Bernie Madoff and Jordan Belfort and their criminal financial schemes

Ike Sorkin, lawyer to both Bernie Madoff and Jordan Belfort (Wolf of Wall Street), discusses their criminal financial schemes and how regulatory safeguards failed. This is a repeat of the TRACE podcast episode that was originally published in June 2017.

With the recent death of Bernie Madoff, it is perhaps a timely opportunity to revisit the details. 

You can listen to this podcast
HERE.

Bernie Madoff - "It was inconceivable that he was a crook"

Bernie Madoff died on 14 April 2021 aged 82. He was in the 12th year of his 150 year prison sentence after committing the biggest Ponzi fraud in US financial history.

In this interview "Bernie Madoff: 'The Wizard of Lies' ", first published in September 2017, Diana Henriques drew on her years of financial journalism and extraordinary access to the title character to write the definitive book about Bernie Madoff. It was turned into an HBO movie in early 2017 starring Robert De Niro, Michelle Pfeiffer and Diana, playing herself. 

This is compelling listening. Hear it rebroadcast on the "Bribe, Swindle or Steal" podcast  HERE.

 

Goldman’s New Cop Is FBI Agent Who Put Away Madoff, Rajaratnam

From Bloomberg Business –

“The FBI agent who oversaw the Bernard Madoff investigation and helped pioneer the use of wiretaps that yielded dozens of insider-trading convictions is now working for Goldman Sachs Group Inc.

Patrick Carroll, 50, joined the bank after almost a quarter century with the Federal Bureau of Investigation, the latest in a line of former feds who’ve moved to Wall Street firms. He is a vice president in Goldman Sachs’s compliance, surveillance and strategy group, part of a division overseen by Alan Cohen, global head of compliance.

While Carroll’s FBI career spanned bank robberies and organized crime, he’s best known for being at the investigative center of securities-fraud cases ranging from Madoff and billionaire fund manager Raj Rajaratnam to a $550 million Ponzi scheme used to buy expensive teddy bears.’

Read more>> 

Why Ponzi Schemes Work: An In-Depth Look at the Allen Stanford Fraud

From FIN alternative –

“Texan Allen Stanford first appeared on the radars of financial regulators in 1997. Julie Preuitt, then a branch chief in the SEC’s Fort Worth Broker-Dealer Examination group, was becoming “very concerned” about the “extraordinary revenue” Stanford claimed to me making in his investment fund. It took authorities more than 12 years until Stanford was charged with a crime.

H. David Kotz, who served as the inspector general of the Securities and Exchange Commission for over four years, takes us inside the investigation—or lackthereof—and explains why Stanford got away with it for so long.”

Read more>> 

Five Due Diligence Must-Dos

From Market Minder

“Ascot Partners. Sound familiar? No? You’re not alone. Let’s try again. Familiar with Bernard Madoff? I’m betting you are. Yet the two are part of the same story. Ascot Partners was one of the funds that fed into Bernie’s hedge fund (feeder funds). The folks who did due diligence on behalf of Madoff’s eventual victims. And, depending on who you believe, they were either co-conspirators or flat-out didn’t do their job.

I think many shared my hope that a silver lining to the Madoff cloud would’ve been investors’ placing heightened importance on doing detailed due diligence on potential advisers. Sadly, the facts show otherwise. According to Ponzitracker.com, at least 67 Ponzi schemes were uncovered in 2013, the largest being Edward Fujinaga's estimated $800 million scam. Proper due diligence helps protect you from the crooks. But it can also help you identify honest, capable advisers.’

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Madoff jailhouse interview used to bolster NY suit

From The Washington Post

“A new lawsuit against JPMorgan Chase & Co. relied on a jailhouse interview with Bernard Madoff to bolster claims that top executives at the nation’s largest bank for many years confronted Madoff about significant concerns in filings with a regulatory agency regarding his private investment business but always backed off because he earned the bank so much money.

In the lawsuit filed Thursday in Manhattan federal court, lawyers for two pension funds quoted Madoff from an in-person interview conducted last fall in Butner, N.C., where Madoff is serving a 150-year prison sentence, as well as telephone interviews conducted with him.”

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Milken to Madoff: Villains who changed the world

From CNBC

“On April 7, 1989, Michael R. Milken strode confidently up the steps of the federal courthouse at 40 Centre St. in Manhattan, federal marshals having cleared a path for his arrival. Lining the path were dozens of young men, each doing his best Charlie Sheen from the movie "Wall Street."

In their slicked-back hair, pin-striped suits, suspenders and power ties, they all broke into applause — an act of defiance as their hero, who as a Drexel Burnham Lambert executive had pioneered the use of junk-bond financing that powered the 1980s boom, prepared to face his reckoning in the highest-profile white collar crime case of its day.”

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Operational risk management is NOT a joke

By Stanley Epstein, Principal Associate at Citadel Advantage

If you have been following the news these past few days you will have seen that JP Morgan is to pay a further $1.7 billion in fines under a deferred criminal prosecution agreement.

JP Morgan’s problem this time is for failing to catch Bernie Madoff’s Ponzi scheme as it managed his accounts. It wasn’t that Madoff was smarter than the bank – there were dozens of warning signs or “red flags”. The bank folk involved just didn’t take heed of what was before their eyes.

The bank has had to admit that it didn't have the risk management systems in place to catch Madoff and implement them. For the bank’s management this case is a catastrophe worse than the London Whale.

read more>>

Inside the $17.25M apartment once owned by Madoff

From Fox Business

Dolly Lenz Real Estate LLC’s Brett Forman gives a tour inside the New York City apartment once owned by Bernie Madoff.

watch video>>

What we are reading … 4th April 2013

B of A's Merrill Sued for $309 Million by Trust Over Mortgages http://dld.bz/cu6XP

Square mobile payments losing steam at Starbucks http://shar.es/droHm

Meet 17-year-old who sold startup to Yahoo http://dld.bz/cu6Xn

The Future of Retail: How Mobile Payments Are Changing the Retail Experience http://dld.bz/cu6Xd

Madoff victims get back another $500 million http://cnnmon.ie/10sXkJx 

Fear, despair as bailed out Cyprus faces uncertain future http://dld.bz/cu6WX

Towns See Banks Cut Back Branches http://online.wsj.com/article/SB10001424127887323699704578326894146325274.html

What we are reading … 26th February 2013

Madoff to FBN: Maintain Scrutiny on Banks and Feeder Funds http://shar.es/jgL9a

Bernie Madoff: 'The Banks Had To Know What I Was Doing' http://huff.to/Xz18a0

Google Developing Touchscreen Devices http://on.wsj.com/Ya3WxB

Kenya Approves Fee For Mobile Money Transfers http://shar.es/YNA4Z

Consumerization, BYOD and MDM: What you need to know http://dld.bz/cjPC8

Carrier Billing Beats NFC For Short-Term Monetization of Mobile Payments http://dld.bz/cjPC7

Study: 37% of Britons would consider leaving 'big five' banks http://dld.bz/cjPC6

Tanzania: New Regulations for mobilemoney services due in June http://shar.es/YNAtU

Staying in touch with the home front: BYOD in the US military http://dld.bz/cjPC2

UniCredit files a suit against Irving Picard

One of the defendants in Madoff case Italian bank UniCredit SpA has filed a lawsuit against Irving Picard, a trustee liquidating Bernard Madoff's assets. According to the papers Irving Picard has exceeded its authority vested by the US Congress.

It became known that UniCredit tries to get the case moved from the US Bankruptcy court and the bankruptcy judge must address many complex matters of non-bankruptcy federal law to resolve trustee's "unbounded claims,".

According to the Italian giant there was a serious risk of duplicative recoveries and inconsistent results and a "virtual certainty of judicial inefficiency."

Also it became known that New Jersey Rep. Scott Garrett addressed the Congress with the legislation protecting ex-investors of Madoff from claims of the victims suffered from Ponzi scheme.

According to him the ordinary investors were not aware of the scam scheme and nature of the profits they received. “I introduced this legislation because I am increasingly concerned that the trustee in the Madoff case is ignoring the law and failing to provide prompt assistance to those who have been thrust into financial chaos,” said Garrett.

Two former Madoff employees arrested

Two former employees of disgraced financier Bernard Madoff have been arrested by the FBI in relation to his massive Ponzi scheme, according to FBI spokesman Jim Margolin.

Joann Crupi was arrested last night in New Jersey and Annette Bongiorno was taken into custody in Florida. Charges against the two will be announced later Thursday.

Madoff pleaded guilty in 2009 to 11 counts related to running the largest Ponzi scheme in history and was sentenced to 150 years in prison.

The arrests are just the latest in a series since Madoff's fraud collapsed in 2008. To date, two former executives, two computer programmers, and an accountant of Madoff's have faced charges. Frank DiPascali, Madoff's former finance chief, pleaded guilty to fraud charges in 2009.

The government had previously filed civil complaints against Bongiorno and Crupi, both longtime Madoff employees who worked as supervisors of his "back office" staff, seeking the forfeiture of millions of dollars worth of assets, including homes and luxury cars, that they allegedly received while involved in Madoff's scheme.

Madoff trustee starts gathering $3.6 billion - new facts are being revealed

It is reported that Irving Picard, the court-appointed trustee started to gather money from 43 new defendants to pay the victims of Bernard Madoff's Ponzi scheme. In total they demand $3.6 billion from entities tied to Fairfield Greenwich Group which is considered to enable Bernard Madoff to run the fraud for at least 20 years.

Among the most significant defendants are Walter Noel, Jeffrey Tucker and Andres Piedrahita, the Fairfield Greenwich Group co-founders.

The trustee Irving Picard has submitted papers to the US Bankruptcy Court in Manhattan last week insisting on the fact that the company, its founding partners and two dozen affiliates, among others, represented nearly half of Madoff's reported assets under management, and that they "cannot deny their knowledge of many 'red flags' indicating the likelihood of that fraud," reports the Washington Post.

Picard has provided a 228-page complaint describing in details the relationship of Noel with Bernard Madoff which started in 1989.

"The defendants misled regulators, investors and potential investors, and generally looked the other way, focusing only on self-interest and profit," said Irving Picard.

Fairfield Greenwich has stated that Picard's filing was filled with "false, misleading and rehashed accusations."

Computer Programmers Charged in Madoff Affair

The Securities and Exchange Commission has accused Jerome O’Hara and George Perez of provideing the technical support necessary to produce false documents and trading records, and took hush money to help keep Bernard Madoff’s massive Ponzi scheme going.

Last week the two computer programmers were charged for their role in helping Madoff cover up the fraud for more than 15 years. The SEC alleges that the two provided the technical support necessary to produce false documents and trading records, and took hush money to help keep the scheme going.

“Without the help of O’Hara and Perez, the Madoff fraud would not have been possible,” said George S. Canellos, Director of the SEC’s New York Regional Office. “They used their special computer skills to create sophisticated, credible and entirely phony trading records that were critical to the success of Madoff’s scheme for so many years.”

According to the SEC’s complaint, filed in U.S. District Court for the Southern District of New York, Madoff and his lieutenant Frank DiPascali, Jr., routinely asked O’Hara and Perez for their help in creating records that, among other things, combined actual positions and activity from BMIS’ market-making and proprietary trading businesses with the fictional balances maintained in investor accounts. O’Hara and Perez wrote programs that generated many thousands of pages of fake trade blotters, stock records, Depository Trust Corporation (DTC) reports and other phantom books and records to substantiate nonexistent trading. They assigned file names to many of these programs that began with “SPCL,” which is short for “special.”

A separate computer internally known as “House 17” was used to process BMIS investment advisory account data at the direction of Madoff, DiPascali and others. The SEC alleges that O’Hara and Perez knew that the House 17 computer was missing a host of functioning programs necessary for actual securities trading and reporting. According to the SEC’s complaint, they recognized that the trades being entered into House 17 and the account statements and trade confirmations being sent to investors did not reflect actual trades.

The SEC alleges that O’Hara and Perez had a crisis of conscience in 2006 and tried to cover their tracks by attempting to delete approximately 218 of the 225 special programs from the House 17 computer. But they did not delete the monthly backup tapes. O’Hara and Perez then cashed out hundreds of thousands of dollars each from their personal BMIS accounts before confronting Madoff and refusing to generate any more fabricated books and records.

According to O’Hara’s handwritten notes from the encounter, one of them told Madoff, “I won’t lie any longer. Next time, I say ‘ask Frank,’” meaning that Madoff should rely on DiPascali alone to create the false data and reports.

The SEC’s complaint alleges that Madoff responded by telling DiPascali to offer O’Hara and Perez as much money as necessary to keep quiet and not expose the misrepresentations. O’Hara and Perez considered the offer and demanded a salary increase of nearly 25 percent along with one-time bonuses in late 2006 of more than $60,000 each. They stated to DiPascali at the time that they did not ask for more because a greater amount might appear too suspicious. DiPascali then managed to convince O’Hara and Perez to modify computer programs so that he and other 17th floor employees could create the necessary reports themselves.

This is the SEC’s latest enforcement action concerning the Madoff fraud since the scheme collapsed last December. The Commission previously charged Madoff and BMIS, DiPascali, and auditors David G. Friehling and Friehling & Horowitz CPAs, P.C. The SEC also charged certain feeders with committing securities fraud through a Ponzi scheme perpetrated on advisory and brokerage customers of BMIS. Madoff, DiPascali and Friehling have all pleaded guilty to criminal charges related to their conduct.

Among other things, the SEC’s complaint seeks financial penalties and a court order requiring O’Hara and Perez to disgorge their ill-gotten gains.

Madoff – So what happens now?

An interesting insight from Alan Ellis, a lawyer specializing in federal sentencing and Bureau of Prison matters and the author of the “Federal Prison Guidebook”.

You need to clik the Post Title to go to the full Wall Street Journal article.

Did he act alone?

So sentence has finally been passed. 150 years is a pretty hefty stretch, not that it is going to really help Bernard Madoff's thousands of victims. But a key question to my mind is "who else was involved?" I simply cannot give credence to the fact that Mr. Madoff acted alone and that he was able to generate all those false transactions and client statements over all those years. To my mind it just wont wash! What do you think?