Sunday, July 12, 2009

Bernie Madoff Gets 150 Years, 10 More Replace Him

Bernie Madoff Gets 150 Years, 10 More Replace Him

U.S. District Judge Denny Chin cited Hill’s letter as one of the most stirring examples of an “extraordinarily evil” fraud, one worthy of a staggering sentence for Madoff: 150 years behind bars.

Aside from an accountant accused of cooking Madoff’s books, no one else has been criminally charged. But the family, including his wife, and brokerage firms who recruited investors have come under intense scrutiny by the FBI, regulators and a court-appointed trustee overseeing the liquidation of Madoff’s assets.

Where are the conspirators that helped Madoff to continue his Ponzi scheme for so many years? Someone "investing" billions of dollars had to have a large organization to operate.

There are many organizations that manage money for individuals, pensions, and other institutions. Just about all banks and brokers offer the service. There are hundreds of mutual funds that also offer the service. Hedge funds manage money for clients. There are other institutions that manage money also. They all operate basically the same way if they were honest.

Who were the people in the Research Department that recommended various securities to invest in. If he had a reputation for large gains for his investors who were those that picked the securities? One would think they would be identified and sought after by the media long ago.

Who was the Madoff operating manager? This was the person managing the opening of accounts, transferring money, mailing statements, monitoring trades and clearings, making sure dividends and interest was paid, monitoring organization assets, managing customer service, interface vendors including brokers, bookkeeping, accounting, and portfolio accounting and other things. If Madoff was partying, someone else had to be "in charge" to make the organization run smoothly and the Ponzi scheme to continue.

Madoff operating department managers cannot hide. Each department is usually fed information from others. There is almost always some checks and balance every step in the operations of a business or account. First there is always a budget. Second actual income and expenses have to be tracked. Any variance to budget has to be addressed. Monthly status reports are usually required to discuss accomplishments and problems.

Human resource organizations store a wealth of job descriptions, organizational charts, salaries, performance reviews, personnel disputes and actions, and policy manuals.

To service the customers of so many billions, there must have been 50 or more financial advisers where there should have been almost daily contact with many of the largest account holders. Accounts of pension funds, trust accounts, foundations and other types require quarterly reporting of the holdings which in many cases are sent to boards of directors, lawyers, accountants, advisers, and other groups. With portfolio analysis reports, quarterly statements for large accounts should have been more than 100 pages each quarter. Frequently, many large portfolios are copied at competitor organizations for their analysis. It is stunning that the Madoff investors and their professional advisers did not smell something fishy long ago.

Everyone knew that Madoff had billions to invest, where was he investing? I do not think he brokered his own trades... where did he trade? Certainly, the brokers he traded with identified how much money they made each year from his accounts. They probably provided some portfolio analysis to his accounts. Broker and bank institutions have fraud prevention systems and auditors that should have sent up warning flags. Was Bernie Madoff or any of his companies on any broker or bank fraud prevention reports?

How were the automated accounts managed with the computer systems? Someone had to organize the computer systems. How did everyone obtain their gain each quarter, individually or by some number. Did Bernie write a memo giving all account holders a flat gain each quarter? How was each quarter's gain entered into the system. Who were the people involved? The business professionals and computer systems people need to be investigated in how they operated.

I receive quarterly statements listing holdings from each fund that I own. I review the statements for safety and diversity. I want to make sure that each company will be in business for at least the next several years. I also want to make sure that my holdings are diversified within each fund and in aggregate with all of my holdings. I cannot believe the investors or their professional advisers accepted less.

It appears that Madoff paid commissions to an army of salesmen for them to sign up new investors. Who were these people? What due diligence was done by their organizations to validate the Madoff supplied investments? If they rated the Madoff investment, how was that done. Was there any guarantee to the investors.

It is clear that the Bernie Madoff does not have a leg to stand on. The old saying "if you cannot dazzle them with brilliance, baffle them with bullshit. It seems that the Federal oversight organizations were certainly baffled and continue to be baffled. All they need to do is to bring in an experienced operating manager of an honest organization that invested money for their clients. There are probably many available to assist in the criminal investigation. He or she can point out what was honest and what was not.

Bernie Madoff was one of many Ponzi schemers any he was sent early to jail because he confessed and pleaded guilty. Our fearless leaders in government had many years to audit Madoff but failed to do so. They say that there are no laws to investigate and prosecute people like Madoff quickly enough, so why not improve the laws. They also say that investigators are lax to perform their duties, so something must also be done with that fact.

The Madoff victims included many sophisticated organizations that should have know better than to invest with Bernie. Many smaller investors who were definitely not sophisticated were victimized also. Not only the small investor but the biggest investors need protection in the market. The federal and state governments need to rapidly step up to protect all investors. Nobody knows how many other Ponzi schemes that are operating cheating the public because there are no investigations and prosecutions.

America would have a better economy today if the tens of billions of dollars Bernie stole was at work for legitimate investments.