FBI & SEC victims
F.B.I. Struggling to Reinvent Itself
undetected global crime
securities and exchange omission
"We have a case"!
by Stephan GM Tychon, dec 17, 2008
"...To pursue the case that we've got", states Linda Thomson of the SEC Enforcement Division!
Unprecedented crime, yes. But unforeseen and unexpected? The government was warned, disease and disaster foretold: the Enron.complexxon warning sign* on global crime in Houston during the Enron trial was disregarded by federal prosecutors due to deconstructed investigation and oversight capacity distinctive selection priorities default. This points to intelligence and investigation fraud and corruption tout court. Unprecedented public-private entanglement obstructing clear focus, insight and overview distorts fair trial and proper government. Structural and systemic neglect and incompetence by the FBI and the SEC to detect massive fraud, crime and corruption must lead to the probe and full scrutiny of these federal agencies. The western democracies are threatened by large scale decency default performed by public servants.
Errbanke's SEC-Fed crime brokerage
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AG takes himself out of Madoff fraud probe
WASHINGTON (AP) — The fraud investigation of Wall Street money manager Bernard L. Madoff took unusual twists Wednesday as the U.S. attorney general removed himself and the Securities and Exchange Commission looked into the relationship between Madoff's niece and a former SEC attorney who reviewed Madoff's business.
The developments reflect growing criticism that Wall Street and regulators in Washington have grown too close. Madoff himself has boasted of his ties to the SEC.
The question of Madoff's connection to regulators goes to the heart of the investigation of the alleged $50 billion fraud, SEC Chairman Christopher Cox told reporters.
Congress jumped into the Madoff scandal, too. The chairman of the House capital markets subcommittee, Rep. Paul Kanjorski, D-Pa., announced an inquiry that will begin early next month into what may be the biggest Ponzi scheme of all time and how the government failed to detect it.
In New York, Madoff showed up at the federal courthouse to sign some papers in his case, wearing a baseball cap and walking silently past a reporter who asked Madoff whether he had anything to say to his alleged victims. Free on $10 million bail, Madoff now has a curfew and an ankle-bracelet to monitor his movements.
U.S. Attorney General Michael Mukasey recused himself from the Madoff probe because his son, Marc Mukasey, is representing Frank DiPascali, a top financial officer at Madoff's investment firm. The Justice Department refused to say when Mukasey became aware of the conflict but confirmed Wednesday he was removing himself from all aspects of the case.
DiPascali was the Madoff employee who had the most day-to-day contact with the firm's investors. Several described him as the man they reached by phone when they had questions about the firm's investment strategy, or wanted to add or subtract money from their accounts.
The turmoil at the SEC came as the investigation into the scandal widened.
Massachusetts Secretary of State William Galvin's office said he subpoenaed Madoff's brother, Peter Madoff, who is the chief compliance officer of Madoff's company, and Marcia Beth Cohn, chief compliance officer of Cohmad Securities Corp., which is in the same building in New York. Galvin is trying to determine the relationship between Madoff's firm and Cohmad Securities, as well as the names and numbers of all Massachusetts investors with both companies.
The events unfolded the day after Cox delivered a stunning rebuke to his own career staff, blaming them for a decade-long failure to investigate Madoff.
Credible and specific allegations regarding Madoff's financial wrongdoing going back to at least 1999 were repeatedly brought to the attention of SEC staff, said Cox. Cox said he was gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate the allegations or at any point to seek formal authority from the politically appointed commission to pursue them.
Cox's critics said that targeting the staff was Cox's attempt to salvage his own reputation.
"He put in place the people he is now shifting the blame to," said Ross Albert, a former SEC senior special counsel, former federal prosecutor and now a private attorney in Atlanta.
Senate Majority Leader Harry Reid, D-Nev., suggested Cox bears some of the responsibility for what went wrong.
"I served in Congress with Christopher Cox, but I don't think he's going to make the All-Star team," said Reid.
SEC Inspector General David Kotz is looking into the agency's failure to uncover the alleged fraud in Madoff's operation. One area Kotz said he will examine is the relationship between a former SEC attorney, Eric Swanson, and Madoff's niece, Shana, who are now married.
As an SEC attorney, Swanson was part of a team that examined Madoff's securities brokerage operation in 1999 and 2004. Neither review resulted in any action against Madoff. In a statement about Swanson's role, the SEC compliance office cited its strict rules prohibiting employees from participating in cases involving firms where they have a personal interest.
A spokesman for Swanson said that he and Shana Madoff met at a breakfast in October 2003, started dating in April 2006 and married last year.
Kotz said his office would move as quickly as possible to complete the inquiry into why regulators didn't pursue Madoff more aggressively.
Kanjorski, the lawmaker, said his subcommittee's inquiry will examine the alleged Madoff fraud and try to determine why the SEC and other regulators "failed to detect these substantial evasions."
With the scandal swirling around Madoff, he was unable to find co-signers of his bail package. The judge modified the bail package, and gave lawyers until next Monday to come up with additional paperwork.
Associated Press writers Lara Jakes Jordan in Washington, David B. Caruso in New York and Jay Lindsay in Boston contributed to this report
SEC chairman says agency failed to probe Madoff
Tuesday, December 16, 2008 8:54:35 PM
Securities and Exchange Commission chairman Christopher Cox said Tuesday his agency repeatedly failed for at least a decade to pursue allegations of wrongdoing by Wall Street figure Bernard L. Madoff, the alleged perpetrator of a $50 billion Ponzi scheme. Cox ordered a probe by the SEC's inspector general, saying the agency's staff had never brought the Madoff matter to the attention of commissioners. Since the SEC staff never recommended that the commission open a formal investigation, subpoena power was not used to obtain information and the staff relied on information voluntarily produced by Madoff and his firm.
"I'm gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them," Cox said in a statement. In a forceful condemnation of the SEC staff, Cox said there had been credible and specific allegations regarding Madoff's financial wrongdoing going back to at least 1999. The SEC chairman's criticism of his own agency marks only the latest instance in which federal regulators have overlooked clear warning signs of possible fraud.
Its oversight of the Wall Street investment houses drew significant criticism. A review by the SEC inspector general determined that the agency's monitoring of the five biggest Wall Street firms, which included Bear Stearns, was lacking. Cox's statement on Madoff was a stunning declaration in a scandal that has produced a series of dramatic developments. Shock waves from the Madoff affair have radiated around the globe as the number of prestigious charitable foundations, big international banks and individual investors said to have fallen victim to an unprecedented fraud has grown. U.S. investigators are laboring to deconstruct the scheme.
The SEC chairman alleged that Madoff kept several sets of books and false documents, and provided false information involving his advisory activities to investors and to regulators. Cox also ordered the removal from the ongoing investigation of any SEC staff members who have had contact with Madoff or his family. Madoff remains free on $10 million bail.
Since his arrest on Thursday, the SEC has been under increasing pressure to explain why it didn't uncover the prominent Wall Street figure's criminal activity years ago. Hours before Cox denounced his own staff, a former SEC chief accountant, Lynn Turner, said that "I can't comprehend how a well-run investigation would have missed a fraud of this magnitude."
Another expert agreed. "The fact that that this could go on for so long with someone who was known to the agency raises questions of the effectiveness of our regulatory scheme," said Charles Elson, the director of the Weinberg Center for Corporate Governance at the University of Delaware.
The SEC's enforcement division looked into Madoff's business in 2007. The agency did not refer the matter to commissioners for legal action. What did the investigators find and why didn't they look harder? Until Tuesday night, the SEC had refused to say anything beyond a brief statement it issued Friday revealing the 2007 probe. Cox himself has come in for strong criticism.
In March, a few days before Bear Stearns nearly collapsed into bankruptcy, Cox told reporters the agency was closely monitoring the five firms and had "a good deal of comfort" in their capital levels. Then as federal officials orchestrated the rescue, Bear Stearns was bought by rival JPMorgan Chase with a $29 billion government backstop. The chairman of the Senate Banking panel that oversees the SEC, Sen. Jack Reed, D-R.I., said in an interview Tuesday that the Madoff affair "illustrates the lack of credible enforcement over several years by the SEC." He criticized the agency's "lack of a strong commitment to be vigilant."
In the Madoff case, a securities executive, Harry Markopolos, complained to the SEC's Boston office in May 1999. Markopolos told the SEC staff they should investigate Madoff because he felt it was impossible for the kind of profit he was making to have been gained legally. But the SEC's Boston office has itself been accused in the past of brushing off a whistle-blower's legitimate complaints, in a case that led the head of that office to resign in 2003. The whistle-blower, Peter Scannell, eventually persuaded state regulators and the SEC to act against mutual fund giant Putnam Investments, where Scannell worked.
"It's flabbergasting that nobody can nail the bums in the SEC who turn their back on and/or aid and abet people who defraud investors," Scannell said in a telephone interview Monday.
Before Tuesday, Cox said that his agency had taken decisive actions in response to the market turmoil, including an unprecedented temporary ban this fall on short-selling of stocks of financial companies. The SEC also has procured billions of dollars in settlements with big investment banks that have agreed to buy back auction-rate securities from investors hurt by the collapse of that market in February. Auction rate securities are debt instruments, typically issued by a municipality, in which the yield is reset on each payment date via a Dutch auction, a method of selling in which the price is reduced until a buyer is found.
S.E.C. Image Suffers in a String of Setbacks
Brendan Smialowski/Bloomberg News
WASHINGTON — The Securities and Exchange Commission, a once-proud agency with an impressive history as Wall Street’s top cop, finds itself increasingly conducting autopsies of leading financial institutions after failing, in the first instance, to perform adequate biopsies.
The latest black eye for the commission came when inspectors and agency lawyers missed a series of red flags at Bernard L. Madoff Investment Securities. If it had checked out the warnings, the commission might well have discovered years ago that the firm was concealing its losses by using billions of dollars from some investors to pay others.
The firm was the subject of several inquiries over the years, including one last year that was closed by the agency’s New York office after it received a referral of potentially significant problems from the Boston office.
Between those two events, H. David Kotz, the commission’s new inspector general, has documented several major botched investigations. He has told lawmakers of one case in which the commission’s enforcement chief improperly tipped off a private lawyer about an insider-trading inquiry.
Another report criticized investigators in the commission’s Miami office who inexplicably had dropped an important inquiry involving securities sold by Bear Stearns. A third report documented the lack of any significant oversight by the commission over Bear Stearns in the months leading to its collapse.
The enforcement division has been hamstrung by budget cuts and changes adopted by the S.E.C. that make it harder to impose penalties on corporations, even when there has been egregious wrongdoing, Arthur Levitt Jr., the S.E.C. chairman from 1993 to 2001, told Congress in October. The result has been “a demoralizing of the enforcement staff,” Mr. Levitt said.
There are other difficulties plaguing the agency. A recent report to Congress by Mr. Kotz is a catalog of major and minor problems, including an investigation into accusations that several S.E.C. employees have engaged in illegal insider trading and falsified financial disclosure forms.
The report said that a senior employee had used her position in violation of agency policy when dealing with a dispute with a broker about a family member’s account. It said that a commission lawyer had not maintained his status as a member of the bar for 14 years. And it found repeated instances of the failure by officials to pursue investigations.
Some experts said that appointees of the Bush administration had hollowed out the commission, much the way they did various corners of the Justice Department. The result, they say, is hobbled enforcement and inspection programs.
“You are dealing with a commission whose effectiveness in fraud deterrence is open to serious question after cases such as Bear Stearns and Madoff,” said Joel Seligman, the president of the University of Rochester and a leading authority on the history of the commission.
Mr. Seligman said there were three causes to the current problems at the commission: “A Congress that’s been comfortable with vast unregulated areas, such as hedge funds and credit-default swaps, which sends a message to enforcement. The failure since 2005 to increase the enforcement budget. And some commissioners whose skepticism about enforcement may have undermined the S.E.C.’s effectiveness.”
Mr. Seligman and other experts said that there had been many signs for investigators, as well as investors, that the Madoff firm had been manipulating returns. The firm posted consistently smooth returns even in periods that were turbulent for the overall market. There was no independent custodian for the securities that the investment management firm was said to be holding. The auditors were Friehling & Horowitz, a tiny storefront operation based in New City, N.Y.
“This case says volumes about the need to re-evaluate our ability to inspect broker-dealers and advisers,” said James D. Cox, a securities law expert at Duke University. “There has been a terrific series of misfires.”
John Nester, a commission spokesman, declined to provide details about the 2007 investigation, which was closed by the New York office. Investigators from the commission and the United States attorney’s office in Manhattan have been examining the firm’s books since Mr. Madoff told others that his firm had been one huge Ponzi scheme.
The company was registered by Mr. Madoff as an investment adviser in September 2006. The commission as a practice tries to examine advisers within a year of registration, and then at least once every five years afterward. But commission officials said Mr. Madoff’s firm had never been examined.
Sixteen years ago, the agency sued two Florida accountants who had collected more than $440 million from investors to be managed by Mr. Madoff. The agency sued the accountants, but not Mr. Madoff, who said he did not know that the accountants were selling securities that had not been registered.
The agency said at the time that a court-appointed trustee had concluded all the money invested was accounted for. Former commission officials recalled that they closely examined the firm at the time and did not uncover evidence that Mr. Madoff had broken any rules.
In 2005, an examination by the commission’s office of compliance, inspections and examinations scrutinized the broker-dealer unit of the firm. It found that the unit had three relatively minor technical violations.
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