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 Stealing from Wallstreet. Got caught with his hand in the cookie jar.

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The Fool

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Registration date : 2008-12-12

PostSubject: Stealing from Wallstreet. Got caught with his hand in the cookie jar.   Tue Jan 06, 2009 11:36 am

Quote :
Madoff was arrested by the FBI on December 11, 2008 on criminal charges of securities fraud, turned in by his sons after he allegedly told them that his business was "a giant Ponzi scheme."[71][72] According to the SEC, Madoff confessed to an FBI agent that there was “no innocent explanation” for his behavior,[73] and that he "paid investors with money that wasn't there".[74] The alleged behavior involves an asset management unit of his firm, rather than the better known market making unit.

The criminal complaint alleges that investors lost $50 billion because of the scheme,[73] though The Wall Street Journal reports "that figure includes the alleged false profits that Mr. Madoff's firm reported to its customers for decades. It's unclear exactly how much investors deposited into the firm."[75] He was charged with a single count of securities fraud. He faces up to 20 years in prison and a fine of $5 million if convicted.[71] His attorney, Ira Sorkin, stated that Madoff "will fight to get through this unfortunate set of events."

The case is U.S. v. Madoff, 08-MAG-02735, U.S. District Court for the Southern District of New York (Manhattan).[28] Madoff was released on the same day of his arrest after posting $10 million bail.[71] Madoff and his wife have surrendered their passports, and he at first was subject to travel restrictions, a 7 p.m. curfew at his co-op, and electronic monitoring as a condition of bail. Although Madoff only had two co-signers for his $10 million bail, his wife and his brother Peter, rather than the four required, a judge allowed him free on bail but ordered him confined to his penthouse.[76] Madoff wears an electronic ankle bracelet to ensure compliance.[76] Madoff has reportedly received death threats that have been referred to the FBI, and the SEC referred to fears of "harm or flight" in its request for Madoff to be confined to his Upper East Side apartment.[76][77] Cameras will monitor the apartment's doors, its communication devices will send signals to the FBI, and his wife will be required to pay for additional security.[77]

Prosecutors asked on January 5, 2009, that his bail be revoked, after Madoff allegedly violated a court-ordered asset freeze by mailing jewelry worth up to $1,000,000 to relatives.[78] His sons reported the mailings to prosecutors.

Others involved
Investigators are looking for others involved in the scheme, despite Madoff's statement that he alone was responsible for the large-scale operation.[10] Harry Sussman, an attorney representing several clients of the firm, stated that "someone had to create the appearance that there were returns," and further suggested that there must have been a team buying and selling stocks, forging books, and filing reports.[10]

The role of Frank DiPascali, an official at the firm, is being considered. DiPascali is represented by Marc Mukasey, the son of U.S. Attorney General Michael Mukasey, who has recused himself of any involvement in the case. According to an SEC memo, DiPascali "responded evasively" to questioning following Madoff's arrest.[75]

Federal investigators have discovered apparently fraudulent documents and records in Madoff's Manhattan offices, and are looking into who prepared them.[10]

Madoff's accountant was David G. Friehling, the only active accountant at Friehling & Horowitz according to the AICPA. The accounting firm has informed the AICPA in writing for 15 years that it does not conduct audits.[79] An investigation into Friehling by Rockland County, New York district attorney Thomas Zugibe was stopped in deferment to the investigation by the US Attorney's office out of Manhattan.[61]

J. Ezra Merkin, a prominent investment advisor and philanthropist, has been sued for his role in running a "feeder fund" for Madoff.[80] Merkin informed investors in his $1.8 billion Ascot Partners fund on December 11 that he was among those who suffered substantial personal losses, since all of the fund's dollars were invested with Madoff.[81] The Connecticut Attorney General Richard Blumenthal is looking into the possible role the boards of nonprofits might have played, in not conducting due diligence with donors' contributions.[82]

Recovery of funds
Madoff's assets have been frozen, and he has been ordered to develop a list of his clients.[77] The victims of the alleged fraud are considering how to best recover some of their investments.[83] The SEC filed a separate civil suit against Madoff on December 11, 2008.[28][84] Separately, individual investors have filed civil suits against Madoff. The two firms leading the suits announced on December 12, 2008 that the firms have been retained by dozens of individual investors.[85]

The use of the legal doctrine of fraudulent conveyance in bankruptcy proceedings might mean that investors who withdrew their money before the fraud was revealed might be forced to return their profits or even part of their initial investments. Returning funds would be uncontroversial for clients who knew that Madoff's business was fraudulent, but would not be so clear for clients who were unaware of Madoff's activities.[86][87] The current statute of limitations on cases involving fraudulent conveyance is up to six years.

Investors may also have access to funds from the Securities Investor Protection Corporation (SIPC), which offers assistance to investors of failed brokerage firms. Investors may receive a maximum of $500,000, but only for cash or securities that are missing from their accounts. It could take several years before investigations into the scandal are concluded and investors are able to file claims.[88][89] Victims may also file suit to have taxes already paid on "fictitious income" restored to them.[90]

Madoff provided a list of his and his firm's assets to the SEC on December 31. The list was kept confidential by the SEC, on the grounds that the court did not authorize disclosure. Prof. John Coffee, of Columbia University Law School, said that much of Madoff's money may be in offshore funds, and that the SEC wanted to keep the assets secret to keep them from being seized by foreign regulators and foreign creditors.[91][92]

Affected clients
The Securities Investor Protection Corporation (SIPC) is liquidating Madoff’s brokerage and attempting to sell it before its 120 employees find other jobs, with Irving Picard acting as trustee.[29] The SIPC provides up to $500,000 in insurance for missing money or securities in individual brokerage accounts, but does not protect against bad investments.[93]

Stephen Harbeck, president of the SIPC, stated that the investment management department's financial records, which according to other sources are in "disarray,"[29] will take six months to sort out. Assets are frozen, but employee salaries are still being paid.[29] “There are some assets, but I have no idea what the relationships of the assets available are to the claims against them. The records are utterly unreliable on this case.”[94]

Although Madoff filed a report with the SEC in 2008 stating that his advisory business had only 11–25 clients and about $17.1 billion in assets,[95] dozens of investors have reported losses, and Madoff estimated the fraud at $50 billion. According to Bloomberg, “in all, companies, individuals and foundations have disclosed about $24 billion of investments with Madoff.”[93] Those affected include banks, Wall Street investors, charities, as well as individuals.

Many European banks invested in Madoff; the largest was the private Swiss bank Union Bancaire Privée, with $700 million of clients' funds invested.[49] The large sovereign wealth fund Abu Dhabi Investment Authority also indirectly invested $400 million with Madoff.

Other notable clients included Henry Kaufman, former Salomon Brothers economist; Kevin Bacon, the actor; his wife Kyra Sedgwick, also an actor; and Alexandra Penney, a best-selling author.[citation needed]

Several charities invested all or part of their endowments with Madoff, and the revelation of the fraud forced them to shut down. Additionally, the Lappin Foundation had invested its employee 401(k) with Madoff; it is presumed that the employees' retirement accounts have been completely lost.

Largest stake-holders
According to The Wall Street Journal[96] the investors with the largest potential losses include:

Fairfield Greenwich Advisors, $7.50 billion
Tremont Capital Management, $3.30 billion
Banco Santander, $2.87 billion
Bank Medici, $2.10 billion
Ascot Partners, $1.80 billion
Access International Advisors, $1.40 billion
Fortis, $1.35 billion
Union Bancaire Privée, $1.00 billion
HSBC, $1.00 billion
The potential losses for these nine investors total $22.32 billion.

Other investors, with potential losses between $100 million and $1 billion include:

Natixis SA
Carl J. Shapiro (a 95-year-old Boston philanthropist)
Royal Bank of Scotland Group PLC
BNP Paribas
Man Group PLC
Reichmuth & Co.
Nomura Holdings
Aozora Bank[97]
Maxam Capital Management
The potential losses for these investors total $4.02 billion.

Twenty-three investors with potential losses of $500,000 to $100 million were also listed, with total potential losses of $540 million. They included Bramdean Alternatives run by Nicola Horlick, for example. The grand total potential losses in the Wall Street Journal table is $26.9 billion.

Bloomberg News on December 24, 2008, listed financial losses related to Madoff's fraud totaling $36 billion, which may include double counting from investors in feeder funds.[98][99] A partial list of Madoff's victims from the Bloomberg report includes US Senator Frank Lautenberg's charitable foundation, the Horowitz Association at $800 million, $696 million in losses to Notz, Stucki & Cie, up to $614 million to Natixis SA, BNP Paribas SA at up to $478.2 million, $400 million in losses to Fix Asset Management, $302 million in losses to Nomura Holdings Inc., and $110 million to Yeshiva University.[98]

Some investors have amended their initial estimates of losses to include only their original investment, since the profits Madoff reported to them which they were including were most likely fraudulent; Yeshiva University, for instance, said its actual incurred loss was its original $14.5 million, not the $110 million it estimated, which included alleged profits reported to the university by Madoff.[100]

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