Madoff

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.

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.

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.

More China Stuff

As I am leaving China to return home to celebrate July 4th with my family, I thought I would share some interesting tidbits from just today’s China Daily, which gives good insight into what issues are important to Chinese business and society.

1. The government has worked to encourage “ODI” (overseas direct investment) by Chinese folks. Often the level of ODI is compared to “FDI” (foreign direct investment), which is also encouraged. They expect ODI to reach $180 billion this year while FDI will probably hit around $100 billion. Watch for more Chinese takeovers of companies throughout the world as the recession continues to lower values while China has huge foreign exchange reserves.

2. GM is struggling through bankruptcy but their sales in China increased almost 40% in the first half of this year, to almost 1 million cars. The car business here is booming big time.

3. They remain, understandably, extremely concerned about swine flu, not only because of the health issues, but as it may affect tourism. A school had 7 students down with the virus, so all the other 700 students plus faculty and parents are to remain quarantined in their homes for the next 7 days.

4. A very impressive report shows how in the last 20 years government efforts to subsidize mothers giving birth in hospitals rather than at home with midwives has very dramatically reduced the mortality rates both for mothers and newborns.

5. All the latest Michael Jackson news is covered in detail.

6. China has increased its goal of bringing nuclear power to more places by 2020. They feel alternative energy development is key. While nuclear power remains controversial in the US, here they are moving ahead full steam (no pun intended).

7. A Hong Kong listed toll road operator got the OK to complete an IPO in Shanghai. IPOs had been been “quietly” banned since last year. Good sign for markets throughout the world.  Thirty other companies have also gotten the go-ahead to go public here.

8. Local stock markets surged yesterday after reports that the recovery seems to have begun here and that positive earnings reports for the rest of the year are expected.

9. Madoff news is closely followed here.

10. British Petroleum and China National Petroleum Corp. have won a bid to develop oil fields in Iraq. This is a major contract for both.

Thanks so much to my friends in Guangzhou for a most memorable visit. I will return for sure! And happy 4th of July to all my fellow Americans..

Bernie Gets the Max

While it will not bring an extra penny back to the thousands of victims of Bernard Madoff’s $65 billion Ponzi scheme, US District Judge Denny Chin has sentenced him to 150 years in prison, the maximum requested by the prosecution. His lawyer, Ike Sorkin, had suggested 12 years, which is apparently Madoff’s current life expectancy. The 71-year old Queens native got the max because the judge cited the “extraordinary evil” it took to do this, according to Yahoo News.

As mentioned in previous entries, this closes only but one chapter in this saga which has much more to play out. Bernie’s wife Ruth issued a statement expressing her sadness for her husband’s victims. It is not clear what she did or did not know, and Madoff’s secretary had indicated that Ruth was very sharp and ran all their personal finances.

So where will it go next? More “funnelers” of investor money? Any insiders? It seems crazy not to think that other people had to be involved, as we can’t imagine Bernie sitting at a computer printing up phony account statements all by himself. And maybe that will help get more money for the victims.

Some of the victims are my friends, some are incredible talents like Elie Weisel and his foundation, and some previously comfortable retirees are taking jobs waiting tables to keep a roof over their heads. So yes, I guess it made sense to make clear that Bernie will not be getting out of prison.

Madoff Sentencing Postponed; Stanford Indicted

While I was away in Vegas at a conference last week, two important events for several of the most notorious scammers (in one case still alleged). First, we were all awaiting the moment when $50 billion+ thief and Far Rockaway High School grad Bernie Madoff was to be sentenced on June 16. According to Reuters, it has now been postponed to next Monday, June 29 (of course I am scheduled to be out of the country then). There was no particular reason given for the postponement by U.S. District Judge Denny Chin, though it is not unusual for this to happen. Hey the guy’s in jail so no big rush. The judge also announced that the sentencing would be held in a much larger courtroom than Chin’s regular one. Get ready to camp out for seats! After that, the Madoff news will continue to flow as we wonder what will happen to wife Ruth, kids, brother and niece (and whether more money is found, and whether more advisors who funneled him money will be nabbed).

Meantime, Texas billionaire (not for long?) R. Allen Stanford surrendered to the FBI on June 18. He was indicted the next day in a 57-page 21-count indictment along with a former Antiguan regulator (actually the CEO of their financial services regulatory commission!)  and also Stanford’s chief accounting and investment officers in an alleged $7 billion scheme. Stanford will be in court in Texas tomorrow for a bail hearing, according to Bloomberg News. The prosecutors want bail denied as they are concerned that Stanford’s alleged history of paying bribes will encourage him to find a way to flee. The group is accused of selling phony certificates of deposit to tens of thousands of unwitting investors. Among other things, Stanford is accused of taking close to $2 billion in undisclosed personal loans. We think James Davis, the former CFO of Stanford, is cooperating and may bring the Feds a lot of damning information. Stanford still denies wrongdoing, having told Bloomberg News in April, “I’m not a damn swindler.” Based on that, this one may not be a simple guilty plea as we saw in the Madoff case. Law students, sharpen your pencils, there’s probably going to be some learning on this one.

Madoff’s Secy Talks…a Little

Eleanor Squillari was Bernard Madoff’s personal assistant for 20 years. She has now decided to talk, and was pretty convincing on the Today show today making clear she had no clue what was going on, and only in the few weeks prior to his arrest did his behavior get somewhat erratic.

According to the AP, she believes he arranged the circumstances of his arrest and refusal to cooperate in an effort to protect others, but she did not say who the others were. Apparently she’s been working with the FBI for several months. On the day he was arrested, he spoke to her and wanted to know, in particular, whether the FBI had looked at his appointment book. Wondering what was in that thing.

She also made clear that Bernie’s wife Ruth was very sharp and took care of his personal finances. Eleanor had actually invested in Bernie’s fund but apparently took her money out back in the 1990s. Through his lawyer Ike Sorkin, Madoff did not comment on Eleanor’s statements.

Who would Bernie go to jail to protect? Presumably not his employees, so some surmise it’s family members. Only time will tell.

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