From TPM (http://tpmmuckraker.talkingpointsmemo.com/2009/01/report_sec_probing_other_madof.php)

 

Report: SEC Probing Other Madoff-Style Ponzi Schemes

By Zachary Roth – January 2, 2009, 5:17PM

Was Madoff just the tip of the iceberg?

The SEC is investigating at least one case in which investors may have been cheated out of as much as $1 billion, by money managers using tactics similar to those alleged to have been employed by Madoff, Bloomberg reports, based on anonymous sources “with knowledge of the inquiries.”

It adds:

Regulators may discover additional Ponzi arrangements as declining stock markets prompt investors to withdraw their cash and they question how their money is being managed. This week, the SEC said it halted what the agency described as a $23 million scam targeting Haitian-Americans, and said the Florida- based operators had tried as recently as last month to bring in more investors.

And it throws in an additional nugget of news stemming from Madoff’s providing a list of his assets to the SEC on Wednesday:

A catalog of Madoff’s assets provided by his attorneys to the SEC on Dec. 31 hasn’t revealed any major sources of additional cash, a person familiar with the matter said.

From Times Online

Link:  http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5345751.ece

 

December 15, 2008

The $50bn scam: How Bernard Madoff allegedly

 

cheated investors

 

(Ruby Washington/The New York Times/AP)

Bernie Madoff: accused of a $50 billion ‘Ponzi’ scam

 

Times Online

On Thursday, Bernard Madoff, millionaire businessman, Wall Street legend and respected philanthropist, was arrested for what the Securities and Exchange Commission (SEC), the US regulator, called “a massive fraud — both in terms of scope and duration”.

 

Details are now emerging of how Mr Madoff was able to allegedly dupe a growing list of some of the world’s largest investors, including funds linked to Royal Bank of Scotland, HSBC and Santander, owner of Abbey.

 

Bernard L. Madoff Investment Securities (BMIS), founded in 1960, was made up of three businesses: investment adviser services, market making services and proprietary trading.

It is the investment adviser services business that is at the centre of a scandal that came to light after Mr Madoff apparently confessed to “two senior employees” — believed to be his two sons — that he was “finished”, that he had “absolutely nothing” and “it’s all just one big lie”.

 

Apparently, Mr Madoff said the business had been insolvent for years and, from having $17 billion of assets under management at the beginning of 2008, the SEC said: “It appears that virtually all assets of the advisory business are gone”.

 

It has now emerged that Friehling & Horowitz, the auditor that signed off the annual financial statement for the investment advisory business for 2006, is under investigation by the district attorney in New York’s Rockland County, a northern suburb of New York City.

 

Friehling & Horowitz is a three-person operation based in the northern suburbs of New York City. It is run by one partner, David Friehling, who is in his seventies and is understood to live in Florida, and employs an accountant and a secretary.

 

The secretive Mr Madoff was able to orchestrate one of the biggest frauds in corporate history by operating the investment advisory business from a separate floor at his midtown Manhattan office.

According to Bloomberg, the investment advisory business was situated on the 17th floor, with the other divisions based on the 18th and 19th floors.

 

While there was interaction between the 18th and 19th floors, where the market making services and proprietary trading were situated, there was little or no engagement with the 17th floor. It is said, however, that Mr Madoff liked to visit the other floors in the evening to make sure that staff had left their desks tidy.

According to the SEC complaint against Mr Madoff, he kept financial statements for the firm “under lock and key” and was “cryptic” about the investment advisory business when discussing it with other employees.

 

However, early this month Mr Madoff apparently told a member of staff that clients had asked for a combined $7 billion and he was struggling to find the money to meet his obligations. He then informed another employee he would pay bonuses in December, as opposed to February when staff usually received their annual perks.

 

Mr Madoff’s sons confronted their father about the early payment of bonuses last week, after perceiving he had been “under great stress in the prior weeks”.

 

At their father’s request, Mr Madoff’s two sons joined him at his apartment in Manhattan, after admitting that he “wasn’t sure he could hold it together” if they continued their discussion at the offices.

It was at the Manhattan apartment that Mr Madoff apparently confessed that the business was in fact a “giant Ponzi scheme” and that the firm had been insolvent for years.

 

To cap it all, Mr Madoff told his sons he was going to give himself up, but only after giving out the $200 – $300 million money he had left to “employees, family and friends”.

 

All the company’s remaining assets have now been frozen in the hope of repaying some of the companies, individuals and charities that have been unfortunate enough to invest in the business.

However, with the fraud believed to exceed $50 billion, whatever recompense investors could receive will be a drop in the ocean.

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