Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Ponzi Collapses Nearly Quadrupled in '09 (AP)From the Associated Press:By CURT ANDERSON, AP Legal Affairs Writer Curt Anderson, Ap Legal Affairs Writer —Mon Dec 28, 9:33 pm ET Read the rest of the article. Labels: Allen Stanford, Bernard Madoff, ponzi, Ponzi schemes Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). SEC Faulted on Madoff by Inspector GeneralFrom Reuters:Blistering report faults SEC for Madoff misses Wed Sep 2, 2009 4:44pm EDT By Ross Kerber and Rachelle Younglai BOSTON/WASHINGTON (Reuters) U.S. securities regulators missed "numerous" red flags that may have led to Bernard Madoff's $65 billion Ponzi scheme and never did a "thorough and competent" probe despite complaints dating to 1992, a federal watchdog has concluded. The U.S. Securities and Exchange Commission's inspector general said in a blistering report that despite five probes into Madoff's activities and catching him in "lies and misrepresentations," the SEC failed to follow up on inconsistencies. "Despite numerous credible and detailed complaints, the SEC never properly examined or investigated Madoff's trading and never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme." Inspector General David Kotz wrote. The SEC also resisted whistle-blowers' efforts to help, he said. A summary of the report was released on Wednesday and posted on the SEC's website, here. The full 450-page report is due on Friday. Kotz said his investigation had not found evidence of improper ties between the SEC and Madoff that interfered with the SEC's examination or investigatory work. He said he had not found that former SEC Assistant Director Eric Swanson's romantic relationship with Madoff's niece, Shana Madoff, had influenced the SEC's conduct. Kotz said the SEC's "most egregious" lapse was its failure not to verify Madoff's purported trading with any independent third parties, even after it took testimony from Madoff himself in May 2006. Madoff later admitted that he thought it was "game over" after testifying to having cleared his trades through the Depository Trust Co, part of the U.S. Federal Reserve, and provided his account number. He said he was "astonished" that the SEC did not follow up. Kotz quoted one senior-level SEC examiner as saying, "Clearly, if someone ... has a Ponzi and they're stealing money, they're not going to hesitate to lie to create records," and thus "some independent third-party verification" such as through the DTC would be essential. He also said the SEC made a "surprising discovery" earlier this decade that Madoff's hedge fund business was making far more money than his better known market-making business, but that no one thought this was a "cause for concern." Read the rest of the article Labels: Bernard Madoff, financial regulation, SEC, SEC Inspector General David Kotz Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Regulatory Revolving DoorThis is what Yves Smith said about this Counterpunch article:A reader who has first hand knowledge of some of the major US financial regulators flagged a CounterPunch article by Pam Martens as the best discussion of the "revolving door" problem that he had ever seen. The problem is, to wit The most important aspect of this is that the "revolving door" problem is most acute, not with the actual regulated firms, but with the professional firms that provide services to regulated entities, especially law firms (it is also a serious issue with compliance consulting firms, although that is something of a separate issue.) Will the IG Report Cover the Role of White Shoe Law Firms? Madoff and the SEC's Revolving Door By PAM MARTENS CounterpunchThe long-awaited investigative report by the Securities and Exchange Commission's (SEC) Inspector General on how the SEC bungled multiple investigations of Bernard Madoff is set for release this week. Unfortunately, according to media reports, the long suffering investing public will not receive the report until the SEC itself has had a chance to review it. The team that produced this report on one of the most long-running and convoluted frauds in the history of Wall Street included Inspector General H. David Kotz who came to the SEC-IG post in December 2007 after five years as Inspector General and Associate General Counsel for the Peace Corps. The Deputy Inspector General, Noelle Frangipane, also came to the SEC from the Peace Corps where she had served as Director of Policy and Public Information. This lack of Wall Street cronyism by the top two in the Inspector General's office might have been refreshing to some in Congress and compensated for their not knowing the difference between puts and calls and peaks and troughs and the intricacies of Mr. Madoff's split-strike conversion strategy (he splits with your money while converting you to a pauper). But the background of the member of the team heading up the Inspector General's Office of Investigations, J. David Fielder, should have rang serious alarm bells to Congressional investigators. For the ten years leading up to July 2007, J. David Fielder worked for the SEC as a Senior Counsel in the Division of Enforcement. In February 1999, he moved to the Division of Investment Management, first as Senior Counsel on the Task Force for Adviser Regulation, then as Advisor to the Director. In November 2000, SEC Chairman, Arthur Levitt, appointed Fielder Counsel to the Chairman. Read the rest of the article Labels: ADP private sector employment report, Bernard Madoff, lobbyists, Pam Martens, securities law, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). A Bit More on Madoff and WieselIn my earlier post expanding on Joe Nocera's column on Madoff's victims, I'd meant to include an excerpt from this article from a while back in the New Yorker. The article was compelling for going at least some of the way toward answering a question that many of us have asked ourselves, but maybe never expected to get an answer: Who falls for those Nigerian scam emails? I mean, if they keep sending them, the scammers must be finding victims. But who? The article profiles an ordained minister and Christian psychotherapist from the suburbs of Boston who got drawn in, and was victimized, by some Nigerian email scammers in a check fraud scheme—and was prosecuted for his role in the scheme. Part of the burden of the article—besides answering that question we thought no one ever would—is to assess the victim's culpability. He was victimized, but he did also participate in fraud. There's a paragraph early in the article that struck me, and that I've been thinking about in recent weeks as the Madoff victims have their say (including especially Elie Wiesel's public expressions of scorn and retributive sentiment for Madoff):Robert B. Reich, the former Labor Secretary, who has studied the psychology of market behavior, says, "American culture is uniquely prone to the 'too good to miss' fallacy. 'Opportunity' is our favorite word. What may seem reckless and feckless and hapless to people in many parts of the world seems a justifiable risk to Americans." But appetite for risk is only part of it. A mark must be willing to pursue a fortune of questionable origin. The mind-set was best explained by the linguist David W. Maurer in his classic 1940 book, "The Big Con": "As the lust for large and easy profits is fanned into a hot flame, the mark puts all his scruples behind him. He closes out his bank account, liquidates his property, borrows from his friends, embezzles from his employer or his clients. In the mad frenzy of cheating someone else, he is unaware of the fact that he is the real victim, carefully selected and fatted for the kill. Thus arises the trite but none the less sage maxim: 'You can't cheat an honest man.'" The whole article is definitely worth a read. Labels: Bernard Madoff, control fraud, Elie Wiesel, Greed, Nigerian Scam, Wall Street Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Madoff's Accomplices: His Victims (Nocera)Finally, somebody in a mainstream publication says something close to what I have been thinking about the Madoff victims. In a column last Friday entitled Madoff Had Accomplices: His Victims, Joe Nocera argues that the investors whom Madoff cheated were irresponsible. As I will argue below, I think they were showed not just personal irresponsibility, but possibly also ethical and political irresponsibility. But here's Nocera:[J]ust about anybody who actually took the time to kick the tires of Mr. Madoff's operation tended to run in the other direction. James R. Hedges IV, who runs an advisory firm called LJH Global Investments, says that in 1997 he spent two hours asking Mr. Madoff basic questions about his operation. "The explanation of his strategy, the consistency of his returns, the way he withheld information—it was a very clear set of warning signs," said Mr. Hedges. When you look at the list of Madoff victims, it contains a lot of high-profile names—but almost no serious institutional investors or endowments. They insist on knowing the kind of information Mr. Madoff refused to supply. I like Nocero's line of thinking, but I wish he'd gone beyond personal investment advice. There is an argument to be made that Madoff's victims—or some of them, at least—and (it should be added) plenty of other big-money investors, are guilty not only of failing in their duties to themselves to invest their money wisely, but also failing ethically to invest their money in ways that don't harm other people. And if this is true of the Madoff investors, then it's true of a lot of other investors in Wall Street's latest high-flying phase. Take Elie Wiesel, for example. Here are some excerpts from the NY Times article about Wiesel's comments at the Portfolio forum Nocera mentions: Elie Wiesel Levels Scorn at Madoff And this:
Now, the punishment Wiesel describes sounds a lot like torture to me—solidary confinement alone is torture—so I was a little taken aback that Wiesel called for it. But what about a humanitarian and professor of ethics like Wiesel failing to look into the source of his and his foundation's investment profits? In the case of Madoff, the source was theft—Madoff and his accomplices used new investors' money to pay interest to older investors (this is what a Ponzi scheme is). But what if Madoff had just been a "good" (i.e., effective) money-manager (albeit with less consistently, and suspiciously, reliable returns), and had been paying Wiesel and his foundation interest that came from, say, companies that outsourced jobs to sweatshops; leveraged buyouts of companies that were then gutted and resold; companies that pollute; companies engaged in predatory lending; etc. etc.—that is to say, the usual sources of Wall Street megaprofits? Madoff was stealing from people, but many a money-manager who hasn't been branded "the most hated man in New York" (as one of the tabloids, I believe, put it), or called a "monster" on the cover of New York magazine has been complicit in plenty of human misery. Would Wiesel have known? Labels: Bernard Madoff, Elie Wiesel, financial crisis, Joe Nocera, Wall Street Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Elderly NYers Angry as Crisis Hits PoorestMore from Reuters; hat-tip to Bob F. More mentions of Madoff. A sweet picture accompanies this article, too. You can just hear them being interviewed.By Claudia Parsons | Tue Feb 17, 2009 1:28pm EST NEW YORK (Reuters) - From housebound grandmothers who rely on charity meal deliveries, to ailing retirees who cannot pay rising costs for medications, older Americans feeling the pinch of the financial crisis are getting angry and forming groups with names like "Senior Outrage." In New York, with city and state tax revenues tumbling, benefits and services to the elderly are being cut, and many older residents are furiously drawing comparisons to the billions of dollars spent to bail out banks -- and pay Wall Street bonuses. Dolores Green, 68, retired as a home help worker and lives on a government Social Security check of $740 a month. She pays $719 a month in rent, leaving just $21 for everything else. To eat, she relies on the federal food stamp assistance program, and worries that her cost for some medication she needs for her diabetes has gone up to $8 from $3. To get by, she said: "I run errands for seniors. They may hand me $2 or $3 or something." Green says she sees more people seeking government assistance, such as her daughter, who lost her job after 25 years. "She's just applied for food stamps, she's got two kids," Green told Reuters at a community center where some 25 elderly New Yorkers were eating a lunch of sandwiches, a gelatin dessert, milk and tomato juice. "That's why she can't help me, because she's got to help her children." "Maybe I'll move in with you," she jokes to her friend Alice Jordan, 80, a retired teacher who suffers from osteoporosis and high blood pressure. Jordan said her food stamp allocation had gradually eroded to $54 a month from $180. When she reads about the well-heeled victims of financier Bernard Madoff's suspected $50 billion Ponzi scheme, she says she wishes they would spare a thought for those who never had such wealth. "Just like this guy Madoff ripped them off, how did they feel when they lost their money and had to change their style of living? Think of us. ... How do you think we feel?" she asked. Read the rest of the article. Labels: Bernard Madoff, elderly, financial crisis, food stamps, ponzi, recession, safety net, Wall Street Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Stanford Financial Charged with 'Massive' FraudFrom Reuters. There is a Madoff link: "Stanford's investment companies were exposed to losses from the alleged Ponzi scheme run by Madoff, and falsely reassured investors otherwise, the SEC charged." And there is a cricket link (hence the Antigua dateline): "Stanford came to prominence in the cricket world following his private Twenty20 competition in the Caribbean and, in particular, the $20 million game in November between England and his own team made up of West Indian players."By Anna Driver and Simon Evans | Tue Feb 17, 2009 2:42pm EST HOUSTON/ST JOHN'S, Antigua (Reuters) - U.S. authorities charged Texas billionaire Allen Stanford and three of his companies with "massive ongoing fraud" on Tuesday as federal agents swooped in on Stanford's U.S. headquarters. In a complaint filed in federal court in Dallas, the U.S. Securities and Exchange Commission accused the cricket-loving Stanford and two other top executives at Stanford Financial Group of fraudulently selling $8 billion in high-yield certificates of deposit. About 15 federal agents, some wearing jackets identifying them as U.S. marshals, entered the lobby of Stanford's office in the Houston Galleria area, a Reuters eyewitness said. Stanford Financial said it remained open for business, but was "under the management of a receiver," according to a sign taped to the door of the firm's Houston office. According to the 25-page SEC complaint, Stanford Investment Bank (SIB) sold $8 billion in CDs "by promising high return rates that exceed those available through true certificates of deposits offered by traditional banks." The SEC said it was seeking to freeze assets of the company and appoint a receiver "to take possession and control of defendants' assets for the protection of defendants' victims." The move came as investors, politicians and regulators focus on the returns promised and provided by investment firms, following an alleged $50 billion fraud by Wall Street investment manager Bernard Madoff. Read the rest of the article. Labels: Allen Stanford, Antigua, Bernard Madoff, cricket, fraud, ponzi, SEC, Stanford Financial Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). How the Madoff Mess Hits Women (Salon.com)Interesting piece from Nancy Goldstein at Salon; hat-tip to Lois Ahrens of the Real Cost of Prisons Project.The first sentence of this piece struck me—I guess "ink" doesn't include the airwaves, because right-wing radio folks have definitely been talking about this phenomenon as an upside of the Madoff mess (I remember one ranter mentioning JEHT in particular). Nancy Goldstein must not listen to right-wing radio. (Wait a minute—did I just admit publicly that I do?) How the Madoff mess hits women With two progressive organizations forced to shutter, it isn't just wealthy individuals being affected by the investment scandal. Salon.com | Nancy Goldstein | Jan. 07, 2009 For all the ink that's been spilled on the Madoff investment scandal, I've read nothing about its impact on funding for progressive women's causes -- which is considerable. Simply put, only a small pool of foundations are funding litigation and advocacy work related to criminal justice or constitutional rights; the pool that supports related programs targeted to women is smaller still. With the recent shuttering of two of Madoff's clients, the Picower Foundation and the JEHT Foundation, that pool has shrunk to a puddle. Picower was one of a handful of foundations willing to stick their necks out and significantly fund the three organizations that handle virtually all major reproductive rights-related litigation and legal advocacy in the United States. Now the Center for Reproductive Rights needs to make up a $600,000 shortage in 2009; Planned Parenthood is out $484,000; the ACLU's Reproductive Freedom Project is off $200,000. The economic crisis makes it particularly difficult to replace that kind of money. Meanwhile, there's a backlog of bad new laws that need to be contested. It's likely to grow this year with the popularity of mandatory ultrasound laws for abortion patients, one of the favorite new litigation strategies of antiabortion activists. (Seventeen states considered more than 30 ultrasound bills in 2007 alone.) Consequently, there's a lot riding on the Center for Reproductive Rights' recent challenge to Oklahoma's law, the harshest in the country. It compels physicians one hour prior to performing an abortion to do an ultrasound on the patient and point out various features, while -- per CRR's press release -- "preventing a woman from suing her doctor if he or she intentionally withholds other information about the fetus, such as a severe developmental defect." (Translation: information that might influence a woman to terminate a risky pregnancy.) But who's going to fund this very expensive suit? Or the challenges to similar laws that will pass while this case is in court? Women also stand to lose ground with the closing of the JEHT Foundation, one of the country's premier funders of criminal justice reform initiatives, including drug policy reform. Both issues have particular resonance for women. Thanks to stringent mandatory sentences for even first-time, nonviolent drug offenders, women's rate of incarceration grew by 757 percent between 1977 and 2006 -- nearly twice the rate for men. Women of color, who are scrutinized, prosecuted and punished more harshly for drug-related offenses than their white counterparts, bear the brunt of these policies. JEHT, like Picower, was a rare grant maker in an already select field. It funded initiatives aimed at ameliorating the hardships women face as a consequence of their involvement with the criminal system, including grants to the Corporation for Supportive Housing and the Stop Prisoner Rape Project. Additionally, Sarah From, director of public policy and communications for the Women's Prison Association, lauds JEHT for "being one of the few foundations to fund criminal justice policy reform." (JEHT provided WPA with seed money to start its national Institute on Women and Criminal Justice.) "They addressed a real need in the field," says From. "Now there will be fewer resources for this work overall, and we'll have to work harder to convince new funders to take a look at our issues for the first time." Vivian Lindermayer, CRR's director of development, sounds uncannily similar talking about Picower. "They understood the critical role litigation and legal advocacy play in securing women's equal access to quality reproductive healthcare. Picower's closing will have a major impact on CRR and organizations like us." The media's obsession with wealthy individuals who have been ruined by Madoff and feel betrayed is understandable. But when that story wears thin, let's hope the cameras will document the effect of the $42 million shortfall that progressive nonprofits will face in 2009 without funding from JEHT and Picower. We've only just begun to understand the implications of that loss for women's health and human rights. -- Nancy Goldstein Labels: Bernard Madoff, financial crisis, gender, JEHT, women Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Judge Places Madoff Under House ArrestRecently posted to the WSJ website. If you didn't think it was possible for Bernie Madoff's alleged $50bn ponzi scheme to get any juicier, it turns out that U.S. Atty General Michael Mukasey's son, Marc Mukasey will be working for the defense. He works for Bracewell & Giuliani (where Rudi is a partner); one of their specialties is white-collar crime.This is the same SEC that issued a mea culpa a couple of days ago for missing numerous signs that Madoff was engaged in fraud. Cox: No Evidence Yet of Wrongdoing by SEC Staff in Madoff Case[Here's the bit about Mukasey:] Also Wednesday, Attorney General Michael Mukasey recused himself from the Madoff probe, the Justice Department said.Read the full article. Labels: Bernard Madoff, Bracewell and Giuliani, Christopher Cox, Marc Mukasey, Michael Mukasey, ponzi, Rudi Giuliani, SEC Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Ex Nasdaq head ran massive Ponzi schemeFederal agents have arrested Bernard L. Madoff, a top Wall Street trader and ex-CEO of of Nasdaq for securities fraud. According to the criminal charges, Madoff is alleged to have defrauded investors of $50 billion in what he confessed to authorities was a "massive Ponzi scheme."The 70-year-old Madoff faces 20 years in prison and a $5 million fine if convicted. He was released on a $10 million bond. From the NY Times:
Labels: Bernard Madoff, Corporate Fraud, food security Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
