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Monthly Archives: December 2008

SEC Imposes Dec. 31 Deadline For Madoff To Disclose Assets

The disgraced New York hedge fund manager responsible for bilking investors out of some $50 billion in the world’s biggest Ponzi scheme has until New Year’s Eve to provide a detailed list of his investments, assets and financial holdings to the Securities and Exchange Commission (SEC). For investors duped by Bernard (Bernie) Madoff, the financial catalog may at least give them some idea as to what they stand to potentially recover from their losses.

As reported Dec. 26 by Bloomberg, Madoff’s firm, Bernard L. Madoff Investment Securities LLC, began liquidation proceedings immediately following the money manager’s arrest on Dec. 11. If convicted on securities fraud charges, Madoff faces up to 10 years in prison and a $5 million fine.

Already lawsuits have begun to pile up against 70-year-old Madoff, who confessed to federal agents that his investment advisory business was nothing more than a giant Ponzi scheme in which he paid off old investors with money garnered from newer ones.

Investigators have since uncovered a who’s who list of individuals and entities scammed by Madoff. Oscar-winning film director Steven Spielberg, the owner of the New York Mets professional baseball team, charities, global hedge fund managers, universities, Nobel laureate Elie Wiesel and L’Oreal cosmetic empire heiress Lilliane Bettencourt among others all lost fortunes in the Madoff fraud.

Last week, the Madoff scandal took an even deadlier turn. Rene-Thierry Magon de la Villehuchet, who lost more than $1 billion of his clients’ money to Madoff, as well as his own family’s fortune and that of friends, was found dead in an apparent suicide. 

Meanwhile, investment brokerages that conducted business with Madoff and Bernard L. Madoff Investment Securities LLC may have legal issues of their own to contend with from clients who incurred losses because of Madoff’s fraud. On Dec. 20, Celfin SA, a Chilean brokerage firm, became one of the first firms to accept accountability in the Madoff case by agreeing to repay a total of $10 million to clients who lost money with Madoff.

As more details unfold in the Madoff story, it’s likely the lawsuits will continue to grow, as well. In addition to investment firms, accounting firms also may be targeted – including PricewaterhouseCoopers and KPMG, which oversaw many of the feeder funds that channeled billions of dollars of investors’ money to Madoff yet failed to take note of the many red flags surrounding his business over the years.

 

Our securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

Madoff Feeder Funds Become Target Of Investor Lawsuits

The enormity of the Bernie Madoff scandal and the massive losses hitting investors was underscored this past weekend when the Federal Bureau of Investigation (FBI) announced that the $50 billion Ponzi scheme and other frauds would take priority over counter-terrorism cases. 

A Dec. 22 Bloomberg article confirmed that the FBI is reassigning agents in New York to focus on efforts that pose the “greatest threat” to Americans. According to FBI official David Cardona, the threat is to the financial system and Wall Street.

On Dec. 11, following Madoff’s arrest by the FBI on charges of securities fraud, the disgraced 70-year-old reportedly confessed that he was the sole person responsible for bilking investors out of $50 billion in a worldwide Ponzi fraud scheme. Victims of the scam not only include Madoff’s direct clients, but also investors in so-called third-party feeder funds and funds of hedge funds that provided billions of dollars in capital to Madoff’s investment business.

The inability of these feeder brokerage firms, which includes OppenheimerFunds’ Tremont Capital Management, to detect Madoff’s fraud in the face of numerous red flags is a sure-fire sign of poor risk management and a failure to perform proper due diligence on behalf of clients and their money. After all, these funds charge investors significant fees for the privilege of their services, typically 1% of the assets under management and up to 10% of the profits. In the end, their negligence of failing to protect investors renders them guilty right along with Madoff. 

 

Bernie Madoff: A Modern-Day P.T. Barnum

The plot continues to thicken in the saga of Bernard (Bernie) L. Madoff. Earlier today, authorities placed the mastermind behind a $50 billion hedge fund Ponzi scheme under house arrest. Now, instead of late-night Manhattan parties, the once-revered Wall Street legend will be subjected to electronic monitoring and 7 p.m. curfews.

At the center of the Madoff controversy is the Securities and Exchange Commission (SEC) and questions as to why it took so long for the agency to detect Madoff’s misdeeds. As far back as 1999, the SEC apparently had knowledge that all was not right in the house of Madoff. Returns in his fund were consistently and unusually high: 15% to 22%. A decade ago, memos from competitor manager Harry Markopolos and others even went so far as to allege Madoff’s business was nothing more than a “Ponzi scheme.”

In true ‘a-day-late and a-dollar-short fashion,’ Christopher Cox, chairman of the SEC, is now admonishing his agency’s inactions for failing to rein Madoff in when it had the chance. Yesterday, Cox publicly stated that the SEC failed to act on “credible allegations” when it was presented with the information nine years ago.

Madoff’s world came crashing in only when redemption requests, totaling some $7 billion, started to pile up and he was unable to meet investors’ demands for their money.

As it turns out, Madoff’s scam lured every kind of investor imaginable, from the super rich to the ordinary. Pension funds, global financial firms, hedge funds, higher education institutions, charities, the co-owner of the New York Mets, even a Senator bought into Madoff’s hype. Now, they’re collectively $50 billion poorer.

Shortly before his arrest on Dec. 11, Madoff was living life large. As reported Dec. 17 by Bloomberg, the disgraced money manager had recently made his usual stop for a $65 a haircut, a $40 shave, a $50 pedicure and a $22 manicure. If convicted of securities fraud, Madoff could spend the rest of his life in jail, where personal etiquette might not be so glamorous.

Our securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

Bernie Madoff’s House Of Lies

From humble beginnings as a lifeguard to a storied investment leader on Wall Street, Bernard (Bernie) L. Madoff has seen and done it all. Or, so he thought. Following Madoff’s arrest by federal agents last week for running a giant Ponzi scheme and losing at least $50 billion of his clients’ money, the next stop for the now-infamous hedge fund manager may be jail.

According to the criminal complaint, Madoff revealed his bogus investing business to his sons on Dec. 10. The two men, Andrew and Mark Madoff, then contacted their lawyer, as well as federal authorities. It was later revealed that Madoff apparently had been running the scheme since at least 2005, and only recently did problems surface when he became unable to meet redemption requests from clients for some $7 billion.

A Ponzi scheme is coined after Charles Ponzi, an Italian immigrant who swindled investors out of millions of dollars in the 1920s through a modern-day pyramid scheme in which early investors are paid with money from newer investors.

Madoff’s rise to Wall Street fame began innocently enough. He opened his investment firm in 1960, with $5,000 he had saved from working as a lifeguard during the summer. His star continued to rise over the next half century; his positions of authority included chief of the Securities Industry Association’s trading committee, vice chairman of the National Association of Securities Dealers and a member of the Nasdaq Stock Market’s Board of Governors and its Executive Committee.

To no one’s surprise, Madoff also did exceedingly well in his personal life, amassing a multimillion-dollar fortune that included mansions in New York and Palm Beach, as well as a 55-foot yacht ironically named “Bull.”

Prior to Madoff’s Dec. 11 arrest, there apparently had been several warning signs over the “fiscal soundness” of Madoff’s managed funds. Competing hedge fund managers had long questioned how Madoff was able to consistently generate exceedingly high returns year and year, while investors themselves regularly claimed that the account statements Madoff provided were too complex for them to understand.

Meanwhile, the SEC itself appears to have been asleep at the wheel regarding Madoff and the inner-workings of his so-called investment business. Nine years ago, the agency received a letter from Boston financier Harry Markopolos, who at the time warned that Madoff’s firm was the world’s largest Ponzi scheme. Markopolos went on to conduct his own investigation, turning his findings, which apparently were largely ignored by the SEC, over to agency’s New York and Boston bureaus.

Now the SEC’s inaction during the past nine years may well have shattered the last remaining remnants of investor confidence. As for Madoff, when FBI agents went to his Manhattan home at 8:30 a.m. Thursday morning to make their arrest, they asked if he had an innocent explanation for what had happened, according to statements provided in the criminal complaint. Madoff, dressed in a blue bathrobe and slippers, simply said: “There is no innocent explanation.”

Our securities lawyers are actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Goldman Sachs Profiting From Financial Problems Of Some States

Public officials of financially strapped states like California, Florida, Nevada, Ohio, Wisconsin and Michigan are outraged at New York-based securities firm Goldman Sachs for advising some of its biggest institutional clients to bet against state municipal bonds by purchasing credit default swaps. Meanwhile, Goldman has collected millions of dollars in fees to help those states sell some of the very same bonds.

According to a Dec. 10 story by Bloomberg, in the three months since Goldman recommended shorting municipal credit, the value of the Markit MCDX index of the derivatives’ price more than tripled – from 87.75 to as high as 278.33 basis points.

Goldman’s strategy of shorting municipal bonds of fiscally depressed states could ultimately result in even more problems for taxpayers. Concerns about a state’s credit quality often means bond prices go down. In turn, that can drive up the interest rate states and municipalities must pay to borrow money. And it all affects taxpayers. An increase of one percentage point on a $1 billion bond issue translates into a cost to taxpayers of an additional $10 million a year in interest. 

The added financial worries couldn’t come at a worst time. States, which already have closed $40 billion in fiscal year 2009 budget gaps, face at least an additional $97 billion that they must close over the next 18 to 24 months, according to a just-released national report by the National Conference of State Legislatures.

In a September presentation to institutional investors on “Best Long and Short Risk Strategies,” Goldman apparently advised buying credit-default swaps on “a basket of liquid State General Obligation credits with current and worsening fiscal outlooks, according to the Bloomberg article. The firm went on to recommend the derivatives in states with heavily unfunded pensions and other retiree obligations.

Goldman is one of the top five municipal bond underwriters in the United States. Its latest trading strategy of betting against its own clients is a bad way to conduct business – period. In this case, Goldman is baking its cake and eating it, too, while states in which Goldman served as the underwriter of their securities can look forward to an even more troubled fiscal outlook in the months ahead.

Our securities lawyers are actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 


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