Bernie Madoff: Did the SEC indict itself last week?
Last Tuesday, the SEC filed a civil suit against Frank DiPascali. In it, the SEC elaborated on how DiPascali promoted Bernie's Ponzi scheme by providing reams of fake documents to outsiders.
Of particular interest was the part about how DiPascali generated a subset of 10 to 25 BMIS customer account statements that were falsified to make it appear other institutions had custody of investor assets rather than BMIS (see I.E.(1) b). The type of account created was on the basis of RVP/DVP (receive-versus-payment and delivery-versus-payment) which is explained in the suit.
In January 2004, the SEC opened an investigation into Bernie's investment advisory business, of which it apparently knew little or nothing about at the time. As reported by the Washington Post last month, one of the DC SEC investigators, Genvievette Walker-Lightfoot, posed a series of important questions in March 2004 about how the investment business operated but her questions were shelved in lieu of another case deemed more pressing by her supervisors.
One of Walker-Lightfoot's questions was about who had custody of investor assets.
Some time in or after April 2004, the Madoff case was sent to the SEC 's NYC office and re-opened in early 2005. The case was closed later that year after the SEC charged BMIS with three minor violations of securities law.
In November 2005, Harry Markopolos submitted his famous analysis to the SEC. As a result, the SEC opened another investigation that ran from January 2006 to November 2007. The only consequence of that investigation was that Bernie had to register as an investment advisor with the SEC.
The SEC's opening statement in the '06 case refers to Bernie having "mislead" [sic] the investigators in '05 by, among other things, withholding information about customer accounts.
In 2006, the SEC investigators knew Bernie was supposed to have custody of customer assets and, in fact, Bernie disclosed that when he registered as an investment advisor.
But what were the investigators told in 2005 about custody of the assets? Were all of the account statements they were shown prepared on an RDP/DVP basis? Were any of the feeder fund accounts like Tremont and Fairfield Greenwich Group shown on an RVP/DVP basis?
If so, did the investigators in 2006 uncover evidence that Bernie presented forged documents to the investigators in 2005?
The answer to this question, is important because if Bernie (and Frank) showed forged documents to the SEC in 2005 and the SEC found that out in 2006, the SEC should have called a 5-alarm, all-hands-on-deck, red-lights-flashing emergency and shut Bernie down.
Presenting forged documentation is not being "misleading", it is evidence that someone is committing fraud. Period.
When the investgators looked at the 10-25 BMIS accounts in 2005, some of the big feeder funds must have been included in the selection. If the Fairfield Greenwich Group or any of other feeder funds account statements were in RVP/DVP format, once the investigators in 2006 knew Bernie had custody of the Fairfield Greenwich assets, they should have checked all of the accounts sampled in the 2005 investigation.
If the SEC investigators in 2006 blew off forged documents and life was fair, the SEC would consider giving Bernie's victims the balance of whatever money was in Bernie's Chase investment account on 1/31/06, imho.
I don't know how to talk intelligently about matters of the SEC, but it seems the SEC doesn't know how to run matters intelligently, and that's worse.
August 16, 2009 4:40 PM | Reply | Permalink
Don't sell yourself short. This isn't brain surgery despite what the SEC would have you believe.
At 12/31/05, Bernard L. Madoff Investment Securities LLC was supposed to have custody of $17 billion in treasury bills and the SEC investigators knew that.
Anyone with a lick of common sense could figure out that the first thing to do if you thought Bernie was a fraudster was verify that he actually bought and paid for $17 billion in t-bills.
You didn't have to know anything at all about options or the stock market. The purchase of t-bills is not a proprietary transaction in that you or anyone else can contact a bank or another institution and place an order to buy X amount of t-bills. That's all there is to it.
Bernie had no basis to refuse to disclose the buyer or seller of the t-bills. T-bills are fungible goods and there was no justifiable reason to keep the names of the buyers and sellers secret.
This is Auditing 101 and I don't believe no one else besides me ever thought about it.
In the past week, there have been rumors about SEC investigators submitting their resumes to Bernie during the investigations. I don't know if the rumors are true but I do know SEC Inspector General H. David Kotz is supposed to release his report on his internal investigation of the SEC and Bernie in August.
Since these type of reports are generally released on late Friday, look for it at the end of this week or next (Last year, it was the FBI's investigation of Dr. Bruce Ivins, the purported anthrax murderer).
In the Enron scandal, the SEC and Wall Street sucessfully convinced the public that Enron's business was so complicated, no one could have ever figured out that the company was in trouble.
That was a crock of shit. One, Enron's gross profit margin had deteriorated every year for at least three years. The more revenue Enron generated, the more it lost. How long do you think that could go on?
Two, Enron had a very suspicious $4 billion customer deposit on its books at 12/31/00. Without the deposit, Enron would have shown negative cash and everyone would have known that Enron was in trouble. The highly paid Wall Street analysts asked Enron about that cash deposit, trust me.
But despite all that, Goldman Sachs and other investment houses kept selling worthless Enron securities during 2001. (JP Morganchase loaned Enron more than a billion dollars knowing it was toast.)
Enron was not so complicated and neither is the Bernie Madoff case. Me, I think everything about Bernie's business was crooked including the trading arm.
Remember reading anything about Bernie and Goldman Sachs being partners?
August 17, 2009 12:55 AM | Reply | Permalink
That is a good point Ms. P
Every bank on Wall Street was up to their eyeballs in the Enron scandal.
And when the prosecutions stopped at Skilling and Lay... Wall Street elevated the Enron SIV to standard operating procedure for the big leg up in the MBS scams.
Everybody keep in mind...within 2 years of the SEC investigation of Drexel, the criminal Milken was facing a 98 count felony indictment.
This time around... the Feds, the DOJ, Obama and his clowns can't find one person on Wall Street to criminally charge in a fraud that dwarfs Milken's junk bonds...
August 18, 2009 1:37 AM | Reply | Permalink