knew, or should have known, that Bernie was a fraud.

        Bernie’s back room is now known to have consisted of a just a handful of people under Annette Bongiorno and Frank DiPascali. The trustee’s review of account statements shows Bernie’s back room team was sloppy and inaccurate. This is not so surprising when we consider their backgrounds (usually described as unskilled clerks), lack of technology (likely working with pencil and paper), and objective (fabrication of records).

        So it’s fair to ask if such sloppily prepared account statements should have reasonably been accepted as truthful. And, of course, in the case of Madoff account statements prepared for Chais clients the statements were so over the top they almost screamed fraud.— Donald E. Fulton (NYT Dealbook 7/9/09)

        I’m no lawyer, but it seems to me wholly simplistic and not consistent with the intent of the SIPC protections to take account statements for 65 billion (billion!) in Madoff equity positions and treat them as real.

        This is not at root a case of broker fraud. Bernie was only pretending to be a money manager. Not one customer equity portfolio ever existed, not one dollar of all the cash collected was ever used to purchase a share of stock. — Donald E. Fulton (NYT Dealbook 7/9/09)

Victim lawyer meets with Madoff in prison (7/28/09)
        An interesting story --- Madoff granted a 4.5 hr prison interview with a San Francisco lawyer (Joseph Cotchett and Nancy Fineman) for Madoff victims, where he is reported to have answered a lot of questions and provided info on (feeder) insiders. The reason for the interview is being protrayed as a deal whereby the lawyer said he would take Ruth Madoff of the suit (against Ruth, sons and Peter) in exchange for inside info. Cotchett plans to add some of the names he got from Bernie to his suit to be filed this week. One grabber is this quote,

"Some of these people have not yet been sued or even connected to the Madoff fraud," he said

Madoff told Cotchett that "he knew from about 2000 it was a matter of time before they would get him."

Investigators came close in early 2006, when SEC asked Madoff where he held securities he supposedly bought and sold for clients, Cotchett said. (He gives the name of a 3rd party trust company) "He leaves that night and figures by Monday he will be arrested," Cotchett said. "They never audited the trust company." The scam continued for three more years.

Picard sues Ruth Madoff for 44.8 million (7/29/09)
         Picard can sue to recover funds withdrawn from a bankrupt company going back six years. Much of these millions were famously withdrawn in last days and weeks before Bernie 'confessed'. Three days before the Mr. Madoff confessed to the fraud, $11 million was transferred from the firm’s business account at JPMorgan Chase to DWD Associates, a real estate partnership partly owned by Mrs. Madoff. (I search 'DWD Associates' and find it on the Madoff victims list as:

Dwd Associates Llc C/O Edward Blumenfeld 300 ROBBINS LANE SYOSSET, NY, 11791

        Three million are Ruth's personal Am Express charges the company paid. Picard wants that money back. He also wants back two million Madoff Securities put into a Ruth Madoff investment PetCare RX.

        Mrs. Madoff’s lawyer, Peter A. Chavkin, called the lawsuit “perplexing”. (I guess it doesn't take much to 'perplex' a high cost lawyer.)

        Here is the link to the 44 million Picard suit against Ruth Madoff

        http://www.scribd.com/doc/17780712/Lawsuit-Against-Ruth-Madoff-Irving-Picard

Here are some notes from reading through it.

        -- US government in June gave Ruth 2.5 million.  "The inequality between Mrs. Madoff's continuing financial advantages and the enconomic distress of (some of) Madoff's customers compels the trustee to bring this action." Translation --- (you little bitch) you know the 2.5 million the US Governmant gave you, well we want it all back for the Madoff victims.

        -- Ruth got 22.7 million from the business in the last two years. These are "fraudulent transfers which must be returned". She received 21 million more in the previous four years, these are "fraudulent conveyances".

        -- Ruth Madoff knews or should have known that this 44 million belongs to Madoff Securities and its customers.

        -- Trustee is entitled to immediate payment of the 44 million.

        -- Ruth Madoff's conduct has been "conscious, willful, wanton, and malicious", so the trustee also wants punative damages on top of the 44 million.

Tax Cheats -- I posted following (# 37) to NYT Dealbook article on 44.8 million suit against Ruth Madoff (7/30/09)

        I’d give long odds that Ruth and Bernie did not pay income taxes on the millions of dollars of company money (23 million in just the last two years) that made its way into Ruth’s pocket and personal investments?

        Wake up IRS! I have not seen a single report that the IRS is investigating Ruth, other members of the Madoff clan, or #1 Madoff cash man, Jeffry Picower.

        Picower got ‘billions’ in phony tax loss statements from Bernie. What possible use is there for phony tax loss statements except to cheat on taxes?
— Donald E. Fulton

        The IRS needs to learn Bernie and Ruth disguised income, almost for sure to avoid paying income tax, by the simple procedure of moving money twice. We can call it the Madoff ‘two step’.