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Date: Thu, 18 Dec 2008 05:30:35 +0100 (CET)
From: "Robert M. Stockmann"
To: stewwebb@sierranv.net, skolnick@ameritech.net, tom2@tomflocco.com,
too@slingshot.co.nz, timrifat@rvscience.com, shanktalk@yahoo.com,
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leurenmoret@yahoo.com, prophecy@texemarrs.com,
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Subject: "THE MADOFF CHRONICLES" (C)BLOOMBERG.COM
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Status: RO
Hi,
Below is the coverage by bloomberg.com on the Maddoff tragedy. The
first story is interesting as it makes mention of Madoff's Niece who
married with a SEC official (Assistent Director Examinations SEC, no
less) a year ago......
"Madoff's niece, Shana, was a compliance lawyer at his firm and
last year married Eric Swanson, a former assistant director of
compliance and examinations at the SEC. "
Well ..... As a good Dutch saying goes : Never _ever_ allow IRS/SEC
types into your house (unless at gunpoint), let alone marry them ....
Here's another ludricous remark :
"Madoff, 70, was arrested Dec. 11 after he told his sons Bernard
L. Madoff Investment Securities LLC was a giant Ponzi scheme,
the SEC said. "
Since when would telling your sons a story get yourself arrested ??
Hence my premature conclusion is simple : The Madoff Chronicles Spin is
exactly what it is : A ludricous diversion to hide someone elses budd.
Then again, a couple of reporters at bloomberg's wrote countless numbers
of lines on Madoff, who i would like to notify here of their Miranda
rights :
You have the right to remain silent. Anything you say can and
will be used against you in a court of law. You have the right
to have an attorney present during questioning. If you cannot
afford an attorney, one will be appointed for you. Do you
understand these rights?
So here are the :
THE MADOFF CHRONICLES
(C)2008 BLOOMBERG.COM ALL RIGHTS RESERVED
---------------------------------------------------------------
SEC Probes of Madoff are Deeply Troubling, Cox Says (Update2)
=============================================================
http://www.bloomberg.com/apps/news?pid=20601087&sid=a5SbwJUi617M&refer=home
By Jesse Westbrook
Dec. 16 (Bloomberg) -- U.S. Securities and Exchange Commission
Chairman Christopher Cox called for a probe of his agency,
saying what he has learned about its investigations of Bernard
Madoff before the investment manager confessed to operating a
$50 billion Ponzi scheme is deeply troubling.
"Credible and specific allegations" were made to SEC staff going
back to at least 1999, Cox said today in a statement. He asked
the agencys inspector general to lead a "full and immediate"
review of the past claims against Madoff.
"I am gravely concerned by the apparent multiple failures over at
least a decade to thoroughly investigate these allegations or at
any point to seek formal authority to pursue them," Cox said.
Madoff, 70, was arrested Dec. 11 after he told his sons Bernard
L. Madoff Investment Securities LLC was a giant Ponzi scheme,
the SEC said. Clients facing losses range from a Fairfield,
Connecticut, pension fund to hedge funds and New York Mets owner
Fred Wilpons Sterling Equities Inc.
"This is an incredible statement for the chairman of the SEC to
make," James Cox, a securities law professor at Duke University
in Durham, North Carolina, said in an interview. "I can recall
nothing that rivals this in the history of the SEC in terms of
condemnation for how the staff had handled an investigation." Cox
isnt related to the SEC chairman.
The Republican chairman said Inspector General H. David Kotzs
probe will look into the agencys internal policies and whether
they should be improved. The investigation will also include a
review of all SEC contact with "the Madoff family and firm," Cox
said.
Madoff's Niece
Madoff's niece, Shana, was a compliance lawyer at his firm and
last year married Eric Swanson, a former assistant director of
compliance and examinations at the SEC. Swanson left the agency
in August 2006 and is currently the general counsel of Bats
Trading Inc., the third-largest U.S. equity exchange by trading
volume.
"Eric Swanson worked at the SEC for 10 years and did not
participate in any inquiry of Bernard Madoff Securities or its
affiliates while involved in a relationship with Shana, whom he
met through her trade association work," Bats Trading spokesman
Randy Williams said in an e-mailed statement. "Throughout his
career, Eric has displayed the highest ethical standards and his
reputation has been, and continues to be, above reproach."
Madoff sometimes consulted with the SEC on how to regulate
markets and sat on a panel of academics, regulators and
executives formed in 2000 to give the agency advice on new stock
market rules in response to the growth of electronic trading.
Personal Contacts
Cox said SEC staff members who had "more than insubstantial"
personal contacts with Madoff will be barred from participating
in the SEC's current investigation of him and his firm.
The SEC hadn't inspected Madoff's investment advisory business
since he registered the firm with the agency in September 2006,
two people familiar with the matter said. SEC examiners reviewed
Madoff's brokerage business in 2005 after an employee at an
investment firm and press reports questioned the validity of his
stated returns.
The regulator's enforcement division completed a probe involving
Madoff's company last year without bringing a claim. Cox, not
referring to any specific investigation, said the staff never
sought subpoena power to examine Madoff and instead relied on
voluntary information provided by him and his firm.
False Documents
SEC investigators have been working around the clock to examine
records at Madoffs company since his arrest last week. The probe
to date indicates that he kept several sets of books and false
documents and lied to investors and regulators about his
business, Cox said.
The inspector general's review will help determine "what, if any,
policy failures occurred" Steve Adamske, a spokesman for House
Financial Services Committee Chairman Barney Frank, said in an
interview today. Frank is a Massachusetts Democrat.
Kotz has released reports this year critical of the agency's
conduct. He said in one examination that the SEC "failed to carry
out its oversight" of Bear Stearns Cos., the investment bank that
faced collapse in March before selling itself to JPMorgan Chase
& Co. He's also questioned the enforcement staffs' handling of
investigations.
To contact the reporter on this story: Jesse Westbrook in
Washington at jwestbrook1@bloomberg.net.
Last Updated: December 16, 2008 20:43 EST
Fairfield Sent Madoff $7.3 Billion as Funds Took Fees (Update2)
================================================================
http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=aXFye9Hn8F1w
By Katherine Burton
Dec. 15 (Bloomberg) -- Walter Noel's Fairfield Greenwich Group
would have collected about $135 million in fees this year for
peddling Bernard Madoffs investing acumen to clients from South
America, the Middle East and Asia.
The $7.3 billion Fairfield Sentry Fund invested solely with
Madoff, taking a cut of 1 percent of assets and 20 percent of
gains, which averaged about 11 percent annually in the past 15
years, according to data compiled by Bloomberg. Tremont Group
Holdings Inc. had $3.3 billion in Madoff accounts, according to
a person familiar with the matter. They were among at least 15
hedge-fund firms and private banks that earned fees for sending
customers cash to the 70-year-old money manager.
Its mind-boggling that people like Tremont and Fairfield
Greenwich had been doing this for so long, said Brad Alford, who
runs Alpha Capital Management LLC in Atlanta, which helps
clients choose hedge funds. Its the job of these funds of funds
to be doing due diligence. Thats why they get paid.
Madoff was arrested Dec. 11 after he allegedly confessed to
running a giant Ponzi scheme that may have bilked investors of
$50 billion. That fraud escaped the notice of Fairfield
Greenwich, Tremont and other funds of funds that had at least
$20.3 billion invested with Madoff. Hedge-fund investment
adviser Aksia LLC said the managers should have seen red flags,
such as Madoffs use of a little-known, three-person auditing
firm.
Fund Fees
Hedge funds that have disclosed holdings with Madoff were due at
least $352 million in fees this year, based on reported assets,
fees and Bloomberg data. The calculations dont include fees of
as much as 5 percent that clients paid for some funds when they
first invested. Madoff didnt assess fees for his
money-management services, getting paid instead through
commissions from his brokerage business for trading the stocks
in the accounts.
Investors ensnared by Madoff include Fred Wilpon, the owner of
the New York Mets baseball team, clients of private bankers in
Geneva, wealthy Jewish families in New York and Palm Beach,
Florida, and institutions including BNP Paribas SA in Paris that
loaned investors money to increase their bets. Losses have been
reported by a pension fund in Fairfield, Connecticut, New York
hospitals and a charity in Salem, Massachusetts.
Investor Defections
While Madoff didnt run a hedge fund, his alleged crime may
accelerate investor defections from the $1.5 trillion industry,
already hit by its worst losses since at least 1990 and
redemptions that may reach $400 billion this year, according to
estimates by Morgan Stanley. In a Ponzi scheme, returns to early
investors are paid with money from later ones, until there isnt
enough cash to go around. Madoffs alleged scam unraveled when he
received $7 billion in redemption requests that he couldnt meet.
Funds of hedge funds such as Fairfield Greenwich act as
middlemen, raising money from investors and farming it out to
other managers that they vet. The go-betweens manage 44 percent
of hedge-fund assets, according to data compiled by Hedge Fund
Research Inc. Their investments lost 19 percent on average
through November, a little more than a percentage point more
than single-manager funds, the Chicago-based firm says.
Institutions including New York States $154 billion retirement
system and the endowment of Baylor University have been cutting
back their investments in funds of funds to save the extra layer
of fees -- generally 1 percent of assets and 10 percent of
profits -- that they charge on top of the underlying managers
take. Last year, for the first time, more than half of the
hedge-fund assets of the 200 largest U.S. pension plans were
invested directly with individual managers, according to data
compiled by Pensions & Investments magazine.
Due Diligence
Funds of funds say they earn their fees by discovering the best
managers and assembling a diversified group of investments. They
also are supposed to conduct ongoing due diligence to avoid
frauds or other dangers, such as managers straying from their
core investment strategy.
Fairfield Greenwich is the biggest loser to emerge so far from
the Madoff scandal. It had more than half its $14.1 billion in
assets with him, according to a company statement.
We are shocked and appalled by the news, said founding partner
Jeffrey Tucker in a Dec. 12 statement. Tucker was an attorney in
the enforcement division of the U.S. Securities and Exchange
Commission before starting Fairfield Greenwich with Noel in
1983. Thomas Mulligan, a spokesman for Fairfield Greenwich,
declined to comment.
Family Business
Noel built a marketing machine that covered the globe. His
son-in-law, Yanko Della Schiava, is based in Lugano,
Switzerland, and is responsible for selling Fairfield Greenwich
funds in Southern Europe, according to the firms Web site.
Another son- in-law, Andres Piedrahita, is head of Fairfield
Greenwichs European and Latin American businesses and is based
in London and Madrid. A third son-in-law, Philip Toub, markets
the groups funds in Brazil and the Middle East.
Three months ago, the firm acquired Banque Benedict Hentsch, a
deal that the Swiss private bank said today it has reversed.
Tremont, founded by Sandra Manzke in 1985, also was an early
Madoff investor. The Rye, New York-based firm, a unit of
Massachusetts Mutual Life Insurance Co.s OppenheimerFunds Inc.,
sold Madoff-managed investments since 1997 under the Rye Select
Broad Market name, charging 2 percent of assets, according to a
marketing document.
Tremonts Rye Investment Management unit had $3.1 billion, or
virtually all its assets, invested with Madoff, said the person,
who declined to be identified because the information is
private. Tremont had another $200 million invested through its
fund of funds group.
A spokesman for Tremont declined to comment.
Wealthy Clients
Manzke now runs Darien, Connecticut-based MAXAM Capital
Management LLC, which marketed a $280 million fund that was
invested solely with Madoff. Manzke told the Wall Street Journal
she was wiped out. Manzke didnt return calls or e-mails.
Another Madoff investor is London-based FIM Ltd., whose Kingate
Europe and Kingate Global funds had about $3.5 billion in assets
as of the end of November, according to reports sent to clients.
The firm, run by Carlo Grosso, marketed the funds to many
wealthy Italian families. Kingate collected a 5 percent fee to
get into the funds and a management fee of 1.5 percent of
assets.
Access International Advisors LLC, a New York-based investment
firm, charged a 5 percent fee up front, a 0.8 percent management
fee and a 16 percent performance fee on its LUXALPHA
SICAV-American Selection fund, according to Bloomberg data.
Bank Fees
Spains largest bank, Banco Santander, said its clients invested
with Madoff through its Optimal Strategic U.S. Equity fund.
Those investors paid 2.15 percent of assets in fees.
Swiss private banks also sent money to Madoff. Union Bancaire
Privee, the largest investor in hedge funds, had a managed
account called M-Invest that was a direct conduit into Madoff,
people familiar with the situation said. Benbassat & Cie,
another Swiss bank, had $935 million invested in Madoff on
behalf of clients, according to Le Temps.
Scott Berman, a lawyer at Friedman Kaplan Seiler & Adelman LLP
in New York, who specializes in hedge-fund litigation, said hes
gotten numerous calls from investors who had money with feeder
funds such as Fairfield Greenwich and Tremont, and plans to
investigate whether these funds failed to do due diligence or if
they invested in ways that were contrary to what they told
investors.
Calling Lawyers
Ross Intelisano, a lawyer at New York-based Rich & Intelisano
LLP, which also specializes in hedge-fund litigation, said there
may be attempts by investors to get money back from fellow
clients who withdrew money from Madoff accounts before the fraud
was uncovered.
You will have members of country clubs and members of families
on opposite sides of this case. It will rip up communities and
families, he said.
When Aksia researched Madoff last year, it learned the firms
books were audited by accountants Friehling & Horowitz,
operating out of a 13-by-18 foot location in an office park in
New York Citys northern suburbs. One partner, in his late 70s,
lives in Florida. The other employees are a secretary, and one
active accountant, Aksia said.
Other details that made Aksia nervous included the high degree
of secrecy surrounding the trading of the feeder fund accounts,
which provided capital to Madoff Securities, and its use of a
trading strategy that appeared remarkably simple, yet could not
be nearly replicated by our quant analyst, Aksia wrote in a Dec.
11 letter to its clients.
To contact the reporter on this story: Katherine Burton in New
York at kburton@bloomberg.net
Last Updated: December 15, 2008 18:22 EST
Madoffs Lie Ensnares Victims From Paris to Tokyo (Update3)
==========================================================
http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=aVTJBQRWrvlI
By Jon Menon and Charles Penty
Dec. 15 (Bloomberg) -- Bernard Madoffs scam that allegedly cost
investors $50 billion ensnared firms from London and Paris to
Tokyo.
HSBC Holdings Plc, Europes biggest bank, has $1 billion at risk
after providing financing to funds that invested with Madoff,
the London-based bank said today. Nomura Holdings Inc., Japans
largest brokerage, has 27.5 billion yen ($302 million) of
exposure to Madoffs funds, while Frances BNP Paribas SA has as
much as 350 million euros at risk, the banks said.
Madoff, 70, was arrested by federal prosecutors Dec. 11 and
charged with operating what he told his sons was a long-running
Ponzi scheme in the New York-based firms business advising rich
people, hedge funds and institutions. He told senior employees
that the firm was insolvent and had been for years, prosecutors
said in the criminal complaint.
A frothy market encourages slack oversight, said Peter Hahn, a
fellow in finance at Londons Cass Business School, in an
interview today. Whenever something like this happens, everyone
who has been hit will comb through their investments.
The Madoff collapse comes as banks and investment companies are
reeling from falling asset prices and sputtering economies after
the U.S. subprime mortgage market crash. Financial firms have
reported almost $1 trillion of credit losses and writedowns
since the start of 2007, data compiled by Bloomberg show.
Big Lie
Madoff, who had advised the U.S. Securities and Exchange
Commission on how to regulate markets, described his investment
management operations as one big lie, prosecutors said.
Investors have disclosed about $24 billion of investments in
Madoffs funds, according to data compiled by Bloomberg.
Ira Ike Sorkin, a lawyer at Dickstein Shapiro LLP in New York
representing Madoff, declined to comment. Calls to residences
listed in the Madoffs names in Manhattan, Montauk, New York, and
Palm Beach, Florida, werent answered. Sorkin said on Dec. 13
that the situation was a tragedy.
BNP Paribas fell 10 percent in Paris trading after reporting its
Madoff exposure and suffering a legal setback in its plan to buy
the Belgian operations of Fortis. The Brussels Court of Appeals
ruled Dec. 12 that the sale of Fortis assets must be put to
investors for a vote before Feb. 12. The court decision
complicates BNP Paribass plan to complete the purchase quickly
and preserve Fortiss customer base.
Fortis Bank Nederland (Holding) NV said it could lose as much as
1 billion euros ($1.4 billion) because of Madoff. While neither
Fortis nor its subsidiaries have direct holdings with Madoff,
some units provided loans to funds that invested in the failed
firm, the bank said in a statement today.
Banco Bilbao
Banco Bilbao Vizcaya Argentaria SA, Spains second-biggest
lender, said it may face up to 300 million euros in losses from
the hedging of structured products linked to Madoff. BBVA acted
for other financial institutions and investors to set up
products linked to third-party funds that had invested in Madoff
Investment Securities, the Bilbao, Spain-based lender said in a
filing today to market regulators in Madrid. BBVA has no direct
investments in Madoff.
Banco Santander SA, Europes second-biggest bank by market value,
said yesterday its hedge fund unit invested 2.33 billion euros
of client funds with Madoff. The banks Optimal Investment
Services unit placed money with Madoff through its Optimal
Strategic U.S. Equity fund, the Spanish lender said.
Santander dropped as much as 4.9 percent in Madrid trading
before ending the day unchanged. Santander, based in the Spanish
city of the same name, lost 53 percent of its market value this
year. BBVA advanced 10 cents, or 1.2 percent, to 8.42 euros.
Client Funds
Royal Bank of Scotland Group Plc could lose as much as 400
million pounds ($601 million) on investments linked to Madoff.
The U.K.s second-largest bank, 58 percent owned by the
government, had exposure through trading and collateralized
lending to funds of hedge funds invested with Madoff, the
Edinburgh-based bank said today.
Natixis, based in Paris, said today it has as much as 450
million euros of client funds invested with Madoff. The stock
fell 3.4 percent in Paris trading.
Man Group Plc, Europes largest publicly traded hedge-fund
company, has about $360 million invested directly or indirectly
in funds linked to Madoff. The investments in two Madoff funds
represent 0.5 percent of Mans total assets under management, the
London-based company said in a Regulatory News Service
statement.
Zuckerman, Spielberg
The list of victims of the alleged scheme may also include
real-estate magnate Mortimer Zuckerman, the foundation of Nobel
laureate Elie Wiesel, Senator Frank Lautenberg and a charity of
movie director Steven Spielberg, the Wall Street Journal
reported today, without saying where it got the information.
UniCredit SpA, Italys biggest bank, has 75 million euros of
exposure to funds run by Madoff, the Milan-based lender said in
a statement today. Its asset manager, Pioneer Investments, has
some indirect risk related to Madoff through its alternative
investments unit, and had substantially all of its $280 million
Primeo Select Fund with Madoff, according to the units Web site.
To contact the reporter on this story: Charles Penty in Madrid
at at cpenty@bloomberg.netJon Menon in London at
jmenon1@bloomberg.net
Last Updated: December 15, 2008 15:56 EST
Madoff Said to Use Unregistered Side-Unit for Clients (Update5)
================================================================
http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=aXWbLI1zC.Oo
By David Scheer and David Glovin
Dec. 15 (Bloomberg) -- Federal investigators working through the
weekend to unravel Bernard Madoffs alleged $50 billion Ponzi
scheme found evidence he ran an unregistered money-management
business alongside his firms brokerage and investment-advisory
subsidiaries, two people with knowledge of the inquiry said.
Clients of the undisclosed unit may have included hedge funds,
according to the people, who declined to be identified or to
name the funds because the probe isnt public. Investigators from
the U.S. Securities and Exchange Commission are looking for
signs that others participated in the alleged fraud and are
examining why Madoffs wifes name appeared on documents linked to
transactions under scrutiny, the people said. His wife, Ruth
Madoff, has not been accused of any wrongdoing.
Ira Ike Sorkin, a lawyer at Dickstein Shapiro LLP in New York
representing Madoff, declined to comment. Calls to residences
listed in the Madoffs names in Manhattan, Montauk, New York, and
Palm Beach, Florida, werent answered. John Heine, an SEC
spokesman, also declined to comment.
Sorkin said on Dec. 13 that the situation was a tragedy.
More than a dozen SEC inspectors have been working around the
clock examining records at Bernard L. Madoff Investment
Securities LLC in New York after his sons told authorities Dec.
10 hed confessed to orchestrating a Ponzi scheme with more than
$50 billion in losses, the biggest in history. People with
knowledge of the probe who initially said they suspected the
loss estimate was too high now say it may be roughly accurate.
Wilpon, BNP Paribas
The $50 billion figure may reflect the amounts of money clients
were told they had in their accounts at the firm, not the
amounts they originally invested, two of the people said.
Customers who believed they had amassed investment gains over
time may have been misled, the people said.
Clients facing losses range from New York Mets owner Fred
Wilpons Sterling Equities Inc. to hedge funds such as Fairfield
Sentry Ltd. The alleged scam has ensnared more than 25
companies, including some of the biggest financial-services
firms such as BNP Paribas SA in Paris and Nomura Holdings Inc.
in Tokyo, which have said they may lose money because of trading
or lending tied to Madoffs firm. In all, companies, individuals
and foundations have disclosed about $24 billion of investments
with Madoff, according to data compiled by Bloomberg and media
reports.
Where Money Went
Investigators are still trying to figure out where customers
money went. Madoff, 70, told his sons last week he had as much
as $300 million left, according to an SEC lawsuit filed in
federal court in Manhattan. The agency is looking for additional
money that may be recovered for victims, two people said. In a
regulatory filing in January, Madoffs firm listed $17 billion in
assets under management.
Details of the side business that the SEC is scrutinizing --
including how much client money it held, who besides Madoff may
have been involved and how it was kept separate from the firms
registered investment-advisory unit -- couldnt be determined.
The SECs complaint said he conducted certain investment advisory
business on a separate floor and that he was cryptic about those
activities when talking with other employees. In registration
documents, the company said its advisory unit served between 11
and 25 clients, yet many times that number of people, firms and
funds have said they entrusted their savings to Madoff.
Advisory Activities
His advisory activities were a mystery to most people at the
company, said two employees who declined to be identified,
citing concern that they might be drawn into the probe. The firm
on Third Avenue in midtown Manhattan occupied several floors,
with market-making and proprietary trading units on the 19th
floor, and back-office functions on the 18th, the employees
said. The advisory operations were on the 17th floor.
While traffic flowed between the 18th and 19th floors, the 17th
floor wasnt linked to the others and there was virtually no
interaction between the groups, according to the employees.
Madoffs sons, who ran the market-making and proprietary units,
told employees their father kept them in the dark about the
advisory unit, the employees said. While Madoff seldom appeared
on the 18th and 19th floors during the workday, he was known to
inspect during the evening for sloppy desks or window shades
that werent fully drawn, one of the employees said.
The only person the employee recalled seeing Madoff consult with
on the 17th floor was an executive known by his first name,
Frank.
Reached by phone at home, Madoff official Frank DiPascali
referred calls to his lawyer, Marc Mukasey, a former federal
prosecutor now at Bracewell & Giuliani in New York, who declined
to comment. His father is U.S. Attorney General Michael Mukasey,
a former New York federal judge.
Black Mercedes
No one answered the door today at DiPascalis home in
Bridgewater, New Jersey, which tax records show was assessed at
$1.38 million this year. A black Mercedes sat on the circular
driveway in the almost seven-acre parcel, which includes a pond.
A project to replace siding on the house is in progress and a
construction permit in DiPascalis name hung in a front window.
In court documents, U.S. criminal prosecutors and the SEC said
Madoff confessed that his advisory business, which catered to
rich people and institutional investors as well as hedge funds,
was all just one big lie. The business had been insolvent for
years, according to the SECs account of his statement. In a
Ponzi scheme early investors are paid with money raised from
subsequent victims.
Sons
Madoff made the admissions to his sons, Mark and Andrew, who
turned him in to U.S. authorities, according to Martin
Flumenbaum, a lawyer at Paul, Weiss, Rifkind, Wharton & Garrison
LLP in New York who represents the brothers.
He was arrested Dec. 11 and charged at federal court in
Manhattan with a single count of securities fraud. Madoff was
released that day on a $10 million bond guaranteed by his wife
and secured by his Manhattan apartment. A day later, a federal
court froze the firms assets and appointed Lee Richards, an
attorney at Richards Kibbe & Orbe LLP in New York, as a
receiver.
The Securities Investor Protection Corp. announced today that it
is liquidating Madoffs brokerage and named Irving Picard, a
lawyer at Gibbons PC in New York, trustee to return cash and
securities to customers. While the Washington-based SIPC
provides as much as $500,000 in insurance for any missing money
in individual brokerage accounts, it does not protect against
investment losses.
To contact the reporters on this story: David Scheer in New York
at dscheer@bloomberg.net; David Glovin in U.S. District Court in
New York at dglovin@bloomberg.net.
Last Updated: December 15, 2008 18:23 EST
Madoff Fraud Case Leads to Collapse of Justice-Reform Advocate
==============================================================
http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=aj3r8k36.3Y8
By Philip Boroff
Dec. 16 (Bloomberg) -- The arrest of New York money manager
Bernard Madoff claims one of the most active supporters of
criminal justice reform in the U.S.
The Manhattan-based JEHT Foundation (pronounced Jet) said
yesterday that it stopped making grants and will close in
January. In 2006 alone, it gave away $26.4 million, according to
its most recent publicly available tax return.
They are one of the best progressive foundations around, said
New York lawyer William Zabel, a partner with Schulte Roth &
Zabel and a director of the foundation. There are so many sad
stories out there, but this is one of the worst.
JEHT -- which stands for Justice, Equality, Human Dignity and
Tolerance -- harnessed the fortune of New York real estate
magnate Norman F. Levy, who died in 2005. For three decades, the
Levy family entrusted money with Madoff, whom the U.S.
Securities and Exchange Commission accused last week of
operating a multibillion-dollar Ponzi scheme.
Levys daughter, Jeanne Levy-Church, a New York-based producer of
independent films, contributed $23.6 million to the foundation
in 2006. The Betty and Norman F. Levy Foundation contributed $9
million in the same year.
The foundations 24 employees will lose their jobs, said JEHT
President Robert Crane. Crane said he didnt know the details of
Levy-Churchs finances except that she could no longer fund the
foundation. She was traveling yesterday and couldnt be reached
for comment.
Electoral Reform
While the foundation distributed money to organizations such as
Human Rights Watch and groups advocating electoral reform, it
mainly focused on criminal justice because its a neglected area.
The board felt incarcerated or formerly incarcerated people were
among the most underserved population, Crane said. There were
very few foundations focusing on that.
New York-based Vera Institute of Justice has received millions
of dollars from JEHT since the foundation was established in
2000. Vera Director Michael P. Jacobson described JEHT as a
hard-nosed foundation focused on achieving results.
They really have an interest in government changing policy, he
said.
In 2007, the Kansas Department of Corrections received a $4.7
million grant from JEHT for a program to aid offenders once
theyre released to reduce recidivism.
With a $900,000 grant, Vera is working with prosecutors offices
in several states, researching the role of race in how
defendants are charged.
Ive had better days, Jacobson said of JEHTs collapse. Its not
like someone will step in and fill that gap.
To contact the reporter on this story: Philip Boroff in New York
at pboroff@bloomberg.net.
Last Updated: December 16, 2008 00:01 EST
Charity Run by Senator Lautenberg Is Among Madoff Investors
===========================================================
http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=a6F5K10aRYN0
By David Voreacos
Dec. 16 (Bloomberg) -- U.S. Sen. Frank Lautenbergs foundation
was among the charitable groups that invested with Bernard
Madoff, who was arrested last week after telling his sons he
committed a $50 billion fraud.
Senator Lautenbergs foundation was an investor in Bernard
Madoffs investment fund, primarily in the form of his familys
charitable foundation, Scott Mulhauser, a senior adviser on
Lautenbergs Senate staff, said yesterday in a statement.
The foundation run by Lautenberg, a New Jersey Democrat,
invested $12.8 million of its $13.8 million in assets with
Bernard L. Madoff Investment Securities at the end of 2006,
according to a tax return for the organization. The Madoff
investments returned $1.58 million, or 12.4 percent, in 2006,
and the foundation gave $765,509 to 106 organizations.
Madoff also managed money for the foundations of filmmaker
Steven Spielberg, New York Mets owner Fred Wilpon and clothier
Carl Shapiro, according to tax returns. Madoff, 70, was charged
with fraud after his sons told U.S. authorities that he
confessed to overseeing a Ponzi scheme with $50 billion in
losses, the biggest in history.
Lautenberg, 84, declined comment on Madoff, according to
Mulhauser. An attorney for the foundation, Michael Griffinger,
didnt return a call seeking comment yesterday.
Behind Rockefeller
Lautenbergs net worth ranks ninth out of 100 U.S. senators, just
behind U.S. Sen. Jay Rockefeller, a West Virginia Democrat,
according to the Center for Responsive Politics Web site.
Lautenbergs worth is from $53.3 million to $125.7 million,
according to the centers analysis of his financial disclosure
forms, which puts a range on the value of his assets.
The Lautenberg foundations largest donation in 2006 was $352,500
to the United Jewish Appeal of MetroWest NJ in Whippany, New
Jersey, according to the tax return.
At the end of 2005, the foundation had $11.7 million of its
$13.1 million invested with Madoff, according to the return.
Madoffs portion earned $1.1 million on the sales of securities,
interest and dividends, for a total return of 9.2 percent,
according to the return.
The foundation gave $672,324 to 112 organizations that year,
including $217,861 to Columbia University, his alma mater.
At the end of 2004, the foundation also had $10.7 million
invested with Madoff, earning $1.04 million on interest,
dividends and the sales of securities, for a total return of 9.7
percent, according to the return. The foundation gave $449,952
to 110 organizations, including $97,000 to Columbia.
To contact the writer on the story: David Voreacos in Newark,
New Jersey at dvoreacos@bloomberg.net.
Last Updated: December 16, 2008 00:01 EST
Tremont Invested More Than Half Its Assets With Bernard Madoff
==============================================================
http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=aqfr8yxohYEA
By Katherine Burton
Dec. 16 (Bloomberg) -- Tremont Group Holdings Inc., a hedge-
fund firm owned by OppenheimerFunds Inc., had $3.3 billion, or
more than half its total assets, invested with Bernard Madoff,
according to a person familiar with the matter.
Tremonts Rye Investment Management unit had $3.1 billion,
virtually all the money the group managed, allocated to Madoff,
said the person, who declined to be identified because the
information is private. Tremont had another $200 million, or
about 7 percent of its total assets, invested through its fund
of funds group, Tremont Capital Management.
Tremont, which manages a total of $5.8 billion, would have made
roughly $62 million this year peddling funds that are solely run
by Madoff, who was arrested Dec. 11 after he allegedly confessed
to running a giant Ponzi scheme that may have bilked investors
out of $50 billion. Hedge funds that invested with the
70-year-old Queens, New York-native charged fees to their
clients for the task of vetting the fund.
We believe Tremont exercised appropriate due diligence in
connection with the Madoff investments, the firm said today in a
statement. Tremont parent OppenheimerFunds is a unit of
Springfield, Massachusetts-based Massachusetts Mutual Life
Insurance Co.
Other funds that invested big with Madoff include Walter Noels
Fairfield Greenwich Group, which had about $7.5 billion out of
its $14.1 billion in total assets invested with the manager.
All together funds of funds had at least $20.3 billion invested
with Madoff, who charged no fees to investors, getting paid
instead through commissions from his brokerage business for
trading the stocks in the accounts.
Fund Fees
Hedge funds that have disclosed holdings with Madoff were due at
least $352 million in fees this year, based on reported assets,
fees and Bloomberg data. The calculations dont include fees of
as much as 5 percent that clients paid for some funds when they
first invested.
Investors ensnared by Madoff include Fred Wilpon, the owner of
the New York Mets baseball team, clients of private bankers in
Geneva, wealthy Jewish families in New York and Palm Beach,
Florida, and institutions including BNP Paribas SA in Paris that
loaned investors money to increase their bets. Losses have been
reported by a pension fund in Fairfield, Connecticut, New York
hospitals and a charity in Salem, Massachusetts.
Investor Defections
While Madoff didnt run a hedge fund, his alleged crime may
accelerate investor defections from the $1.5 trillion industry,
already hit by its worst losses since at least 1990 and
redemptions that may reach $400 billion this year, according to
estimates by Morgan Stanley.
In a Ponzi scheme, returns to early investors are paid with
money from later ones, until there isnt enough cash to go
around. Madoffs alleged scam unraveled when he received $7
billion in redemption requests that he couldnt meet.
Funds of hedge funds such as Fairfield Greenwich act as
middlemen, raising money from investors and farming it out to
other managers that they vet. The go-betweens manage 44 percent
of hedge-fund assets, according to data compiled by Hedge Fund
Research Inc. Their investments lost 19 percent on average
through November, a little more than a percentage point more
than single- manager funds, the Chicago-based firm says.
Due Diligence
Funds of funds say they earn their fees by discovering the best
managers and assembling a diversified group of investments. They
also are supposed to conduct ongoing due diligence to avoid
frauds or other dangers, such as managers straying from their
core investment strategy.
I looked at investing in Madoff many years ago but there was
just no transparency, said Mohammed Syed, founder of London-
based Axiom Fund Manager, which invests in funds on behalf of
clients. There wasnt any transparency to link the story behind
the returns to actual transactions.
Tremont, founded by Sandra Manzke in 1985, sold Madoff- managed
investments since 1997 under the Rye Select Broad Market name,
charging 2 percent of assets, according to a marketing document.
Manzke now runs Darien, Connecticut-based MAXAM Capital
Management LLC, which marketed a $280 million fund that was
invested solely with Madoff. Manzke told the Wall Street Journal
she was wiped out. Manzke didnt return calls or e-mails.
To contact the reporter on this story: Katherine Burton in New
York at kburton@bloomberg.net
Last Updated: December 16, 2008 00:01 EST
Madoff Case Creates Worst Loss for Jewish Charities (Update1)
==============================================================
http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=ayBhXjXPNLMM
( Madoff Scandal Seen as Biggest Setback for Jewish Charities
Since 1930s New Yorks Museum of Jewish Heritage recently cut
its staff by 12 percent as it projects smaller donations
following the worst year for U.S. stocks since 1931.)
By Philip Boroff and Patrick Cole
Dec. 17 (Bloomberg) -- New Yorks Museum of Jewish Heritage
recently cut its staff by 12 percent as it projects smaller
donations following the worst year for U.S. stocks since 1931.
In the wake of the arrest of Bernard Madoff in whats being
called the biggest scandal in philanthropic history, museum
Deputy Director Ivy Barsky expects more pain.
Its devastating, even for those of us who arent directly
affected, she said.
Madoffs wealthy Jewish clients in New York, Boston and Palm
Beach, Florida, are coping with pain and anger after disclosure
of the alleged multibillion-dollar Ponzi scheme. The nonprofits
theyve funded will likely contend with budget cuts.
I cant think of anything since the Great Depression that had an
impact of this size, said Melissa Berman, president of
Rockefeller Philanthropy Advisors in New York.
Jews in the U.S. give more than $5 billion to Jewish causes.
Although they comprise just 2 percent of the population, Jews
contribute 25 percent of the largest gifts to higher education,
according to a recent study cited by Gary Tobin, president of
the San Francisco-based Institute for Jewish and Community
Research.
To see foundations losing big parts or all of their assets
through fraud has never happened before, he said. This is a
tremendous violation of the public trust.
The losses to Jewish philanthropists -- who include film
director Steven Spielberg and real-estate developer Mortimer
Zuckerman -- are in the hundreds of millions, if not billions.
Brandeis, Boston Museum
The $345 million Carl and Ruth Shapiro Family Foundation had
about 45 percent of its assets invested with Madoff, a
spokeswoman said. The foundation, a major donor to Brandeis
University and Bostons Museum of Fine Arts, was funded by Carl
Shapiro, who sold his Kay Windsor Inc. womens clothing business
to VF Corp. in 1971.
The Shapiro Family Foundation was shocked and horrified to learn
about allegations against Mr. Madoff, who has long been
considered a trusted and effective leader in the investment
field, a foundation statement said.
U.S. Senator Frank Lautenbergs foundation was among the
charitable groups that invested with Madoff, who told his sons
he committed a $50 billion fraud.
The foundation run by Lautenberg, a New Jersey Democrat,
invested $12.8 million of its $13.8 million in assets with
Bernard L. Madoff Investment Securities at the end of 2006,
according to a tax return for the organization.
The Lautenberg foundations largest donation in 2006 was $352,500
to the United Jewish Appeal of MetroWest NJ in Whippany, New
Jersey.
Los Angeles Federation
The board of the Jewish Federation of Greater Los Angeles, the
citys largest Jewish nonprofit, may have suffered a Madoff-
related loss of $6.4 million, or 11 percent of its endowment,
President John Fishel said. It will meet next week to review
investments and see if any changes should be made, he said.
The federation, with a budget of about $50 million this year,
has sufficient resources to continue its mission of providing
social services to the poor in the Jewish community, he said.
Yeshiva University lost about $110 million tied to the scandal,
a spokesman for the New York school said.
Hedge-Fund Investment
Most of the losses were invested through hedge funds controlled
by J. Ezra Merkin, who was a Yeshiva trustee and chairman of the
schools investment committee, spokesman Bill Anderson said in a
telephone interview. Yeshiva, a 122-year-old private school that
combines academic and religious education, has an endowment of
about $1.2 billion remaining.
Ramaz, a Jewish school on New Yorks Upper East Side, had about
$6 million with Madoff. Congregation Kehilath Jeshurun, an
Orthodox synagogue also on the Upper East Side, has about $3.5
million at risk.
We are still in the process of gathering the facts and assessing
the current status of the investment, Eric Feldstein, the
synagogues president, wrote in a letter yesterday to his
congregation.
Maimonides School, an Orthodox day school in Brookline,
Massachusetts, may have lost $5 million investing with Madoff,
Chairman Jeffrey Swartz wrote to the parents of students.
Last night, about 1,100 attended the UJA-Federation of New Yorks
annual Wall Street dinner. On Page 2 of the program, Madoff is
listed as an executive council member. The dinner raised about
$18.8 million, down from $21.6 million last year.
Theres no question a number of our large and medium donors were
hurt by this, Jerry Levin, the organizations chairman and head
of JW Levin Partners LLC, said in an interview. I think the list
is going to be considerably bigger.
UJA-Federation of New York aids more than 100 health, education
and community organizations. It said in a statement that it
didnt invest with Madoff.
To contact the writers on the story: Philip Boroff in New York
at pboroff@bloomberg.net; Patrick Cole in New York at
pcole3@bloomberg.net.
Last Updated: December 17, 2008 10:56 EST
Madoffs Indirect Investors May Recover Some Money, Lawyer Says
==============================================================
http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=a6SuIr.sfbv4
By Alexis Leondis
Dec. 16 (Bloomberg) -- Indirect investors who got ensnarled in
Bernard Madoffs alleged $50 billion Ponzi scheme have a better
chance of recovering their money than direct investors, says a
securities-arbitration lawyer.
Investors who went through a third-party such as a hedge fund or
a broker can turn to a lawsuit or arbitration, said Jacob
Zamansky, a securities-arbitration attorney based in New York.
Since these third parties didnt do the appropriate due diligence
before turning their clients money over to Madoffs firm, they
are liable, according to Zamansky, who said he has been retained
by about 12 clients who invested directly or indirectly with
Madoff.
Those third parties have deeper pockets, so theres a good
possibility investors will get a substantial portion, if not all
of their money returned, Zamansky said.
Madoff was arrested Dec. 11 after he told his two sons that
clients of his New York-based investment-advisory firm lost $50
billion in a giant Ponzi scheme, according to the Securities and
Exchange Commission.
For direct investors, filing a lawsuit is throwing money out the
window in legal fees, said James Cox, a securities law professor
at Duke University in Durham, North Carolina.
By the time they collect all of Madoffs assets and liquidate
them, providing there are no clawbacks, there will probably just
be enough to pay the attorneys fees, said Cox. A so-called
clawback is when money that has been distributed is reclaimed to
recover proceeds for other investors.
The Securities Investor Protection Corp., a government-
sponsored group that protects clients when brokerages fail, is
liquidating Bernard L. Madoff Investment Securities LLC,
according to the Washington-based organization.
Utterly Unreliable
It will take six months to sort out Madoffs records, said
Stephen Harbeck, president of SIPC, on Bloomberg Television.
Harbeck described Madoffs records as utterly unreliable.
There are some assets, but I have no idea what the relationships
of the assets available are to the claims against them, Harbeck
said.
SIPC insures as much as $500,000 per customer account for money
that is stolen, not lost because of declining investments.
According to its Web site, SIPC has a reserve of slightly more
than $1 billion.
Those who invested with Madoff through his investment advisory
firm, which he allegedly used to run the Ponzi scheme, wont be
covered by SIPC, said Stuart Meissner, a former securities
regulator who is now an investor lawyer based in New York. Only
direct investors in Madoffs brokerage firm will be covered, he
said.
Gray Area
If the securities appearing on statements were fictitious and
not in customers accounts, coverage becomes a gray area, said
Meissner.
If SIPC makes an insurance payout, it may take up to two years
for investors to get the distribution, Meissner said.
Investors also may have to wait several years for a trustee to
sell off the assets or let them mature before receiving a pro-
rata distribution, said Mercer Bullard, a University of
Mississippi law professor and former mutual-fund attorney at the
SEC.
Those who closed their accounts with Madoff within the last year
need to be aware that there could be a clawback, Zamansky said.
While authorities unscramble the Madoff case, both indirect and
direct investors need to gather all documents to prove their
claims, said the securities lawyers and law professors.
Offering Memorandum
The most important document for investors who used a hedge fund
as a third party is the offering memorandum that lists the rules
under which the fund operates, said Bullard, the University of
Mississippi law professor. Peripheral documents including e-
mails and marketing materials from firm employees are also
helpful for proving claims, Bullard said.
Zamansky recommended gathering copies of checks, wire transfers
and monthly or annual statements reflecting investments.
The only consolation for some who invested with Madoff may be a
tax write-off because losses due to theft can usually be
deducted.
There probably isnt any redress in all this except the delight
at having a deduction on your tax return, Cox said.
To contact the reporter on this story: Alexis Leondis in New
York aleondis@bloomberg.net.
Last Updated: December 16, 2008 14
Madoffs Wife Said to Be Investigated Over Ponzi Scheme Records
===============================================================
http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=a3.V5Hz3noK4
( Madoff Put Under House Arrest as SEC Says It Failed to Act
on Allegations Bernard Madoff, accused mastermind of a $50
billion investment fraud, was placed under house arrest as
pressure mounted on the Securities and Exchange Commission to
explain its failure to detect his financial wrongdoing for
almost a decade.)
By David Scheer and Allan Dodds Frank
Dec. 17 (Bloomberg) -- Ruth Madoff, the 67-year-old wife of
alleged fraud mastermind Bernard Madoff, is being investigated
by U.S. regulators over whether she helped maintain secret
records used in a $50 billion Ponzi scheme, a person familiar
with the matter said.
The Securities and Exchange Commission, combing through files at
her husbands New York firm, found evidence she may have helped
track payments, the person said, declining to be identified
because the inquiry isnt public. Two people with knowledge of
the probe said on Dec. 14 that the agency is also examining why
her name appears on related transactions.
Shes not charged with anything, said Ira Ike Sorkin, a New York
attorney at Dickstein Shapiro LLP, which represents the couple.
The SEC has not sought to freeze her assets. Shes under no bail
conditions.
Authorities havent accused Ruth Madoff of wrongdoing. U.S.
Magistrate Judge Gabriel Gorenstein, who is overseeing criminal
proceedings against her husband, today ordered the couple to
surrender their passports. Bernard Madoffs wife and brother,
Peter, were the only people willing to sign a $10 million bond
to secure his release. Ruth Madoff is seeking to hire her own
lawyer, a person familiar with the matter said.
Bernard Madoff, 70, was arrested Dec. 11 and charged with a
single count of securities fraud. In court documents,
prosecutors and the SEC said he had said his investment advisory
business was all just one big lie.
Montauk, Palm Beach
The couple appeared in court today to sign documents to give up
homes in Montauk, New York, and Palm Beach, Florida, if Bernard
Madoff flees. His bail hearing was postponed a second time in as
many days and he is now subject to electronic monitoring and a 7
p.m. curfew.
Ruth Madoff, who also has a masters of science degree in
nutrition from New York University, co-edited a cookbook in 1996
called The Great Chefs of America Cook Kosher. The book contains
recipes for kosher dishes by well-known chefs, such as Daniel
Boulud and Wolfgang Puck.
The legal developments came after SEC Chairman Christopher Cox
said yesterday the agency failed to act on credible, specific
allegations about Bernard Madoff dating back to 1999. The Madoff
affair will be at the center of planned congressional hearings
on the reform of the SEC, said a senior Senate official,
speaking on condition of anonymity.
Coxs Successor
Cox, a Republican appointed by President George W. Bush, has
said he will step down when Bush leaves office Jan. 20.
President-elect Barack Obama plans to name as Coxs successor
Mary Schapiro, chief executive officer of the Financial Services
Regulatory Authority, people familiar with the matter said
today.
The SEC, already faulted in connection with the collapse of Bear
Stearns Cos. and Lehman Brothers Holdings Inc., faces criticism
for failing to detect Madoff. A House panel will hold a hearing
next month.
Madoffs responses during a 2005 SEC inspection of his brokerage
operation should have raised suspicions and prompted further
inquiries, said two people familiar with the matter.
Two years later, the agency closed a separate probe into tips
and press reports suggesting his investment returns were too
good to be true. Money manager Harry Markopolos helped trigger
that inquiry by suggesting Madoff may be running a Ponzi scheme
or front-running, in which traders buy shares for their account
before filling customers orders, a person with knowledge of the
case said.
Front-Running
Investigators focused on front-running and, after encountering
obstacles, didnt finish verifying trades Madoff claimed were for
advisory clients, the person said. His companys trades had been
cleared through a single account at the Depository Trust &
Clearing Corp., making it difficult to distinguish transactions
specifically for Madoffs advisory business. Other transactions
were completed through foreign brokerages, forcing the SEC to
persuade foreign regulators to collect the data. Instead,
investigators closed the case.
Besides talking with Madoff, authorities are scrutinizing the
role of Frank DiPascali, a senior official in Madoffs investment
advisory firm, said people familiar with the case.
Were trying to sort out everything and learn the facts,
DiPascalis lawyer, Marc Mukasey of Bracewell & Giuliani in New
York, said in an interview, declining further comment.
U.S. Attorney General Michael Mukasey, Marc Mukaseys father, has
recused himself from the Justice Departments investigation into
Madoff because his son represents someone involved in the case,
a department spokesman said today.
Michael Mukasey is a 1959 graduate of the Ramaz School, a modern
Orthodox Jewish school in New York that invested as much as $6
million in a fund that invested with Madoff, said Kenny Rochlin,
Ramazs director of institutional advancement. Mukaseys wife,
Susan, was headmistress of Ramazs Lower School for children in
primary grades, Rochlin said.
The case is U.S. v. Madoff, 08-mag-2735, U.S. District Court,
Southern District of New York (Manhattan).
To contact the reporter on this story: David Scheer in New York
at dscheer@bloomberg.net; Allan Dodds Frank in New York at
allanfrank@bloomberg.net.
Last Updated: December 17, 2008 18:38 EST
Madoff Enjoyed $50 Pedicures, 9.8 Handicap, Boat Called Bull
=============================================================
http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=aQv4Kmx.cs78
By Mark Clothier and Oshrat Carmiel
Dec. 17 (Bloomberg) -- Two weeks ago, Bernard Madoff stopped by
the Everglades Barber Shop off Worth Avenue in Palm Beach,
Florida, for the usual: a $65 haircut, a $40 shave, a $50
pedicure and a $22 manicure.
For me, he was a gentleman, said Senio Figliozzi, 72, the owner
of the three-seat barber shop who has been cutting Madoffs hair
for the past 17 winters. What he did outside, it was news to me.
What Madoff did outside -- running an alleged Ponzi scheme that
may have bilked investors around the world out of $50 billion --
has been the talk of Palm Beach this week. The arrested money
manager owns a $21 million home on the Intracoastal Waterway
about a mile from the Palm Beach Country Club. He was a regular
at the club, where his 9.8 handicap this year has been as steady
as the returns he promised investors.
It was those returns that lured Marilyn Lane, 72, and her
husband, William, 81, into Madoffs orbit. The Lanes, who own a
Chevrolet and Saturn dealership in Manassas, Virginia, and a
place in Palm Beach, invested more than $1 million with Madoff
about six months ago.
He certainly had a track record, Lane said at Greens Pharmacy
and Luncheonette, a popular Palm Beach breakfast and lunch spot.
Everyone you spoke to highly recommended him. It wasnt like you
were going with a fly-by-night scheme. You think.
Many of those who gave their money to the 70-year-old Madoff say
the same thing: He was gregarious, generous and highly regarded
-- all excellent qualities for an alleged con man. Whether they
met him at the Palm Beach Country Club or in Montauk, Long
Island, where he owned a beachfront home, or in New York, where
he lived with his wife, Ruth, in a duplex on East 64th Street,
most were impressed with his credentials and his manner.
Table in Front
Hes very personable, very charming, said Jerry Reisman, an
attorney in Garden City, New York, who recalls meeting Madoff
five or six years ago at the Glen Oaks Country Club, a golf
course in Westbury, New York. He moved in the best circles. He
was a pro at it. He was probably one of the best social
networkers in America.
Now Reisman, a lawyer with Reisman, Peirez & Reisman in Garden
City, New York, is representing 10 people who invested with
Madoff and say they lost a total of about $150 million.
At the Palm, a steak restaurant in East Hampton, New York,
manager Tomas Romano says Madoff has been a regular for 20
years. He always insisted on a table in the front of the
restaurant, Romano said, and was often surrounded by well-
wishers. Many of the people listed as victims of Madoffs fraud,
he noted, were also customers of the Palm.
Mystery Adviser
Even Spielberg, he said, referring to filmmaker Steven
Spielberg, whose Wunderkinder Foundation had money invested in
Bernard L. Madoff Investment Securities.
Its like when you profile somebody, Romano said. You say, No,
this person couldnt do that.
If Madoff enjoyed himself in public, his advisory activities
were a mystery to most people at the company he founded in 1960,
said two employees who declined to be identified, citing concern
they might be drawn into the probe.
The firm occupied several floors of what is known as the
Lipstick Building on Third Avenue in midtown Manhattan. Madoffs
market-making and proprietary trading units were on the 19th and
back-office functions on the 18th, the employees said. The
advisory operations were on the 17th floor, which wasnt linked
to the others. There was little interaction between the groups,
according to the employees. The units used separate computer
systems, a person with knowledge of the arrangement said.
Draw the Blinds
Madoffs sons, who ran the market-making and proprietary units,
told employees their father kept them in the dark about the
advisory unit, the employees said. While Madoff seldom appeared
on the 18th and 19th floors during the workday, he was known to
inspect during the evening for sloppy desks or window shades
that werent fully drawn, one of the employees said.
Madoff lived about 10 blocks from the office in an apartment in
a tan-brick building on the corner of Park Avenue and 64th
Street that he bought in 1990 for $3.325 million, according to
county real estate records. He also owned a 55-foot wooden
fishing boat that he bought in 1977 for $462,000. The yacht,
built in 1969 by Rybovich & Sons in Riviera Beach, Florida, is
called Bull.
Both Madoff and his wife were born in Queens. Bernard graduated
from Hofstra University in Hempstead, New York, in 1960 and
served as a trustee from 2004 until he was suspended on Dec. 12,
according to Stu Vincent, a spokesman for the school. Ruth
graduated from Queens College in 1961. She joined the board of
the Queens College Foundation in 1993 and voluntarily stepped
down from her job as secretary of the foundation several days
ago, said Phyllis Cohen Stevens, a spokeswoman for the school.
Youre Finished
Ruth Madoff, who also has a master of science degree in
nutrition from New York University, co-edited a cookbook in 1996
called The Great Chefs of America Cook Kosher. The book contains
recipes for kosher dishes by well-known chefs, such as Daniel
Boulud and Wolfgang Puck.
The couple has two sons -- Mark, 44, who graduated from the
University of Michigan in Ann Arbor in 1986, and Andrew, 42, who
graduated from the University of Pennsylvania in Philadelphia in
1988. The family was very close, according to a person who knows
the Madoffs, and both boys went to work at their fathers firm
after graduating from college. Madoffs brother, Peter, also
worked at the firm, as chief compliance officer.
Mark and Andrew have both lost millions of dollars, the person
said, and they havent talked to their father since his arrest.
There are plenty of people in Palm Beach and elsewhere who would
like to talk to Madoff, if only to find out how everything could
have gone up in smoke.
This town isnt about class or culture, said Laurence Leamer, a
Palm Beach resident since 1994 and author of Madness Under the
Royal Palms: Love and Death Behind the Gates of Palm Beach,
which will be published in January. This town is about money.
Bernie was revered because he had money. If you lose your money,
youre finished.
To contact the reporters on this story: Mark Clothier in Atlanta
at mclothier@bloomberg.net; Oshrat Carmiel in New York
ocarmiel1@bloomberg.net.
Last Updated: December 17, 2008 00:13 EST
Madoff Auditor Under Investigation by New York State Prosecutor
================================================================
http://www.bloomberg.com/apps/news?pid=20601103&sid=a0j8yRMGb5pw&refer=news
By Karen Freifeld
Dec. 15 (Bloomberg) -- The auditor for Bernard L. Madoff
Investment Securities LLC, whose namesake was charged in a $50
billion Ponzi scheme last week, is under investigation by the
district attorney in New Yorks Rockland County, a northern
suburb of New York City.
The New City, New York, auditing firm Friehling & Horowitz
signed off on the annual financial statement of Madoffs
Manhattan-based investment advisory business through Oct. 31,
2006, according to a copy obtained by Bloomberg News.
Madoff was charged by federal prosecutors in Manhattan and sued
by the U.S. Securities and Exchange Commission on Dec. 11. He
told senior employees that the firm was insolvent and had been
for years, prosecutors said in the criminal complaint. David
Friehling, whose name is on the door to the store-front
accounting office, hasnt been charged.
Were trying to determine if there have been any state crimes
here, Rockland County District Attorney Thomas Zugibe said in a
telephone interview yesterday. When you have a key player like
that operating in your county, you have to look.
Friehling didnt return calls for comment.
Zugibe said, among other things, he was probing to see whether
any other Rockland-based businesses or other organizations might
be affected.
The implication is pretty broad, Zugibe said.
Friehling is on the board of the JCC Rockland, a Jewish center
in the county. He also is a past-president and a current board
member of the Rockland chapter of the New York State Society of
Certified Public Accountants.
Hedge Fund Adviser
Hedge fund investment adviser Aksia LLC warned clients last year
not to put their money with Madoff after learning of red flags
at his company, including that its books were audited by a
three-person accounting firm.
Friehling & Horowitz included one partner in his late 70s who
lives in Florida, a secretary, and one active accountant, Aksia
said.
The copy of the four-page annual financial statement, dated Dec.
18, 2006, attested that the financial statements of Madoffs
securities firm were in conformity with accounting principles
generally accepted in the United States.
The financial analysis said Madoff Securities had $1.3 billion
in assets, including $711 million in marketable securities and
$67 million in U.S. debt. Members equity, the firms net worth,
was $604 million, according to the document.
The firm operates from a storefront office in the Georgetown
Office Plaza in New City, New York, sandwiched between a
pediatricians office and another medical office.
Leslie Cousar, who works in a nearby office, said on Dec. 12
that the man who comes to the auditors office does so for 10-to-
15 minute periods and leaves. She said he drives a Lexus and
doesnt dress in business attire.
The case is U.S. v. Madoff, 08-MAG-02735, U.S. District Court
for the Southern District of New York (Manhattan).
To contact the reporter on this story: Karen Freifeld in New
York state Supreme Court at kfreifeld@bloomberg.net.
Last Updated: December 15, 2008 00:01 EST
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Robert M. Stockmann - RHCE
Network Engineer - UNIX/Linux Specialist
crashrecovery.org stock@stokkie.net
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