Scammers

Madoff Victims Sue the SEC…Can They?

There’s a very old legal maxim that we Yankees adopted from the British. It’s so old it even has a Latin name: Rex non potest peccare. It means “the King can do no wrong.” This concept of sovereign immunity remains and it is nearly impossible to sue the government for something. Must have been fun for the old British monarchs. Some former US Presidents thought they were immune too. That didn’t work out too well. In any event, there’s an exception. If, for example, the guy waxing the floor at the Pentagon doesn’t warn people and someone slips and falls and breaks their collar bone, you can sue the government for that. So if they are negligent in carrying our their function, you can sue. But you cannot sue them for making policy, declaring war, things like that.

So sure enough two victims of the Bernard Madoff $65 billion Ponzi scheme (as an aside, prosecutors now estimate losses much lower, at around $13 billion, though of course still huge!), Phyllis Molchatsky and Steven Schneider, are suing the SEC for negligence and asking for $2.4 million that they lost. They say the SEC missed countless opportunities (including at least 6 formal complaints) that they should have followed up on to get this guy. They cite an internal SEC report that essentially admits this. The SEC says it’s a meritless case. Everyone acknowledges that mistakes were made on this one. But merely as a legal observer it will be interesting to see whether the court lets this go forward. Was the decision not to follow-up essentially a policy decision of some sort, or was it merely implementing an existing policy? I’ll keep an eye on this one for you guys.

Skilling Gets His Day in (Supreme) Court

The Wall Street Journal just reported that the US Supreme Court has agreed to hear an appeal from Enron Corp.’s former CEO, Jeffrey Skilling. Skilling was convicted of fraud and a bunch of other stuff in 2006 and sentenced to 24 years in prison and fines of $45 million following what  the Journal called the “spectacular collapse” of Enron following the discovery of widespread accounting deception at the huge energy company.

The prosecution based its case on a novel theory that he committed fraud because the company was denied his “honest services.” Skilling points out that at no time did the government suggest that he did anything for personal gain. It appears the Supremes want to rule on whether the “honest services” theory holds up. An appeals court has already confirmed Skilling’s conviction but did say that his sentence was not correct and needed to be recalculated.

The Enron scandal, followed by a similar set of problems at WorldCom, Adelphia and others led to the sweeping securities law reform in the Sarbanes-Oxley Act of 2002. It showed that big frauds can happen in big companies, even when the best auditors in the country are on the job. The Enron scandal even resulted in the collapse of Arthur Andersen, one of the five biggest worldwide accounting firms.

Why do we care what happens to the guy whose apparent misdeeds killed a company and many thousands of jobs now 7 years after the scandal? For quite awhile he was the fall guy, with many feeling sorry for the out of touch “outside man” Chairman Ken Lay, who died of a heart attack waiting for his sentencing awhile back.

Were the “off balance sheet” arrangements arranged with Skilling’s blessing, in which underperforming assets were moved to “hidden” outside entities, truly horrible? Was the failure to disclose these arrangements in fact illegal or fraudulent? Now it would be, as Sarbanes closed the loop and now requires all such arrangements to be disclosed. Was Skilling railroaded into a conviction with a tainted Houston jury and a lynch mob mentality throughout the nation at the time?

Hopefully you know me by now, faithful blogees. I do not have the answers to these questions. Just hope to get you to think about it a little. Skilling must have known that failure to disclose these arrangements was not very nice, but illegal at the time? Just not clear, which probably explains the difficulty the prosecution had in fashioning a proper cause of action against him.

Suits Against Madoff Kin Begin

Bernie Madoff’s two sons, his niece and his brother are being sued by the trustee, Irving Picard, overseeing the Madoff assets for about $200 million, it was revealed today by The New York Times (and a million other outlets).  Picard does not close out the possibility of criminal action. But at a minimum, even if they didn’t know about the giant $65 billion Ponzi scheme that Uncle Bernie perpetrated, they should have known.

Meantime sons Mark and Andrew are suing saying the company owes them $90 million! Meanwhile Picard has brought cases seeking about $15 billion from family members (including wife Ruth) and “funnelers” who brought clients to Madoff.  And Picard has indicated he believes there’s still a lot of money missing and they hope to find it.

Meantime a few weeks ago reports surfaced that Bernie is telling fellow prisoners in North Carolina that he has cancer and supposedly takes a bunch of pills and doesn’t have long to live. The Bureau of Prisons has denied that he has been so diagnosed. His fellow prisoners have been kissing his butt apparently, cooking for him, etc. His job in prison: painting fences. No, he’s not being asked to mend them.

I hope it’s not too long for the innocent victims to get something back to begin to rebuild many many lives destroyed by greed.

New Name for a Changing Economy

It’s finally happened. When we started what was then known as Crisis Post, our hope from the beginning was to outgrow our name when the economy began to rebound. Frankly, in March 2009 when we started, it seemed like we would be Crisis Post for quite awhile indeed.

Well, I am pleased and relieved to officially change the name of my humble blog to Rebound Post.  Don’t worry, the old crisipost.com URL will still connect here. We will remain your source for information on the economy,  the President and his economic policies, Wall Street, scammers, reverse mergers and other alternatives to traditional IPOs, the legal industry, the world scene and just plain musings- now focused more on thoughts connected to the now recovering economy and stock market. I know it seems like an eclectic and disjointed set of topics. I pretty much don’t care as it is a list of things I am interested in and enjoy writing about. I hope you find some (or all!) areas of our focus that will strike you as kinda interesting.

As you may have discerned from my posts, I am a diehard optimist. Gets me in trouble sometimes as I too often believe good things are around the corner. In the last year that optimism has been tested for sure. In this process I would say I’ve evolved into more of a rational optimist. Hoping for good things always but realizing more than ever the reality that there are times that just ain’t so great after all.

I have appreciated all your support, your emails and welcome those who came from our sister blog, www.reversemergerblog.com. If you have any interest in considering a sponsorship of our site, with banner ads, etc., of course let me know!

Now let’s go economy……

Bernie’s Sons, Brother, Face Lawsuit

According to CBS News, Irving Picard, the trustee who is handling convicted $65 billion swindler Bernard Madoff’s case, is ready to sue Bernie’s brother and two sons for over $50 million. While this is less than 1% of the scammed money, I guess the trustee has to find it where he can. If he can.

The news report suggests that, as with Picard’s case against Bernie’s wife Ruth (she is now having to deal with a new book by a woman who says she had a 20-year affair with Bernie and now even she has lost everything thanks to BM), whether or not Bernie’s brother Peter and sons Mark and Andrew knew about the fraud is not relevant. He alleges that they received monies from the Madoff investment firm that were effectively stolen funds and must be returned. For example, Mark and his wife bought a $6.5 million Nantucket home with all cash wired directly from the Madoff firm.

There remains this gnawing feeling that so many of us have. How could these very smart men not be aware of what was going on around them? Maybe, just maybe, Ruth did not know. After all it appears she did not know he had an affair with a married woman, allegedly, for over 20 years. Well, who knows, maybe she did know? She denies it though. But these guys worked at the firm. His brother was head of compliance! So the question is, if they did not know, should they have known? One wonders whether the investors should be thinking about ways to craft a case against these guys.

DiPascali Jailed…Former Madoff CFO Pleads Guilty

Frank DiPascali, Bernie Madoff’s longtime CFO, pled guilty yesterday to 10 different charges including securities fraud and falsifying records. As to those statements sent to people, according to the Associated Press, he said it was ”all fake. It was all fictitious. It was wrong, and I knew it was wrong at the time.” So much for an insanity defense…

He could face up to 125 years, but the prosecutors clearly want his cooperation. They pleaded with the judge to let DiPascali be out on bail or house arrest while waiting for his sentencing, which may not be until next May. But in a surprise move, the judge ordered him jailed anyway. His lawyer said he was totally unprepared for that.

The FBI says they expect more arrests soon. Apparently many clients said DiPascali, who came from the same area of Queens as Madoff, was their main contact. We’ll see how much he spills…

Former Madoff CFO Close to Deal, and What About the Accountants?

According to Crain’s New York Business and the New York Daily News (is this stuff even news anymore outside New York?), Frank DiPascali, the guy who was CFO of Madoff Securities, has agreed to plead guilty to unspecified charges and presumably is giving the feds some information. We wonder what this guy knows. There is speculation that he knew very little about the Madoff family members’ involvement, but that he may have helped some of the so-called “feeders,” like Frank Avellino, phony up statements.

Meantime, Bernie’s storefront accountant, David Friehling (great publicity for New City, NY), was supposed to plead guilty but in a last minute shocker last month decided to plead not guilty. He will be in court next on October 1. Either way this guy is toast. He audited the books for many years, so either he participated in the scam, or he at least knew about it, or the best you can hope for is that he was so inept that his extreme negligence caused him not to spot the pilfering.

This Chinese water torture approach to getting to the many people involved in this or who knew about it has got to be horrendous for the many, many people who were victimized, including way too many friends of mine (no, neither my family nor I invested with Madoff), some watching elderly parents go back to work because they are now penniless. Grrrr.

Mrs. M. Sued for $45MM

Irving Pickard, the trustee appointed by U.S. Bankruptcy Court in New York to help victims of Bernie Madoff’s massive Ponzi scheme, has sued Bernie’s wife, Ruth, for $45 million. Previously he had taken almost everything she has, including their NY penthouse and everything in it, and gave her $2.5 million that he could not tie to the crimes.

But Pickard believes that she received fraudulent transfers that she is not entitled to even if she was unaware of her husband’s crimes, according to CNN Money. If a criminal gives you money you may have to return it even if you did not know it came from a criminal. This is why Pickard is suing a number of major Bernie investors who took money out of the scam through the years, to get the money back and distribute it to all the victims.

Separately, in a courthouse interview Bernie apparently said he doesn’t care what happens to his sons, since they have not spoken to him since he told them about the crime a day or so before his arrest.

Here’s what we keep waiting for. Who helped this guy? The “feeders” who found investors are already in trouble, but they did not work at Madoff Securities, talk to the clients regularly and prepare fully bogus statements of account. There had to be dozens of people in on this. When will we know about them? I’m sure we will, soon enough.

Twenty Years for Dreier: “No Mr. Madoff”

Marc Dreier, Esq., 59, may have a chance to live the end of his golden years a free man. U.S. District Judge Jed Rakoff sentenced the admitted scammer to 20 years in federal prison for engineering a $400+ million scheme to steal from pension funds, institutions and a few individuals by selling phony promissory notes. The man called the “Houdini of impersonation and false documents” (according to Crain’s New York Business) was apparently very contrite in court yesterday, unlike Bernie Madoff, who apparently was considered not to be sincere in his apologies on his sentencing.

The prosecutors had asked for 145 years, saying that this was just as bad as Madoff’s $65+ billion theft of investment dollars from thousands of individuals, charities and businesses. The judge disagreed, saying, according to Crains, “Mr. Dreier is not going to get much sympathy from this court, but he is no Mr. Madoff under any analysis.” In fact, he went further and suggested a sentence like Madoff’s would “demean” the harsh sentence given to Bernie.

So with good behavior, maybe he’s out for his 75th birthday. Most of the people he bilked were professional investors who had the opportunity to do more due diligence than they apparently did. That is something else that distinguishes him from Madoff.  So for them, anyway, while I agree with the judge that Dreier needs to be punished, this seems a fair sentence to me.

Prosecutors Seek 145 Years for Dreier

Yesterday federal prosecutors told the judge they would like a 145 year sentence for 59-year old admitted swindler old Marc Dreier. As with the 150 year sentence for Madoff, obviously the intention is to ensure that he spends the balance of his life in jail for stealing $400 million from hedge funds and others. The prosecutors told U.S. District Judge Jed Rakoff that Dreier has dishonored the legal profession, according to Reuters.

He was presumably doing well enough running a 250 lawyer firm, but decided to pursue this fraud. Only he has the explanation for this. One also assumes, as with Madoff, that others assisted him, and it is not clear who those folks are yet. Dreier’s lawyer thinks 10-12 years would be sufficient. He acknowledged in a letter to the judge that he deserved a significant sentence. Does he deserve the same as Madoff? I’m not sure how one compares these frankly.

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