SEC Report: Employees Browsed Porn, Ran Private Businesses

by Jake Bernstein, ProPublica - December 19, 2008 5:01 pm EST
http://www.propublica.org/article/sec-report-employees-browsed-porn-ran-private-businesses-1219#When:17:01:11Z

Here at ProPublica we've just begun working our way through the fascinating 95-page document.
http://www.sec-oig.gov/Reports/Semiannual/2008/seminov08.pdf

The Securities and Exchange Commission is taking a drubbing these days for its abject failure - despite detailed tips - to catch Bernie Madoff in what appears to be the biggest Ponzi scheme in our nation's history.

Now, thanks to little-noticed report from the agency's inspector general, we have a detailed glimpse into other bad behavior by some SEC employees.

The report, released the day after Thanksgiving, reveals that some employees at the agency were clearly preoccupied with matters other than their mission of "protecting investors and maintaining fair, orderly, and efficient markets." The semi-annual report to Congress, which covers the period from this past April to September, details among other things a handful of employees circumventing internal controls to download porn. Let's pause for some detail:

[Investigators] uncovered evidence that an employee who was still in his probationary period had used his SEC laptop computer to attempt to access Internet websites classified as containing pornography, resulting in hundreds of access denials. The OIG investigation also disclosed that this employee successfully bypassed the Commission's Internet filter by using a flash drive.

Presumably, that's not the kind of initiative the SEC is looking for.

There were also more serious misdeeds raised by the report. For example, there is the case of the senior-level commission employee who "clearly and purposefully identified herself as a Commission employee when dealing with brokers about a family member's account," making the broker in question feel like she was trying to "intimidate and bully him." The OIG referred the matter to management for "disciplinary action, up to and including dismissal." By the end of the period covered in the report, management "had not proposed or taken action."

There are other examples where the punishment was less than fulsome.

Investigators found employees in separate offices operated private photography businesses out of the commission:

An employee repeatedly and flagrantly used Commission resources, including Commission Internet access, e-mail, telephone and printer, in support of his private photography business for several years.

The IG's office recommended "disciplinary action up to and including dismissal." In turn, the report notes, "management suspended the employee from duty and pay for nine calendar days."

When asked about the report, Deputy Director for Public Affairs John Heine said, "In each of these [cases] there is some sort of response from the Commission. We don't have anything to say beyond that."

The report reveals also that two commission staffers employed as attorneys didn't have active bar memberships. One attorney let his bar license lapse in 1994. The report said one of the lapsed lawyers "submitted a declaration in Federal court, in which he stated that he was an attorney employed by the SEC. We referred the potential false statement or perjury to the applicable United States Attorney's office." (The office declined to prosecute.)

The IG also found that the commission did not have a sufficient system in place to "prevent and detect insider trading on the part of Commission employees or violations of the Commission's rules."

The agency's information management also comes in for criticism. An employee survey conducted by the inspector general revealed that employees failed to enter data into a computer system used to manage investigations. The system known as the HUB was launched in August 2007 after the Government Accountability Office had highlighted major problems with the SEC's previous case management and tracking system. The IG semi-annual report also reveals that the commission lacks "an inventory of its laptops and was unable to trace ownership of laptops to specific individuals."

Here at ProPublica we've just begun working our way through the fascinating 95-page document.
http://www.sec-oig.gov/Reports/Semiannual/2008/seminov08.pdf

Take a look at it yourself and let us know what you find.

http://www.propublica.org/article/sec-report-employees-browsed-porn-ran-private-businesses-1219#When:17:01:11Z

Welcome to the Enron Securities Litigation Web Site

http://www.gilardi.com/Enron/Securities/

The Claims Administrator began sending settlement distribution payments to defrauded Enron investors on Friday, December 19, 2008. This initial stage of the distribution process will distribute almost $5 billion of the $7 billion recovered.

The settlement covers numerous distinct securities types affected by the underlying alleged fraud. This distribution has been calculated in accordance with the allocation plan that the U.S. District Court for the Southern District of Texas approved in September 2008. Before the court approved the plan, investors and the public were invited to comment on its provisions and were able to submit any objections to the court. Under the allocation plan, eligible investors must have purchased an Enron or Enron-related security between Sep. 9, 1997, and Dec. 2, 2001, and must have submitted a timely claim form. The actual recovery to be received by class members depends on which Enron securities they purchased and the timing of their purchases and sales, as well as other factors.

This initial distribution is a partial payment to most eligible class members. The distribution is being conducted in stages because some claims remain in process due to the tremendous number of claims filed and their unique and complex nature. While additional distributions are anticipated, their timing and amount remain to be determined. Additional information for investors about the distribution is available elsewhere on this website.

The claim filing deadline in this case was November 10, 2008. Any and all claims received prior to that time will be considered timely.

Claims received after this extended filing date will be considered late and may be excluded from distribution.


Please contact us at classact@gilardi.com or 1-800-961-2086 with any questions.

http://www.gilardi.com/Enron/Securities/

It's more than I thought it would be, and a nice surprise for a lot of people.

UC begins distributing Enron settlement to victimized investors

http://www.universityofcalifornia.edu/news/article/19211
Date: 2008-12-18
Contact: Trey Davis
Phone: (510) 987-0056
Email: trey.davis@ucop.edu

On Friday (Dec. 19), the University of California begins distributing the largest settlement in the history of securities class actions. This initial stage of the distribution process will distribute almost $5 billion of the $7 billion recovered to approximately 200,000 victims of the Enron fraud, including large institutions such as pension funds.

"We are extremely pleased to be returning these funds to the members of the class," said Charles Robinson, the university's general counsel. "Getting here has required a long, challenging effort, but the results for Enron investors are unprecedented."

The University of California serves as lead plaintiff for Enron investors in their class action against the bankrupt company's various accountants, lawyers and senior executives as well as several banks whose alleged active and knowing participation resulted in the Enron fraud. UC is represented by the law firm Coughlin Stoia Geller Rudman & Robbins LLP.

"We're proud of our role in securing the largest recovery ever obtained for investors victimized by corporate fraud," said Patrick J. Coughlin, the law firm's chief trial counsel. "The distribution of these funds is what it's all about -- getting billions of dollars back in the hands of defrauded investors."

The settlement covers numerous distinct securities types affected by the underlying alleged fraud. This distribution has been calculated in accordance with the allocation plan that the U.S. District Court for the Southern District of Texas approved in September 2008. Before the court approved the plan, investors and the public were invited to comment on its provisions and were able to submit any objections to the court. The court-appointed claims administrator, Gilardi & Co., has calculated distribution amounts in accordance with the approved plan.

Under the allocation plan, eligible investors must have purchased an Enron or Enron-related security between Sept. 9, 1997, and Dec. 2, 2001, and must have submitted a timely claim form. The actual recovery received by class members depends on which Enron securities they purchased and the timing of their purchases and sales, as well as other factors.

This initial distribution is a partial payment to most eligible claimants. The distribution is being conducted in stages because some claims remain in process due to the tremendous number of claims filed and their unique and complex nature. While additional distributions are anticipated, their timing and amount remain to be determined. Additional information for investors about the distribution is available at www.Gilardi.com/Enron/Securities.

UC's "allowed loss" under the allocation plan was approximately $109.4 million. Enron common-stock purchasers will receive reimbursement of approximately 20 percent of their allowed loss -- in UC's case $22 million -- in this distribution. The money will be returned to UC's pension and endowment funds in which the losses occurred.

Investors with questions about the distribution should email classact@gilardi.com or write to Enron Corporation Securities Litigation, c/o Gilardi & Co. LLC, P.O. Box 808003, Petaluma, CA 94975-8003.

Continuing litigation: While recovered funds are beginning to be distributed, that does not mark the end of litigation in the case. Claims remain pending against several other defendants in the federal class action lawsuit.

The remaining defendants in the case which was set for trial include Barclays Bank, Credit Suisse First Boston and Merrill Lynch, as well as three former Enron officers -- Jeff Skilling, CEO; Richard Causey, chief accounting officer; and Mark Koenig, executive vice president of investor relations. The cases against Royal Bank of Canada, Royal Bank of Scotland and Toronto Dominion Bank have not been set for trial.

For more news and information about the Enron case: www.universityofcalifornia.edu/news/enron and www.enronfraud.com

http://www.universityofcalifornia.edu/news/article/19211

His warnings were heard too late, and he's become a symbol of a botched oversight of Madoff by the SEC. His mother says the father of three boys under 5 has been bombarded by media requests. Now, a man who tried to be heard for years is going to lay low for a bit, she said.

"Right now, he's out relaxing some place," he said. "I can't even get in touch with him."

Pacer update 19 Dec 08 SEC v Madoff et al
Case#: 1:08-cv-10791-LLS

Date Filed # Docket Text

12/18/2008 8 ORDER ON CONSENT IMPOSING PRELIMINARY INJUNCTION, FREEZING ASSETS AND GRANTING OTHER RELIEF AGAINST DEFENDANTS: Pending a final disposition of this action, Defendants, and each of their partners, agents, servants, employees, and attorneys, and those persons in active concert or participation with them who receive actual notice of this Order by personal service, facsimile service, telephonic notice, notice by e-mail or otherwise, are preliminarily enjoined from, directly or indirectly, singly or in concert, in the offer, purchase or sale of any security, by use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, as set forth herein. It is further ordered that Lee Richards. Esq., of Richards Kibbe & Orbe LLP, continues as the appointed receiver for the assets of Madoff Securities International Ltd. ("Madoff International"), Madoff Ltd., and any other broker-dealer, market making, or investment advisory businesses (the "Foreign Entities") not located in the United States of America that are owned or controlled, in whole or in part, by Madoff, BMIS and their partners, agents, employees, attorneys, or other professionals, anyone acting in concert with them or on their behalf, and any third party, as set forth herein. Consent of Defendants to Preliminary Injunction Order filed herewith is incorporated herein with the same force and effect as if fully set forth herein, and that Defendants shall comply with all of the undertakings and agreements set forth therein. (Signed by Judge Louis L. Stanton on 12/18/2008) (jpo) (Additional attachment(s) added on 12/19/2008: # 1 CONSENT OF DEFENDANT BERNARLD L. MADOFF TO PRELIMINARY INJUNCTION ORDER, # 2 Consent of SIPC Trustee to Preliminary Injunction Order) (jpo). (Entered: 12/19/2008)

Madoff ordered to produce accounting by Dec. 31

Friday December 19, 3:03 pm ET
By Larry Neumeister, Associated Press Writer
http://biz.yahoo.com/ap/081219/madoff_scandal.html

Judge orders Madoff to provide written list by end of the year of his assets and liabilities

NEW YORK (AP) -- Disgraced money manager Bernard Madoff has been ordered to provide a written list by the end of the year of his assets and liabilities, a key step in finding what is left for investors after authorities said Madoff admitted squandering at least $50 billion. U.S. District Judge Louis L. Stanton signed an order late Thursday requiring the 70-year-old Madoff to provide a verified accounting of all his assets, liabilities and property to the Securities and Exchange Commission.

The directive was contained in an order that preserves a freeze of Madoff's assets, a directive put in place a week ago after authorities first filed charges against the former Nasdaq stock market chairman.

A message for comment left with Madoff's lawyer was not immediately returned Friday.

The court filing was made as investigators spent another day trying to untangle Madoff's operation. Investigators have started serving grand jury subpoenas requiring witnesses to testify and seeking documents, according to an official familiar with the case. The official, who spoke on condition of anonymity because the investigation is ongoing, declined to identify who was served or specify what documents were wanted.

Madoff was subjected to electronic monitoring and a nighttime curfew earlier this week as angry investors who lost billions seek information about what happened to money they thought was safely invested with someone who was widely respected on Wall Street for nearly half a century.

The judge's order, agreed to by Madoff, demanded details of all assets, funds or property held by Madoff and the names and locations of entities, bank accounts, brokerage accounts, investments or assets held by his business, Bernard L. Madoff Investment Securities LLC.

The order also puts control of all of his artwork, property, cars, jewelry and other items in the hands of a court-appointed receiver.

The order also requires that the receiver, lawyer Lee Richards, prevent the disposal of any of the assets of Madoff Securities International Limited and determine to what extent funds were comingled between Madoff's U.S. operations and any businesses overseas.

It also directed the receiver to locate any assets that may have been transferred to third parties or concealed by foreign entities.

Stanton said the receiver must report to the court by Jan. 26 on the status of the foreign business and provide a list of customers and clients, including the amounts received by Madoff from each customer and the amounts withdrawn by them.

A temporary order freezing Madoff's assets was signed last week, but the new order extends the protection of assets, sets deadlines, and provides more details on the responsibilities of Madoff and the receiver.

Madoff's family essentially turned him in to authorities last week, blowing the whistle on what authorities said he described as a "giant Ponzi scheme."

Authorities say Madoff confessed to family members that he had for years been paying returns to certain investors out of the principal received from others until he had only $200 million to $300 million remaining.

The charge against Madoff carries a potential penalty of up to 20 years in prison. Other charges could be added as the case is presented to a grand jury.

Associated Press Writer Tom Hays contributed to this report.

http://biz.yahoo.com/ap/081219/madoff_scandal.html

Madoff Strategy Dwarfed Market in Trades 'Never Done' (Update3)

By Jeff Kearns
Last Updated: December 19, 2008 13:46 EST
http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=aauQ592d38V0

Dec. 19 (Bloomberg) -- The options trading strategy Bernard Madoff said he used to help produce profits for 17 straight years would have required at least 10 times the contracts that trade on U.S. exchanges.

Madoff, charged with defrauding clients of his $35 billion asset-management business in a "Ponzi scheme," invested in Standard & Poor's 100 Index companies and used options to reduce losses, according to marketing materials for his New York-based investment funds. The total number of S&P 100 options outstanding is enough to guard against losses in only $3.25 billion of trades, data compiled by Bloomberg show.

"It was never done," Michael Schwartz, chief options strategist at Oppenheimer & Co. in New York and a trader since 1965, said of the strategy. "If he did it on an exchange, we would have heard about it, and if he did it over the counter, the person he bought it from would have hedged it on an exchange."

The 70-year-old founder of Bernard L. Madoff Investment Securities LLC was arrested Dec. 11 and accused of running an illegal money-management operation. Federal prosecutors say Madoff admitted to stealing $50 billion from clients ranging from movie director Steven Spielberg to real-estate developer Mortimer Zuckerman. The alleged scheme ensnared investors from New York to Lucerne, Switzerland, and Bermuda.

U.S. regulators have found evidence of misconduct by Madoff stretching back to at least the 1970s, two people familiar with the inquiry told Bloomberg News.

‘Staggering'

Options traders say it should have been obvious that the firm was a fraud. Securities and Exchange Commission Chairman Christopher Cox called on Dec. 16 for a probe of his agency, saying what he has learned about its investigations of Madoff is "deeply troubling."

"If he traded half the amount of options he claims he was, it would have been staggering when he came into the market," said Al Greenberg, head Chicago Board Options Exchange floor trader at BNY Convergex and a former trader in the S&P 100 pit at the biggest U.S. options market. "Every index across the board would have felt tremors."

Madoff's firm "was not a significant player in the options industry," said Jim Binder, a spokesman for Chicago-based Options Clearing Corp., which settles all trading of exchange- listed contracts.

‘Collar' Strategy

Ira "Ike" Sorkin, Madoff's New York-based attorney at Dickstein Shapiro LLP, declined to comment except to say that his client's firm is "cooperating fully with the government." Madoff is free on bail and hasn't formally responded to the charges or entered a plea.

Madoff's marketing documents said he used a "collar" strategy, which limits gains and reduces potential losses. New York-based Fairfield Greenwich Group's Fairfield Sentry fund, which invested exclusively with Madoff, reported an average annual return of 11 percent and no down years since 1990, according to data compiled by Bloomberg.

The S&P 100 rose 0.9 percent to 428.12 at 1:39 p.m. in New York. A trade following Madoff's strategy would involve purchasing a basket of stocks in the index, buying puts with a so-called strike price that's less than the S&P 100's current level, and selling calls with strikes above 428.12.

Privately Traded

The bearish options, or puts, give the right to sell shares for a certain amount by a given date, providing protection from declines in the stock. Selling calls, which are contracts to buy, is also a bearish bet on the stock.

Contracts trade publicly on seven U.S. exchanges, including the Nasdaq Stock Market. Investment firms also buy and sell options on the over-the-counter market where brokerages execute custom trades that aren't publicly reported.

Brokers usually reduce the risk from over-the-counter transactions by making the opposite trades in public markets. The number of existing options on the S&P 100 at the end of last month would have permitted about $3.25 billion in hedges for the strategy Madoff said he used, Bloomberg data show.

The market for S&P 500 options is 58 times larger than the one for the S&P 100, with 13.8 million contracts. S&P 100 options are the 35th most-active contracts this year, while the S&P 500 ranks third, according to OCC.

"The options market, either listed or over-the-counter, could never come close to handling the trades that this guy said he was doing," said Jim Vos, who runs the New York-based hedge fund adviser Aksia LLC. "There isn't enough liquidity."

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.
Last Updated: December 19, 2008 13:46 EST

http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=aauQ592d38V0

Bernard Madoff's Misconduct Said to Date to 1970s (Update1)

Last Updated: December 19, 2008 13:13 EST

By David Scheer
http://www.bloomberg.com/apps/news?pid=20601087&sid=ayNDQW6owsBs&refer=home#

Dec. 19 (Bloomberg) -- U.S. regulators, trying to unravel the breadth of Bernard Madoff's alleged $50 billion fraud, have found evidence of misconduct stretching back to at least the 1970s, two people familiar with the inquiry said.

Madoff's investment advisory business, where he allegedly operated the biggest Ponzi scheme in history, is now estimated to have had more than 4,000 customers, the people said, declining to be identified because the inquiry isn't public. An advisory unit Madoff registered with the Securities and Exchange Commission claimed in a January filing to have no more than 25 clients. People familiar with the probe said Dec. 14 he also ran a secret unregistered business.

The Madoff case is fueling efforts by President-elect Barack Obama and Congress to overhaul oversight of brokerages and investment advisers. The SEC will likely also examine whether hedge funds investing with Madoff performed the due diligence promised to clients, two people familiar with the agency's concerns said.

SEC spokesman John Nester declined to comment.

Madoff's attorney, Ira "Ike" Sorkin of Dickstein Shapiro in New York, wasn't available to comment. In an interview yesterday, Sorkin said Madoff's company is "cooperating fully with the government."

Earlier Misconduct

The SEC, combing through records from Bernard L. Madoff Investment Securities LLC in New York, hasn't developed a complete assessment of the earlier misconduct or determined how the alleged Ponzi scheme evolved, one of the people familiar with the case said. They also haven't uncovered whether the scheme intertwined with sales of unregistered securities targeted in a 1992 SEC lawsuit. Proceeds from those sales were invested with Madoff, who gave documents to an auditor in that case and wasn't accused of wrongdoing, court records show.

Madoff was arrested Dec. 11 and charged with a single count of securities fraud. In court documents, prosecutors and the SEC said he admitted his investment advisory business was "all just one big lie." He hasn't entered a plea in the case.

SEC Chairman Christopher Cox said Dec. 16 the agency failed to act on "credible, specific" allegations about Madoff dating back at least to 1999. Madoff had kept several sets of books, and provided misinformation about his advisory business to investors and regulators, Cox noted.

Avellino & Bienes

In its 1992 lawsuit, the SEC claimed accountants Frank Avellino and Michael Bienes began raising money in 1962 and placing it with Madoff while promising investors returns of 13.5 percent to 20 percent, according to court documents obtained by Bloomberg. As of October 1992, their firm, Avellino & Bienes, had issued $441 million in unregistered notes to 3,200 people and entities, court papers say. They invested solely with Madoff, who opened his business in 1960.

Avellino and Bienes, who were represented by Sorkin, agreed in November 1992 to shut down their business and reimburse clients. Lee Richards, the court-appointed trustee over Avellino & Bienes, hired auditors Price Waterhouse to scrutinize the books of the firm, which operated as an unregistered investment company, according to the SEC.

Price Waterhouse said Avellino & Bienes kept few records and asked Madoff to provide copies of account statements issued to the firm, which he did, court records show. Richards, who was named receiver for Madoff's foreign units on Dec. 12, didn't investigate Madoff while overseeing Avellino & Bienes, the records show.

Avellino didn't return calls to his homes in New York, Florida, and Nantucket, Massachusetts. Bienes didn't return a message left with his housekeeper.

Congressional Hearings

Madoff's case will be at the center of planned congressional hearings on reforming the SEC, a senior Senate official said this week, declining to be identified. Obama said yesterday the scandal "has reminded us yet again of how badly reform is needed when it comes to the rules and regulations that govern our markets."

Any new rules may stir privacy concerns among clients of broker-dealers and money managers, said David Becker, a former SEC general counsel.

"It's very easy to detect Ponzi schemes once we suspect that a Ponzi scheme exists. It requires confirming account balances with customers," said Becker, who's now in private practice at Cleary Gottlieb Steen & Hamilton in Washington. "However, customers don't really like it when the federal government calls them up and asks them what's in their account."

To contact the reporter on this story: David Scheer in New York at dscheer@bloomberg.net.
Last Updated: December 19, 2008 13:13 EST

http://www.bloomberg.com/apps/news?pid=20601087&sid=ayNDQW6owsBs&refer=home#

"Where has my goose gone? Come back little goose."

Prosecutors Accuse Ex-Lehman Broker of Passing Tips on Mergers

By ANDREW ROSS SORKIN and MICHAEL J. de la MERCED
The New York Times
Published: Dec 19, 2008
http://www.statesman.com/biz/content/shared-gen/nyt/business/00e039a4-0ed8-40b3-86e6-5b320dfdb21f.html

"Where has my goose gone? Come back little goose."

So went an instant message from a day trader to his broker, seeking a tip as part of a $4.8 million insider-trading scheme disclosed by regulators on Thursday.

Prosecutors accused the broker, Matthew C. Devlin of Lehman Brothers, of illegally passing on inside information about at least 12 coming mergers -- including InBev's takeover of Anheuser-Busch and Dow Chemical's acquisition of Rohm & Haas -- that he surreptitiously obtained from his wife, a public relations executive whom he repeatedly referred to as his "golden goose."

The United States attorney for the Southern District of New York charged four people, including Mr. Devlin, with conspiracy and securities fraud that took place over more than four years, during the latest takeover boom. Separately, the Securities and Exchange Commission filed civil charges against seven people and is seeking to reclaim trading profits from two others, including a Playboy playmate.

The case harks back to a case in the 1980s when Martin Siegel, of Kidder Peabody, and Dennis Levine, of Drexel Burnham Lambert, traded inside information ahead of big mergers using cryptic phrases like "Your bunny has a good nose."

Mr. Devlin is accused of taking advantage of confidential information gleaned from his wife, Nina, who was employed by the Brunswick Group, a London-based public relations firm that has become a big player in the world of high finance.

Financial public relations firms like Brunswick are often as deeply embedded in deals as the bankers and lawyers who negotiate them. Employees like Mrs. Devlin are made privy to secret discussions as top executives shape the public strategies of the deals.

Prosecutors say the scheme began in March 2004, when Mr. Devlin began passing on tips about deals like General Electric's purchase of InVision to Jamil Bouchareb, a friend who was a day trader and restaurateur. Mr. Bouchareb, in turn, passed on tips to his girlfriend, Maria T. Checa, a Playboy playmate; to his parents; and to his business partner, Daniel Corbin. Mr. Corbin passed on various tips to his father, Lee Corbin, a lawyer.

Mr. Devlin also tipped off a Lehman colleague, Frederick Bowers, on several occasions, who, in turn, tipped another client, Thomas Faulhaber. Mr. Devlin also tipped Eric Holzer, a friend and tax lawyer at Paul Hastings who regularly did the Devlins' taxes. Mr. Holzer also tipped his father.

In return, prosecutors say, Mr. Devlin was given cash kickbacks, a Cartier watch, a Barneys New York gift card, a widescreen TV, a Ralph Lauren leather jacket and a lesson at a Porsche driving school.

Mr. Devlin has pleaded guilty to four counts of conspiracy and one count of securities fraud; Mrs. Devlin was not implicated, and prosecutors contend that she was unaware of her husband's dealings. Indeed, Mr. Devlin told Mr. Bouchareb and Daniel Corbin several times that his wife would divorce him if she discovered his insider trading, according to the criminal complaint.

"She was completely unaware that confidential information about her job was being used as the basis for securities trading," James J. Benjamin Jr., a lawyer for Mrs. Devlin, said in a statement. "She is devastated by this terrible situation."

In a statement from Brunswick, the firm said, "Our employee was the victim of a criminal act by her spouse."

Lilly Ann Sanchez, a lawyer for Jamil Bouchareb, said her client would plead not guilty. "The facts aren't always as presented by the government," she said. "We are surprised by the allegations and believe that once all the facts are revealed, Mr. Bouchareb will be exonerated."

The Devlin case appears similar to some others filed in recent years. In 2006, a stockbroker pleaded guilty to insider trading after profiting from inside information gained from his girlfriend, a lawyer at Weil, Gotshal & Manges. And last year, a man who was a vice president at Oracle pleaded guilty to trading on information about potential acquisitions that he obtained from his wife, an executive assistant to Lawrence J. Ellison, the technology giant's chief executive.

The scheme nearly fell apart in April 2006, when Brunswick received a notice from Finra, the securities industry's own watchdog. The notice showed Mr. Holzer on a "watch list" for trading. It appears Mrs. Devlin communicated that information to her husband. Nonetheless, the group continued to trade in various other deals like Electronic Arts's bid for Take-Two Interactive.

Prosecutors contacted Lehman Brothers earlier this year, before the firm filed for bankruptcy, notifying them that they were investigating Mr. Devlin and Mr. Bowers. Lehman was told not to take any action against the two.

In a statement, Barclays Wealth, which absorbed the Lehman unit that Mr. Devlin and Mr. Bowers worked for, said: "Barclays Wealth -- and Lehman Brothers prior to its acquisition -- cooperated fully with law enforcement authorities to assist them in their investigation into this alleged insider trading ring."

By the fall, Mr. Devlin began cooperating with federal investigators, including by secretly taping conversations with Mr. Bouchareb, Daniel Corbin and Mr. Holzer. He persuaded Mr. Bouchareb to acknowledge on tape that they might need a back story for their earlier trading.

"Right, right, right," Mr. Bouchareb said. "Don't worry, we're on it."

http://www.statesman.com/biz/content/shared-gen/nyt/business/00e039a4-0ed8-40b3-86e6-5b320dfdb21f.html

Devlin and the golden goose: the ripple effect

From Times Online
December 19, 2008
Rosie Lavan
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5369197.ece?token=null&offset=24&page=3

The allegations of insider trading centre on Matthew Devlin, the former Lehman Brothers broker, who is alleged to have passed on information secretly gleaned from his wife, a public relations executive, to a trading ring that made almost $4.8 million in profits.

The ripples stretch far and wide. According to the Securities and Exchange Commission (SEC), the inner circle comprises Mr Devlin and at least four of his clients and friends: he tipped them off with details of deals involving clients of his wife, Nina.

Mrs Devlin is not implicated in the charges. A lawyer for Mrs Devlin said: "She was completely unaware that confidential information about her job was being used as the basis for securities trading."

The clients that Mr Devlin passed on information about included Anheuser-Busch, the American brewer which, at the time, was the subject of a multi-billion dollar takeover approach from InBev, the Belgian-Brazilian brewer.

The members of that inner circle, in turn, passed on Mr Devlin's tips to clients, friends and relations of their own. According to the charges against Mr Devlin brought by the SEC, a further 11 people were involved in Mr Devlin's activities.

Unravelling the fraud

Matthew Devlin, 35, of Lehman Brothers now at Barclays Wealth. He has since been suspended from his job.

-- Married Nina Devlin, an executive at the international PR firm Brunswick, in 2003. Mrs Devlin was referred to by her husband as "the golden goose".

-- Mr Devlin informed at least four of his clients and friends about thirteen impending corporate transactions involving clients of his wife.

1. Jamil Bouchareb

-- Friend and client of Mr Devlin's at Lehman. Aged 27. Self-employed; has described himself as "syndicate trader" and "restaurateur".

-- Alleged to have traded on about 12 of the deals. He denies the charges.

-- Tipped Daniel Corbin, 32, a Miami-based trader who traded deals through accounts in the name of his companies, Augustus Management and Corbin Investment Holdings.

-- Daniel Corbin then tipped Lee Corbin, his father, 66, an attorney at a firm based in White Plains, New York.

-- Mr Bouchareb arranged meeting for Mr Devlin with Lee Corbin, who steered business to Mr Devlin from some of his clients.

-- Mr Bouchareb also tipped his girlfriend, Maria Checa, 38, a former Playboy model. She lived with Mr Bouchareb from September 2004 to mid-2007.

-- Mr Bouchareb's parents were also involved in trading.

-- Mr Bouchareb, his parents, both Mr Corbins and Ms Checa took more than $4.2 million in illegal profits.

-- Mr Bouchareb gave Devlin cash, a Cartier watch, a Barneys New York gift card, a widescreen TV and a Ralph Lauren leather jacket.

2. Frederick Bowers

-- Partner of Mr Devlin and registered representative at Lehman. Aged 40. Tipped on at least three transactions.

-- Mr Bowers then tipped Thomas Faulhaber, one of his clients. Mr Faulhaber took $217,000 profits and kicked back cash to Mr Bowers, who shared some with Mr Devlin. Mr Devlin received at least $10,000.

3. Eric Holzer

-- Mr Devlin's friend and tax associate in New York office of international law firm. Aged 34. Traded in at least three of the transactions.

-- Took $175,000 in profits in his own accounts and two controlled by his father.

-- Mr Holzer gave Devlin cash, some of which came from shares his father bought on Mr Devlin's behalf.

4. Jeffrey Glover

-- Another of Mr Devlin's Lehman clients and an investment adviser. Aged 46. Traded in at least five of the deals.Made approximately $189,000 in illicit profits

The 13 companies

InVision Technologies

Eon Labs

Mylan

Abgenix

Aztar

Veritas, DGC

Mercantile Bankshares Corporation

Alcan

Ventana Medical Systems

Pharmion Corporation

Take-Two Interactive Software

Anheuser-Busch

Rohm and Haas Company

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5369197.ece?token=null&offset=24&page=3

Associate Charged With Insider Trading

By Mark Hamblett
December 19, 2008
http://www.law.com/jsp/nylj/PubArticleNY.jsp?hubtype=FeaturedContent&id=1202426887377

A Paul Hastings associate was among four people charged yesterday in a $4.8 million insider trading scheme involving a former Lehman Brothers representative and his wife, who worked at a public relations firm that had information on impending corporate deals.

Eric A. Holzer, 34, a Paul Hastings tax associate, was allegedly caught on tape discussing the scheme with Matthew C. Devlin, 35, of Lehman Brothers, whose wife, Nina Devlin, is a partner at the public relations firm Brunswick Group LLC.

Mr. Devlin has already pleaded guilty in the case and is cooperating with prosecutors.

The criminal complaint against Mr. Holzer was one of three unsealed yesterday in the Southern District charging conspiracy and securities fraud, complaints that allege insider trading on information on 12 impending corporate transactions obtained by Mr. Devlin from Ms. Devlin, who is not charged in the case and is reported by her lawyer to be "devastated" by the revelations.

A companion civil suit filed by the Securities and Exchange Commission in the Southern District details illegal trading on 13 impending transactions that Mr. Devlin learned about from his wife. (See the SEC's press release and complaint.)

Mr. Devlin allegedly referred to his wife as the "golden goose" for the information she provided, information the SEC said he used to curry "favor with his friends and business associates and received in return cash, luxury items and other benefits."

A second lawyer was named as a relief defendant in the SEC suit, Lee H. Corbin of Kurzman Eisenberg Corbin & Lever. A relief defendant is someone who has obtained funds as part of the alleged securities violations by the named defendants "under circumstances in which it is not just, equitable or conscionable for them to retain the illegal profits."

Relief defendants are not charged criminally, but Mr. Corbin's son, 32-year-old Daniel A. Corbin of Miami Beach, was charged. A call to Lee Corbin and his firm was not returned.

Daniel Corbin allegedly provided information to his father that he obtained from Mr. Devlin on three corporate acquisitions and one company's stock repurchase.

Also charged in the criminal complaints unsealed yesterday were Jamil A. Bouchareb, 27, of Miami Beach. Daniel Corbin and Mr. Bouchareb were described in the complaint as being day traders. Frederick E. Bowers, 40, a Lehman broker, was also charged.

The SEC civil complaint states that the Corbins, Mr. Bouchareb, Mr. Bouchareb's parents and another defendant in that civil case reaped illegal profits of more than $4.2 million on the information.

Mr. Holzer is accused in the criminal complaint of buying shares in three different companies between 2004 and 2005 - InVision Technologies Inc., Eon Labs and Abgenix Inc.

The trading was done on three accounts, two in Mr. Holzer's name and a third in the name of his parents that was maintained for Mr. Holzer's benefit.

Criminal Complaint

FBI Special Agent Michael T. Ryan said in the criminal complaint that Mr. Holzer purchased stock in three companies and then cashed in on the good news he knew would soon be announced. All told, Agent Ryan said Mr. Holzer and his parents made $175,000.

Mr. Holzer was accused of proposing a scheme to pay Mr. Devlin for the information by buying and selling stocks on his behalf, and, on at least one occasion, paid him $1,000 in cash from trades.

Mr. Devlin, listed as only Confidential Witness-1 (CW-1) in the criminal complaint, informed Mr. Holzer that Mr. Holzer's name had appeared on a watch list at Brunswick, a list of people whose trading had attracted attention. At that point, Agent Ryan said, they agreed Mr. Holzer would stop receiving inside information.

Agent Ryan said that in a taped conversation on Sept. 4, in which Mr. Devlin wore a wire, Mr. Devlin brings up the watch list and said to Mr. Holzer, "Remember, and that's why we stopped?"

"Yeah?" Mr. Holzer replied.

Then Mr. Devlin said he wanted to make sure "you have a backstory if anybody ever comes to you and says why you bought X, Y, Z."

After a brief exchange, Mr. Holzer said, "Oh yeah, I've got a backstory. Oh yeah, I'm not worried about it, my heart almost dropped."

Mr. Holzer then said, "That was probably over two years ago, right? That was a long time ago."

A spokeswoman for Paul Hastings released a brief statement saying, "We learned today of allegations against an associate of the firm, which have no connection to any firm or client matters. We will cooperate fully with the authorities in any investigation."

Ms. Devlin is represented by James Benjamin of Akin Gump Strauss Hauer & Feld.

"Nina Devlin is devoted to her clients and colleagues and has always sought to uphold the highest standards of professionalism in her work," Mr. Benjamin said. "She was completely unaware that confidential information about her job was being used as the basis for securities trading. She is devastated by this terrible situation."

Mr. Holzer and the three criminal defendants were also named in the SEC suit along with Mr. Devlin, broker-dealer Thomas R. Faulhaber, 44, of New York, broker-dealer Jeffrey R. Glover, 46, of Texas, and Corbin Investment Holdings LLC and Augustus Management LLC.

Mr. Bowers made his initial appearance before Southern District Magistrate Judge Gabriel Gorenstein late yesterday. Mr. Holzer had yet to appear in court by press time.

The case is being handled by Assistant U.S. Attorneys Joan M. Loughnane and Reed M. Brodsky.

Mark.Hamblett@incisivemedia.com

http://www.law.com/jsp/nylj/PubArticleNY.jsp?hubtype=FeaturedContent&id=1202426887377

Where is Madoff's $50bn loss?

By Fang Wang, Patrick Mathurin and FT reporters
Published: December 15 2008 20:02 | Last updated: December 18 2008 12:10

The total size of the ‘Tile view' represents $50bn - the amount Bernard Madoff claims his venture lost over several years.

Each smaller tile represents actual or estimated exposure from funds and individuals.

Less than three fifths of the claimed $50bn figure has been accounted for.

Click the tiles to read details of each investor.

http://www.ft.com/cms/s/0/7fb3781a-cae0-11dd-87d7-000077b07658.html

Accounting firms drawn into Madoff scandal

By James Mackintosh
Published: December 18 2008 13:11 | Last updated: December 18 2008 13:11
http://www.ft.com/cms/s/0/e8294d3c-ccef-11dd-9905-000077b07658.html

Top accounting firms were hoodwinked by Bernard Madoff's alleged $50bn fraud as well as several leading banks and some of the world's biggest hedge fund investors, according to lists of service providers to Madoff-linked funds.

PwC, KPMG and Ernst & Young, three of the "big four" accountants, and an arm of BDO International, the fifth largest, were all auditors of the feeder funds which channelled money into accounts at Mr Madoff's New York brokerage.

Mr Madoff, who has been charged with fraud and electronically tagged, told investigators his business was "one big lie", according to prosecutors. The head of the US brokerage industry's compensation scheme said records at Bernard L Madoff Investment Securities were "certainly falsified".

Several investors have said they took comfort from the presence of big, recognised accountants as auditors of the feeder funds, as well as from the registration of Madoff Securities with the Securities and Exchange Commission, the US market regulator. The SEC is now reviewing its own failure to investigate warnings alleging "financial wrongdoing" by Madoff.

The New York Law School became the first Madoff victim to target an accountant this week when it named BDO Seidman in a lawsuit alongside Ezra Merkin and his Ascot Partners fund, which invested almost all its money with Madoff and was audited by BDO.

Auditors of funds typically confirm with custodians that assets exist as stated, but Mr Madoff insisted clients make Madoff Securities custodian for assets, according to several people familiar with his terms.

Other banks listed by feeder funds as custodian - including HSBC, which acted for several, and Bank of New York - appear to have been responsible only for moving assets between jurisdictions.

Where is the $50bn loss?

An interactive guide to exposure of investors in Madoff's venture
http://www.ft.com/cms/s/0/7fb3781a-cae0-11dd-87d7-000077b07658.html

According to fund documents seen by the Financial Times, PwC was auditor of Fairfield Sentry, the $7.3bn feeder fund run by New York-based Fairfield Greenwich; of Kingate Global, a $2.75bn feeder fund run by London's FIM Advisors; and of Gibraltar-based Reliance Management's $488m Defender fund.

KPMG audited two of Tremont Group's Rye Select funds, which had $2.37bn invested with Mr Madoff. Other Tremont funds also invested with Mr Madoff, giving clients of the the New York-based manager a total exposure of $3.3bn, according to people familiar with the situation.

Ernst & Young audited at least four feeder funds. Two of them with $2.5bn are from Herald Asset Management, linked to Vienna's Bank Medici, which is part-owned by Unicredit of Italy. The other two funds with $870m are managed by Pioneer Alternative Investments, a Unicredit subsidiary.

Fairfield itself is now considering suing PwC, according to one person familiar with the situation, while lawyers say they are building cases against anyone with "deep pockets" - including the auditors but also the managers of the feeder funds.

Pomerantz, a New York law firm, said it was building a case on behalf of clients, and it was "increasingly apparent that investors who invested with Madoff indirectly through one of his related ‘feeder funds' may have a basis for legal redress, against those funds and their auditors".

Many of the other big US lawyers have also been instructed by victims to put together cases and find deep-pocketed companies to sue.

However, auditors say they are entitled to take on trust the word of custodians of assets.

Cindy Fornelli, executive director of the Center for Audit Quality, the US audit lobbyist, said fund accountants were responsible for ensuring money was "disbursed to the firms it invested in."

"It is not the auditor's responsibility to audit the underlying investments of the firms the capital management firm invests in. As an example, if the firm you're auditing invests in AT&T, you're not responsible for auditing AT&T.

"Rather, the existence of the underlying securities is verified with a third party, which in this case was a respected and SEC-registered investment adviser who was a former head of Nasdaq.

"In our view, the Madoff matter demonstrates why more light is needed in areas not currently regulated in our capital markets."

BDO Seidman pointed out it did not audit Madoff Securities. It said its "audits of Ascot Partners conformed to all professional standards and we will vigorously defend ourselves against these unfounded allegations".

PwC and Ernst & Young declined to comment. KPMG said: "Our work conformed to all professional standards."

Mr Madoff's business itself was audited by a tiny operation in Rockland County, New York, with only three employees, making it an unlikely source of billions of dollars in compensation.

Several potential investors in the feeder funds said the size of the auditor had raised a "red flag" and contributed to their decision not to invest.

Jim Vos, chief executive of Aksia, a hedge fund consultancy, said the feeder funds put "substantially all" their assets in the custody of Madoff Securities. "This necessitated Aksia checking the auditor of Madoff Securities, Friehling & Horowitz (not a fictitious audit firm)," he wrote in a letter to clients last week.

"After some investigating, we concluded that Friehling & Horowitz had three employees, of which one was 78 years old and living in Florida, one was a secretary, and one was an active 47 year old accountant… This operation appeared small given the scale and scope of Madoff's activities."

http://www.ft.com/cms/s/0/e8294d3c-ccef-11dd-9905-000077b07658.html

Broker Admits Role in Insider Ring
Husband of Partner in Financial-PR Firm Stole Information on Mergers

DECEMBER 19, 2008
By MATTHEW KARNITSCHNIG and CHAD BRAY
http://online.wsj.com/article/SB122963497102619455.html?mod=testMod

The husband of a partner at financial public-relations firm Brunswick Group LLC has pleaded guilty to running a $5 million insider-trading scheme.

U.S. prosecutors and the Securities and Exchange Commission alleged that Matthew C. Devlin, 35 years old, stole information from his wife, Nina Devlin, about high-profile merger deals including InBev NV's $52 billion purchase of Anheuser-Busch Cos. and Electronic Arts Inc.'s unsolicited offer for Take-Two Interactive Software Inc.

Mr. Devlin, a broker at Barclays PLC's Barclays Capital unit, was charged with five counts of conspiracy to commit securities fraud. He allegedly passed along confidential information to several "clients and friends." The recipients of the information were, among others, a lawyer at New York firm Paul, Hastings, Janofsky & Walker LLP; a 1994 Playboy Playmate; and a partner in Kurzman Eisenberg Corbin & Lever LLP, a White Plains, N.Y., law firm.

Mr. Devlin is cooperating with prosecutors in the investigation.

Beginning in March 2004, the group acquired securities using information Mr. Devlin stole from his wife at Brunswick on pending takeovers, according to a criminal complaint filed Thursday in U.S. District Court in the Southern District of New York.

Mr. Devlin gained the confidential information mainly by being in his wife's proximity when she worked from home and by knowing her schedule, according to one person close to the case.

Mr. Devlin and others called his wife the "golden goose," according to the complaint, and he received cash, a Cartier watch and Porsche driving lessons from his alleged co-conspirators in return for the confidential information. The bounty from the alleged conspiracy totaled $4.8 million, according to the authorities.

In the clubby world of mergers and acquisitions, Brunswick is part of a small community of investment banks, law firms and financial PR firms that handle major Wall Street transactions. It is a world in which discretion and trust are of utmost importance and major breaches are rare.

Brunswick, which didn't learn of the alleged conspiracy until Thursday morning, said in a statement that Ms. Devlin wasn't involved in the alleged conspiracy and that her husband had obtained the confidential information "without her knowledge."

Nonetheless, a breach of this nature could be embarrassing to the firm. Founded in London in 1987, Brunswick represents many major corporations in the U.S. and the U.K., where its clients include more than a quarter of the members of the FTSE 100-stock index.

Ms. Devlin "was completely unaware that confidential information about her job was being used as the basis for securities trading. She is devastated by this terrible situation," said James J. Benjamin Jr., her lawyer.

The conspiracy is alleged to have begun in 2004, when the SEC said Mr. Devlin began sharing information with a group of friends about General Electric Co.'s takeover of InVision Technologies Inc. Before the ring is said to have wound down in August 2008, nine people were alleged to have traded on 13 deals using inside information initially provided by Mr. Devlin.

The SEC also sued Mr. Devlin and those who capitalized on the inside information to recover any ill-gotten gains should the government prove its case.

Four others were charged criminally Thursday. They are day trader and restaurateur Jamil A. Bouchareb, 27 years old; day trader Daniel A. Corbin, 32; Eric A. Holzer, 34, a tax lawyer at Paul Hastings; and Frederick E. Bowers, 40, another Barclays broker in New York. All were charged with conspiracy and securities fraud. Two others, including former Playboy model Maria Checa, 38, and White Plains, N.Y., attorney Lee H. Corbin, 66, -- the father of Daniel Corbin -- are listed as "relief defendants," which means they aren't directly charged with wrongdoing but are sued to produce any ill-gotten gains. The SEC described Ms. Checa as the girlfriend of Mr. Bouchareb. The SEC said her accounts were named Checa International Inc. and Playmate Capital LLC. Ms. Checa couldn't be reached for comment.

Two other men were listed as civil defendants in the SEC complaint: Jeffrey R. Glover, 46, a Texas-based investment adviser, and New Yorker Thomas J. Faulhaber, 44 and also affiliated with the securities industry. Mr. Glover didn't return a message seeking comment. A woman answering the phone at Mr. Faulhaber's home said he didn't wish to comment.

The deals involved in the alleged conspiracy included Novartis AG's acquisition of Eon Labs in 2005 and Dow Chemical Co.'s recent deal to acquire Rohm & Haas.

Marc Agnifilo, a lawyer for Mr. Bowers, said they plan to challenge the government's case.

Jonathan Halpern, a lawyer for Mr. Corbin, said, "Daniel Corbin looks forward to fully responding to the government's allegations." Mr. Holzer declined to comment Thursday.

"Matthew Devlin has accepted responsibility for his conduct,'' said Mary Mulligan, his lawyer, in a statement. "He deeply regrets the pain he has caused his wife."

Messrs. Devlin and Bowers, both former Lehman Brothers employees, have been suspended from their jobs at Barclays, which acquired Lehman's U.S. capital markets in September. Messrs. Holzer and Devlin agreed Mr. Devlin would stop providing him inside information after Mr. Holzer's name appeared on a "watch" list at the wife's firm, the SEC alleges.

Write to Matthew Karnitschnig at matthew.karnitschnig@wsj.com and Chad Bray at chad.bray@dowjones.com

http://online.wsj.com/article/SB122963497102619455.html?mod=testMod

Fairfield Extended Madoff's Reach
Investment Fund's Marketing Effort Helped to Raise Billions for Money Manager

DECEMBER 19, 2008
By JENNY STRASBURG, PETER LATTMAN, CASSELL BRYAN-LOW and THOMAS CATAN
http://online.wsj.com/article/SB122964625164020213.html?mod=testMod

An investment fund with ties to Bernard Madoff is emerging as a central player in helping the financier raise billions of dollars world-wide, extending the reach of an alleged Ponzi scheme.

The Securities and Exchange Commission, as part of an investigation into Mr. Madoff's activities, determined in 2006 that the fund, Fairfield Greenwich Group, hadn't properly disclosed that Mr. Madoff oversaw its investment decisions, according to an SEC document, though the agency found no evidence of fraud.

Since then, Fairfield Greenwich has in marketing documents touted its close relationship with Mr. Madoff -- and in the process raised about $1.7 billion from investors in the U.S. and Europe. This marketing effort ultimately broadened the scope of Mr. Madoff's alleged fraud far from his bases in New York and Florida.

There is no suggestion that Fairfield knew of Mr. Madoff's improper activities. A Fairfield spokesman says the firm trusted Mr. Madoff after a 19-year relationship and conducted due diligence of his activities.

The spotlight on Fairfield comes as prosecutors and regulators attempt to unravel Mr. Madoff's alleged fraud; he has told investigators he conducted a $50 billion Ponzi scheme in which he paid investors returns from subsequent client money he raised.

Fairfield Greenwich -- run by financier Walter Noel Jr., his four sons-in-law and a former SEC official -- had a total of about $7.5 billion with Mr. Madoff through its flagship Fairfield Sentry fund when Mr. Madoff's business imploded. For fees it collected from clients, Fairfield handed that money to Mr. Madoff to manage.

Mr. Noel and his wife, Monica, said they had done nothing wrong but couldn't elaborate because of the pending regulatory investigation into Mr. Madoff's activities.

"It's not an easy time, for sure," Monica Noel said. "My husband is the most upstanding, correct, honorable individual."

Mr. Noel founded Fairfield Greenwich in 1983. The Sentry fund, which drew investors from scores of countries and smaller funds, required a $100,000 minimum investment and was billed as a way to tap Mr. Madoff's trading expertise using "algorithmic technology" while Fairfield stood close watch, conducting "systematic investment compliance," according to a 2008 Sentry document.

In 2006, the SEC, warned by a tipster that Mr. Madoff might be running a Ponzi scheme, interviewed Mr. Madoff and reviewed documents. The SEC also took the testimony of Jeffrey Tucker, a former SEC official and a Fairfield executive who oversaw the firm's day-to-day operations.

The SEC, according to an agency document, found no evidence of fraud but did report that Fairfield's Sentry fund hadn't properly disclosed to investors that Mr. Madoff oversaw the fund's investment decisions. A Fairfield spokesman declined to comment on the SEC matter.

" [Fairfield Greenwich Group's] deep, ongoing joint venture relationships with its managers greatly facilitate communication and a continuing dialogue with managers. ... Independent information sources aid FGG's review of portfolios down to the individual security level."
Fairfield Greenwich marketing document, 2006

Hoping to capitalize on its success in recent years, Fairfield Greenwich tried to sell a stake in the firm. Several private-investment firms conducted due diligence on the firm. But when they asked to look more closely at Mr. Madoff's business, they were told that Mr. Madoff wouldn't allow prospective investors to view his books, according to people familiar with the discussions.

Fairfield charged clients larger fees than most similar firms do, including a 20% share of profits on investments, about double the norm for firms that farm out clients' money to a variety of fund managers. Mr. Madoff didn't charge additional fees but instead said he charged a commission on trades he allegedly executed. This is an unusual arrangement that raised suspicions among rival money managers, some of whom doubted that could generate sufficient fee income.

Fairfield Greenwich's co-founder, Mr. Tucker, introduced Mr. Madoff and his securities business to the firm in 1989. The son of an accountant, Mr. Tucker earned a law degree at Brooklyn College and from 1970 to 1978 worked as an SEC lawyer.

For the last three of those years, he held a supervisory role in the agency's enforcement division. Mr. Tucker worked in the 1980s as a partner at a law firm, according to his firm biography.

"Mr. Tucker's is a gold-plated résumé for securities enforcement, compliance and oversight," said Jacob Frenkel, a former SEC lawyer now in private practice.

When the SEC investigated Mr. Madoff's activities in 2006, the agency interviewed Mr. Tucker, who had not been aware of the claim that led to the inquiry, according to people familiar with the meeting. Mr. Tucker didn't return calls for comment. The SEC declined to comment.

" FGG's disclosures to its investors did not adequately describe [Bernard L. Madoff Investment Securities'] advisory role and described BLM as merely an executing broker to FGG's accounts."
SEC closing recommendation for case opened Jan. 4, 2006

For years, Fairfield has sparked resentment among rival money managers. Mr. Madoff's funds posted gains during periods of market stress in 2002 and this year as other funds lost ground.

Over the past few years, Fairfield was successful selling in Europe, thanks to the ability of Mr. Noel's sons-in-law to tap wealthy individuals and banks there. Andres Piedrahita, who married Mr. Noel's eldest daughter, was particularly skilled at weaving a social network in Madrid and London, those who know the fund say.

In a presentation about 18 months ago, Mr. Piedrahita pitched a Madoff-related fund to a wealthy London individual investor, according to David Giampaolo, chief executive of Pi Capital, a money-management firm, who was invited by the investor to sit in on the presentation. Mr. Piedrahita stressed the fund's years of steady and attractive performance. "The thing I remember hearing that I liked was the longevity and the consistency" of returns, Mr. Giampaolo said.

But he says the presentation was thin on details about the investment strategy. When pressed to articulate how the fund generated the performance, Mr. Giampaolo said, "There was no deep scientific or intellectual response." The wealthy individual didn't invest. A spokesman said Mr. Piedrahita wasn't available for comment.

Still, banks on two continents offered investors souped-up versions of the Fairfield Sentry fund, designed for funds-of-funds clients and wealthy private-bank clients clamoring for consistent investment returns and access to Mr. Madoff. These products were backed by loans from banks including Banco Bilbao Vizcaya Argentaria SA and Nomura Holdings Inc., according to documents reviewed by The Wall Street Journal. These banks loaned money designed to amplify the gains of the Sentry funds. Nomura on Monday said its exposure to Mr. Madoff was about 27.5 billion yen, or about $304 million. A Nomura spokesman Thursday declined to comment further.

--Carrick Mollenkamp and Sara Schaefer Muñoz contributed to this article.

Write to Jenny Strasburg at jenny.strasburg@wsj.com, Peter Lattman at peter.lattman@wsj.com and Cassell Bryan-Low at cassell.bryan-low@wsj.com

http://online.wsj.com/article/SB122964625164020213.html?mod=testMod

Madoff's Victims Updated 12/18/08

The fallout from Bernard Madoff's alleged Ponzi scheme reverberated around the world as the list of investors facing losses widened. Among the biggest losers were charities, hedge funds, and banks in Europe and Asia. Below, see some of the most exposed investors and sort by the amount of potential losses. --Updated 12/18/08

http://s.wsj.net/public/resources/documents/st_madoff_victims_20081215.html

Beyond that, Madoff operates one of the most successful "third markets" for trading equities after regular exchange hours, and is an active market maker in the European and Asian equity markets. And with a group of partners, it is leading an effort and developing the technology for a new electronic auction market trading system called Primex.

Madoff tops charts; skeptics asks how - MAR/Hedge (RIP) Page 1 No. 89 May 2001

MAR/Hedge (RIP) Page 1
No. 89 May 2001
http://nakedshorts.typepad.com/files/madoff.pdf

Madoff Securities' superior service is made possible by a sophisticated dealing staff backed by the securities industry's most advanced technology. It is underpinned by the personal commitment of founder Bernard L. Madoff and his brother Peter B. Madoff, who is the senior managing director.

http://tinyurl.com/6hj54c

Patent #: 7099839 OPENING PRICE PROCESS FOR TRADING SYSTEM

Total Assignments: 1
Patent #: 7099839 Issue Dt: 08/29/2006 Application #: 09392018 Filing Dt: 09/08/1999
Publication #: 20020019795 Pub Dt: 02/14/2002

Inventors: PETER B. MADOFF, GLEN R. SHIPWAY, ANDREW S. MARGOLIN

Title: OPENING PRICE PROCESS FOR TRADING SYSTEM

Assignment: 1
Reel/Frame:
010400/0041 Recorded: 11/18/1999 Pages: 3

Conveyance:
ASSIGNMENT OF ASSIGNORS INTEREST (SEE DOCUMENT FOR DETAILS).

Assignors:
MADOFF, PETER B.
Exec Dt: 11/10/1999

SHIPWAY, GLEN R.
Exec Dt: 11/10/1999

MARGOLIN, ANDREW S.
Exec Dt: 11/10/1999

Assignee:
PRIMEX HOLDINGS, LLC
885 THIRD AVENUE
NEW YORK, NEW YORK 10022

Correspondent:
FISH & RICHARDSON P.C.
DENIS G. MALONEY
225 FRANKLIN STREET
BOSTON, MA 02110-2804

http://assignments.uspto.gov/assignments/q?db=pat&pat=7099839

Title: AUCTION MARKET WITH PRICE IMPROVEMENT MECHANISM

Total Assignments: 1
Patent #: NONE Issue Dt: Application #: 09272542 Filing Dt: 03/19/1999
Publication #: 20010044767 Pub Dt: 11/22/2001

Inventors: PETER B. MADOFF, ALBERTO C. CASANOVA, CHRISTOPHER KEITH

Title: AUCTION MARKET WITH PRICE IMPROVEMENT MECHANISM

Assignment: 1
Reel/Frame:
010009/0532 Recorded: 06/07/1999 Pages: 5

Conveyance:
ASSIGNMENT OF ASSIGNORS INTEREST (SEE DOCUMENT FOR DETAILS).

Assignors:
MADOFF, PETER B.
Exec Dt: 05/11/1999

CASANOVA, ALBERTO
Exec Dt: 05/11/1999

KEITH, CHRISTOPER
Exec Dt: 05/27/1999

Assignee:
PRIMEX HOLDINGS LLC
885 THIRD AVE.
NEW YORK, NEW YORK 10022

Correspondent:
FISH & MALONEY
DENIS G. MALONEY P.C.
225 FRANKLIN ST.
BOSTON, MA 02110-2804

http://assignments.uspto.gov/assignments/q?db=pat&pub=20010044767

PRIMEX Trading 885 Third Avenue New York, NY 10022 212.230.8200 info@primextrading.com © 2001-07 PRIMEX Holdings, LLC. All rights reserved

http://www.primextrading.com/introduction/overview/

Investors are not automatically eligible for such deductions. They must prove to the IRS that they cannot recover their Madoff investments. The IRS also has not indicated yet whether Madoff's investors can apply the theft provision.

"The IRS is aware of the situation, but beyond that, we have no comment," the federal agency said in a statement Thursday.

Another potential recourse for investors would be to claim that the past taxes they paid on "fictitious income" from Madoff should be recouped, said Stephen Brietstone of the law firm Meltzer Lippe Goldstein & Breitstone who is representing Madoff investors on taxation issues.

The hurdle there is the three-year statute of limitations on amending a tax return, so that would limit investors to only the recent past even if the Madoff fraud existed long before that.

"A lot of investors put all their eggs in one basket, and they have been wiped out, so going back and getting a tax refund might be a remedy for them," Brietstone said.

http://news.yahoo.com/s/ap/20081218/ap_on_bi_ge/madoff_scandal_taxes

MAR Hedge fund report on Madoff in 2001

http://aaronandmoses.blogspot.com/2008/12/mar-hedge-fund-report-on-madoff-in-2001.html

Saturday, December 13, 2008

MAR Hedge fund report on Madoff in 2001

Mention Bernard L. Madoff Investment Securities to anyone working on Wall Street at any time over the last 40 years and you're likely to get a look of immediate recognition.

After all, Madoff Securities, with its 600 major brokerage clients, is ranked as one of the top three market makers in Nasdaq stocks, cites itself as probably the largest source of order flow for New York Stock Exchange-listed securities, and remains a huge player in the trading of preferred, convertible and other specialized securities instruments.

Beyond that, Madoff operates one of the most successful "third markets" for trading equities after regular exchange hours, and is an active market maker in the European and Asian equity markets. And with a group of partners, it is leading an effort and developing the technology for a new electronic auction market trading system called Primex.

But it's a safe bet that relatively few Wall Street professionals are aware that Madoff Securities could be categorized as perhaps the best risk-adjusted hedge fund portfolio manager for the last dozen years. Its $6-7 billion in assets under management, provided primarily by three feeder funds, currently would put it in the number one or two spot in the Zurich (formerly MAR) database of more than 1,100 hedge funds, and would place it at or near the top of any well-known database in existence defined by assets... (the rest in the link below)

http://nakedshorts.typepad.com/files/madoff.pdf

http://aaronandmoses.blogspot.com/2008/12/mar-hedge-fund-report-on-madoff-in-2001.html

Madoff tops charts; skeptics asks how - MAR/Hedge (RIP) Page 1 No. 89 May 2001

MAR/Hedge (RIP) Page 1
No. 89 May 2001
http://nakedshorts.typepad.com/files/madoff.pdf

Madoff tops charts; skeptics ask how

By Michael Ocrant

Mention Bernard L. Madoff Investment Securities to anyone working on Wall Street at any time over the last 40 years and you're likely to get a look of immediate recognition.

After all, Madoff Securities, with its 600 major brokerage clients, is ranked as one of the top three market makers in Nasdaq stocks, cites itself as probably the largest source of order flow for New York Stock Exchange-listed securities, and remains a huge player in the trading of preferred, convertible and other specialized securities instruments.

Beyond that, Madoff operates one of the most successful "third markets" for trading equities after regular exchange hours, and is an active market maker in the European and Asian equity markets. And with a group of partners, it is leading an effort and developing the technology for a new electronic auction
market trading system called Primex.

But it's a safe bet that relatively few Wall Street professionals are aware that Madoff Securities could be categorized as perhaps the best risk-adjusted hedge fund portfolio manager for the last dozen years. Its $6-7 billion in assets under management, provided primarily by three feeder funds, currently would put it in the number one or two spot in the Zurich (formerly MAR) database of more than 1,100 hedge funds, and would place it at or near the top of any well-known database in existence defined by assets.

More important, perhaps, most of those who are aware of Madoff's status in the hedge fund world are baffled by the way the firm has obtained such consistent, nonvolatile returns month after month and year after year.

Madoff has reported positive returns for the last 11-plus years in assets managed on behalf of the feeder fund known as Fairfield Sentry, which in providing capital for the program since 1989 has been doing it longer than any of the other feeder funds. Those other funds have demonstrated equally positive track records using the same strategy for much of that period.

...
5 pages
http://nakedshorts.typepad.com/files/madoff.pdf

...a $50 billion New York hedge fund whose secret algorithm yielded remarkable returns year after year.

Ross McKitrick: December 12th, 2008 at 3:02 pm
http://www.climateaudit.org/?p=4563#comment-315199
Comment 51

Financial blog Naked Shorts, via The Big Picture Blog, presents a nifty article from 2001 asking "How'd they do that?" in another context: a $50 billion New York hedge fund whose secret algorithm yielded remarkable returns year after year.

http://nakedshorts.typepad.com/files/madoff.pdf

Some quotes before I reveal the context:

Skeptics who express a mixture of amazement, fascination and curiosity about the program wonder,first, about the relative complete lack of volatility in the reported monthly returns…experts ask why no one has been able to duplicate similar returns using the strategy

[To] those who express astonishment at the firm's ability in those areas, Madoff points to long experience, excellent technology that provides superb and low-cost execution capabilities, good proprietary stock and options pricing models, well-established infrastructure, market making ability and market intelligence derived from the massive amount of order flow it handles each day. The strategy and trading, he says, are done mostly by signals from a proprietary "black box" system that allows for human intervention to take into account the "gut feel" of the firm's professionals.

Still, when the many expert skeptics were asked by MAR/Hedge to respond to the explanations about the funds, the strategy and the consistently low volatility returns, most continued to express bewilderment and indicated they were still grappling to understand how such results have been achieved for so long. Madoff, who believes that he deserves "some credibility as a trader for 40 years," says: "The strategy is the strategy and the returns are the returns." He suggests that those who believe there is something more to it and are seeking an answer beyond that are wasting their time.

As for the specifics of how the firm manages risk and limits the market impact of moving so much capital in and out of positions, Madoff responds first by saying, "I'm not interested in educating the world on our strategy, and I won't get into the nuances of how we manage risk." He reiterates the undisputed strengths and advantages the firm's operations provide that make it possible.

Now, the context.

Of course this is entirely off-topic, but I thought readers might find it interesting.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aGQSr_LRM_.8&refer=worldwide

http://online.wsj.com/public/resources/documents/Madoff_SECRecommend_20081217.pdf

SEC's Madoff Probe: How Much Blame Does It Deserve?

By Zachary Roth - December 18, 2008, 6:33PM
http://tpmmuckraker.talkingpointsmemo.com/securities_and_exchange_commis/

As readers who have been following this story know, the SEC conducted a number of reviews of Bernard Madoff's brokerage business over the last decade, and found no serious problems.

But if the SEC can be said to be on trial, one recent investigation may be emerging as Exhibit A for the prosecution.

That's the one, highlighted by the Wall Street Journal this morning, that begun in 2006 in response to a long and detailed complaint from Harry Markopolos, a rival broker, and wrapped up the following year with its only significant action being to require Madoff to register as an investment adviser.

But is it fair to blame that SEC team for falling down on the job? And was the wrap on the knuckles ultimately prescribed by the commission an example of Madoff getting special treatment?

To a lay person, the details of the case appear pretty damning. In an SEC enforcement document entitled "Case Closing Recommendation" and posted by the Journal, an SEC staffer wrote:

n the course of a preliminary inquiry into [Markopolos' allegations that Madoff's hedge fund profits were the result of fraud], the staff learned that during a recent examination of BLM by NERO's broker-dealer examination staff, Bernard Madoff, the sole owner of BLM, did not fully disclose to the examination staff either the nature of the trading conducted in the hedge fund accounts or the number of such accounts at BLM.


Under "Conclusions Reached", the document reads:

The staff found no evidence of fraud. The staff did find, however, that BLM acted as an investment adviser to certain hedge funds, institutions, and high-net -worth individuals in violation of the registration requirements of the Advisers Act ... As a result of discussions with the staff, BLM registered with the Commission as an investment adviser.

Then, under "Reasons for Closing":

We recommended closing this investigation because ... BLM ... voluntarily remedied the uncovered violations, and because those violations were not so serious as to warrant an enforcement action.

The document is said to have been "prepared by Simona Suh, Staff Attorney, and reviewed and approved by Doria Bachenheimer, Assistant Regional Director and Meaghan Cheung, Branch Chief."

There are two separate questions here:

First, did the SEC stumble by not detecting the fraud that Madoff himself would confess to the following year? It certainly looks that way.

"Were there sufficient red flags for SEC to have caught this?" asked Ross Albert, a partner at Morris, Manning & Martin in Atlanta, and a former SEC senior special counsel. "Absolutely, without a doubt."

"Would a more aggressive team have caught it?," he continued. "Yes."

James Cox, a securities expert at Duke Law School, agreed, calling it "pretty amazing" that the commission failed to detect what appears to have been such large-scale fraud.

But given what SEC did find, was the mild action they took -- merely requiring that Madoff register as an investment advisor -- appropriate?

Albert said that it was. He pointed out that SEC ultimately found only that Madoff did not disclose certain information to examiners, not that he necessarily misled them, as the original inquiry had alleged. And given that the major problem identified was his failure to register as an investment adviser, requiring him to do so was an obvious and appropriate remedy.

Albert identified a less tangible, more philosophical problem as one major factor in the failure to catch Madoff. "Under [commission chair Chris] Cox, SEC had de-emphasized the enforcement program," he said. "Cox worshipped at the same altar of de-regulation that the rest of the Bush administration worshipped at."

That can work OK in good times, he said. But in bad, it can lead to disaster.

http://tpmmuckraker.talkingpointsmemo.com/securities_and_exchange_commis/

Harry Markopolos raised concerns with the SEC about Bernard L. Madoff Investment Securities in 2000. An earlier version of this article incorrectly said he sent a letter to the agency in 1999.

DECEMBER 18, 2008

Madoff Misled SEC in '06, Got Off

By GREGORY ZUCKERMAN and KARA SCANNELL
http://online.wsj.com/article/SB122956182184616625.html

Securities and Exchange Commission investigators discovered in 2006 that Bernard Madoff had misled the agency about how he managed customer money, according to documents, yet the SEC missed an opportunity to uncover an alleged Ponzi scheme.

The documents indicate the agency had Mr. Madoff in its sights amid multiple violations that, if pursued, could have blown open his alleged multibillion-dollar scam. Instead, his firm registered as an investment adviser, at the agency's request, and the public got no word of the violations.

Harry Markopolos -- who once worked for a Madoff rival -- sparked the probe with his nearly decadelong campaign to persuade the SEC that Mr. Madoff's returns were too good to be true. In recent days, The Wall Street Journal reviewed emails, letters and other documents that Mr. Markopolos shared with the SEC over the years.

When he first began studying Mr. Madoff's investment performance a decade ago, Mr. Markopolos told a colleague at the time, "It doesn't make any damn sense," he and the colleague recall. "This has to be a Ponzi scheme."

For Mr. Markopolos, the arrest last week of Mr. Madoff was something of a vindication after his long campaign. At a certain point, he says, "I was just the boy who cried wolf."

A lawyer for Mr. Madoff declined to comment on Mr. Markopolos's allegations.

On Jan. 4, 2006, the SEC's enforcement staff in New York opened an investigation, based on Mr. Markopolos's allegations, into whether Mr. Madoff was, in fact, running a Ponzi scheme. The SEC staff received documents from Mr. Madoff and Fairfield Greenwich, a hedge fund that placed money with Mr. Madoff on behalf of its clients. The SEC also interviewed Mr. Madoff, his assistant, an official from Fairfield Greenwich and another employee.

Among other things, the SEC found that Mr. Madoff personally "misled the examination staff about the nature of the strategy" used by the Fairfield funds and other hedge-fund accounts, and also "withheld from the examination staff information about certain of these customers' accounts," the SEC documents say.

The SEC report said that neither Mr. Madoff nor the Fairfield funds disclosed to investors in the Fairfield funds that Mr. Madoff was the investment adviser.

A lawyer for Fairfield couldn't be reached for comment.

The SEC report also said Mr. Madoff had violated rules requiring investment advisers to register with the SEC, which makes them subject to inspections and examinations. Investment advisers must register if they have more than 15 clients.

The staff recommended closing the investigation because Mr. Madoff agreed to register his investment-advisory business and Fairfield agreed to disclose information about Mr. Madoff to investors. The SEC report said the staff closed the case "because those violations were not so serious as to warrant an enforcement action."

Mr. Markopolos says his suspicions started in 2000, after a colleague returned from New York with tales of Mr. Madoff's trading prowess. Whether the markets were up, or down, Mr. Madoff managed to clock in with steady gains of 12% or so a year, reportedly achieving that by trading a mix of stocks and stock-index options.
Liked the Look

Mr. Markopolos says his bosses liked the look of those returns -- and asked him why he couldn't do the same thing.

Under pressure to deliver, Mr. Markopolos and a colleague at their Boston investment outfit tried to reconstruct Mr. Madoff's purported strategy. Their results paled in comparison, and Mr. Markopolos began suspecting possible fraud.

His bosses told him to go back and check the math, given Mr. Madoff's renown as a trader.

So Mr. Markopolos turned to Daniel DiBartolomeo, a top financial mathematician in Boston. Mr. DiBartolomeo says he spent hours poring through Mr. Markopolos's data, and ultimately agreed: The strategy Mr. Madoff said he used couldn't have achieved the returns he boasted of.

'Sounds Serious'

In early 2000, Mr. Markopolos shared his explosive concerns with Edward Manion, a staff examiner at the SEC's Boston office.

In his documents, Mr. Markopolos said that there's a chance "I'm an idiot for wasting your time." But he argued forcefully that "I believe an SEC visit is warranted" to look into Mr. Madoff's practices.

"This sounds serious," Mr. Manion told him, inviting Mr. Markopolos in for a meeting.

In May 2000, Mr. Markopolos says he sat down with Mr. Manion and an SEC attorney.

Mr. Markopolos argued his case: A key part of Mr. Madoff's strategy relied on buying and selling options on the Standard & Poor's 100-stock index. But Mr. Markopolos said his research showed there weren't enough S&P-100 options in existence at the time to support Mr. Madoff's stated strategy, given all the money he seemed to be managing. So something else must be going on.

Mr. Markopolos, a native of Erie, Pa., who had trained in "unconventional warfare," including intelligence gathering, as a reservist in the Army, says he came to "consider Madoff a domestic enemy."

Outsized Gains

In the months after the initial meeting with the SEC, Mr. Markopolos kept hearing about Madoff's outsized gains, and how the firm was growing -- sparking frequent calls to Mr. Manion to discuss the case.

Over a year passed. Then, in late 2001, Mr. Manion told Mr. Markopolos the case appeared to have fallen through the cracks. He asked Mr. Markopolos to resubmit his documents and arguments, so they could be passed on to the SEC's New York office.

Mr. Markopolos sent the documents, adding three pages arguing that the fraud was growing in size as Madoff's assets under management grew beyond $12 billion.

Mr. Markopolos also diagrammed how he believed the Madoff organization seemed to work, using a Byzantine flow chart with circles, squares, rectangles and arrows.

Mr. Markopolos continued to receive sympathetic calls from Mr. Manion. "He's the one that kept me going, I would have stopped long ago," Mr. Markopolos says.

But Mr. Manion pointed out that any investigation would have to be conducted by the New York office, where Mr. Madoff's firm was based.

Mr. Markopolos says that worried him. "I was told that the relationship between the SEC's Boston and New York offices is about as warm and cordial as the Yankees-Red Sox rivalry," Mr. Markopolos says.

Mr. Markopolos left his firm in 2004, and started a fraud-investigation practice. Mr. Markopolos's old colleagues, prodding him not to give up, spoke by phone for hours at a time about Mr. Madoff.

"Some people play fantasy sports, that was how it was with us -- Madoff was our fantasy sport," Mr. Markopolos recalls. "We wanted him nailed."

In 2005, an SEC official in Boston called to say the agency was again looking into the case, and told Mr. Markopolos to contact Meaghan Cheung, a supervisor in SEC's New York office, Mr. Markopolos recalls.

In November 2005, Mr. Markopolos sent Ms. Cheung a 21-page report outlining his concerns.

He presented a series of 29 "red flags," ranging from in-depth mathematical calculations that purported to show the Madoff investment strategy couldn't work, to little more than rumor or innuendo -- such as claims that a group of Arab investors were barred from using a major accounting firm to examine Mr. Madoff's books.

He also questioned the fact that Mr. Madoff, unlike most money managers of his stripe, didn't charge his investors a fee for handling their money. Instead, he seemed to make profits on commissions generated by the trades on investors' behalf.

"Bernie Madoff's returns aren't real," Mr. Markopolos said. "And if they are real," it's because Mr. Madoff might be engaging in "front running," or buying shares for his investors' accounts just before filling orders for other clients that have the potential to send the price higher, an illegal practice.

Mr. Markopolos's allegations against Mr. Madoff were far from bulletproof. Mr. Markopolos provided no definitive evidence of a crime. His reports were laden with frothy opinions.

In his lists of "red flags," he occasionally got things wrong. Sometimes he even misstated the starting date of his own campaign against Mr. Madoff.

Ms. Cheung was a respected attorney known for quickly bringing high-profile charges against executives of cable-television company Adelphia Communications several years earlier, after that company issued a questionable earnings report.

Mr. Markopolos thought he had a chance for his campaign to succeed.

"I had my hopes up, I thought it was a good enough package that they would go and shut this man down," Mr. Markopolos recalls.

He sent an email adding more evidence -- noting that he might be eligible for the SEC's bounty program if it turned out that Mr. Madoff was, in fact, front running.

An SEC spokesman wouldn't comment on the agency's communication with Mr. Markopolos.

In its resulting investigation, the SEC searched for evidence of "front running" but found no indications that was happening, according to an individual familiar with the matter.

Investigators also checked out Mr. Markopolos's claim that Mr. Madoff was running a Ponzi scheme. But the billions of dollars of assets held by Mr. Madoff's asset-management unit appeared to match those that various investment firms said they had placed with Madoff, suggesting that there weren't problems.

Today, it is now known that that Mr. Madoff had many more investors -- such as individuals and charities -- which weren't disclosed in regulatory filings, making it harder for investigators at that time to ascertain precisely how much money he was managing.

On Tuesday, SEC Chairman Christopher Cox also said that Madoff kept several sets of books and false documents. That, too, could have thrown off investigators a few years ago.
Rules Violations

As part of the inquiry, the SEC did find that the firm had violated technical rules about executing trades.

Early this year, Mr. Markopolos made one last major effort after receiving an email from Jonathan Sokobin, an official in the SEC's Washington, D.C., office whose job was to search for big market risks. Mr. Sokobin had heard about Mr. Markopolos and asked him to give him a call, according to an email exchange between them.

With low expectations, Mr. Markopolos got in touch. "The way I figured it," he says, "if they didn't believe you at $5 billion, and not at $10 billion, they didn't believe you at $30 billion, then why would they believe you at $50 billion?"

Funds Pulled

Mr. Markopolos also sent Mr. Sokobin an email -- with the stark subject line "$30 billion Equity Derivative Hedge Fund Fraud in New York" -- saying an unnamed Wall Street pro recently pulled money from Mr. Madoff's firm after trying to confirm trades supposedly done in his account, but discovering that no such trades had been made.

It was his last try. He never heard back about his allegations regarding Mr. Madoff.

"I felt pretty low," Mr. Markopolos recalls.

Mr. Sokobin, through an SEC spokesman, declined to comment.

Last Thursday, as Mr. Markopolos watched his children take a karate lesson near his home in Whitman, Mass., 20 miles outside Boston, he checked his voice mail, trying to ignore the noise from the children. Walking out to the foyer, Mr. Markopolos returned one of the calls, and heard an old friend tell him that Mr. Madoff had been arrested.

"I kept firing bigger and bigger bullets" at Mr. Madoff, "but I couldn't stop him," Mr. Markopolos says. With the SEC's mea culpa and Mr. Madoff's arrest, "I finally felt relief."

Write to Gregory Zuckerman at gregory.zuckerman@wsj.com and Kara Scannell at kara.scannell@wsj.com

Corrections & Amplifications:

Harry Markopolos raised concerns with the SEC about Bernard L. Madoff Investment Securities in 2000. An earlier version of this article incorrectly said he sent a letter to the agency in 1999.

http://online.wsj.com/article/SB122956182184616625.html

Mr. Markopolos says his suspicions started in late 1999, after a colleague returned from New York with tales of Mr. Madoff's trading prowess. Whether the markets were up, or down, Mr. Madoff managed to clock in with steady gains of 12% or so a year, reportedly achieving that by trading a mix of stocks and stock-index options.

Liked the Look

Mr. Markopolos says his bosses liked the look of those returns -- and asked him why he couldn't do the same thing.

Under pressure to deliver, Mr. Markopolos and a colleague at their Boston investment outfit tried to reconstruct Mr. Madoff's purported strategy. Their results paled in comparison, and Mr. Markopolos began suspecting possible fraud.

His bosses told him to go back and check the math, given Mr. Madoff's renown as a trader.

So Mr. Markopolos turned to Daniel DiBartolomeo, a top financial mathematician in Boston. Mr. DiBartolomeo says he spent hours poring through Mr. Markopolos's data, and ultimately agreed: The strategy Mr. Madoff said he used couldn't have achieved the returns he boasted of.
'Sounds Serious'

In early 2000, Mr. Markopolos shared his explosive concerns with Edward Manion, a staff examiner at the SEC's Boston office.

In his documents, Mr. Markopolos said that there's a chance "I'm an idiot for wasting your time." But he argued forcefully that "I believe an SEC visit is warranted" to look into Mr. Madoff's practices.

"This sounds serious," Mr. Manion told him, inviting Mr. Markopolos in for a meeting.

In May 2000, Mr. Markopolos says he sat down with Mr. Manion and an SEC attorney.

Mr. Markopolos argued his case: A key part of Mr. Madoff's strategy relied on buying and selling options on the Standard & Poor's 100-stock index. But Mr. Markopolos said his research showed there weren't enough S&P-100 options in existence at the time to support Mr. Madoff's stated strategy, given all the money he seemed to be managing. So something else must be going on.

Mr. Markopolos, a native of Erie, Pa., who had trained in "unconventional warfare," including intelligence gathering, as a reservist in the Army, says he came to "consider Madoff a domestic enemy."
Outsized Gains

In the months after the initial meeting with the SEC, Mr. Markopolos kept hearing about Madoff's outsized gains, and how the firm was growing -- sparking frequent calls to Mr. Manion to discuss the case.

Over a year passed. Then, in late 2001, Mr. Manion told Mr. Markopolos the case appeared to have fallen through the cracks. He asked Mr. Markopolos to resubmit his documents and arguments, so they could be passed on to the SEC's New York office.

Mr. Markopolos sent the documents, adding three pages arguing that the fraud was growing in size as Madoff's assets under management grew beyond $12 billion.

Mr. Markopolos also diagrammed how he believed the Madoff organization seemed to work, using a Byzantine flow chart with circles, squares, rectangles and arrows.

Mr. Markopolos continued to receive sympathetic calls from Mr. Manion. "He's the one that kept me going, I would have stopped long ago," Mr. Markopolos says.

But Mr. Manion pointed out that any investigation would have to be conducted by the New York office, where Mr. Madoff's firm was based.

Mr. Markopolos says that worried him. "I was told that the relationship between the SEC's Boston and New York offices is about as warm and cordial as the Yankees-Red Sox rivalry," Mr. Markopolos says.

Mr. Markopolos left his firm in 2004, and started a fraud-investigation practice. Mr. Markopolos's old colleagues, prodding him not to give up, spoke by phone for hours at a time about Mr. Madoff.

"Some people play fantasy sports, that was how it was with us -- Madoff was our fantasy sport," Mr. Markopolos recalls. "We wanted him nailed."

In 2005, an SEC official in Boston called to say the agency was again looking into the case, and told Mr. Markopolos to contact Meaghan Cheung, a supervisor in SEC's New York office, Mr. Markopolos recalls.

In November 2005, Mr. Markopolos sent Ms. Cheung a 21-page report outlining his concerns.

He presented a series of 29 "red flags," ranging from in-depth mathematical calculations that purported to show the Madoff investment strategy couldn't work, to little more than rumor or innuendo -- such as claims that a group of Arab investors were barred from using a major accounting firm to examine Mr. Madoff's books.

He also questioned the fact that Mr. Madoff, unlike most money managers of his stripe, didn't charge his investors a fee for handling their money. Instead, he seemed to make profits on commissions generated by the trades on investors' behalf.

"Bernie Madoff's returns aren't real," Mr. Markopolos said. "And if they are real," it's because Mr. Madoff might be engaging in "front running," or buying shares for his investors' accounts just before filling orders for other clients that have the potential to send the price higher, an illegal practice.

Mr. Markopolos's allegations against Mr. Madoff were far from bulletproof. Mr. Markopolos provided no definitive evidence of a crime. His reports were laden with frothy opinions.

In his lists of "red flags," he occasionally got things wrong. Sometimes he even misstated the starting date of his own campaign against Mr. Madoff.

Ms. Cheung was a respected attorney known for quickly bringing high-profile charges against executives of cable-television company Adelphia Communications several years earlier, after that company issued a questionable earnings report.

Mr. Markopolos thought he had a chance for his campaign to succeed.

"I had my hopes up, I thought it was a good enough package that they would go and shut this man down," Mr. Markopolos recalls.

He sent an email adding more evidence -- noting that he might be eligible for the SEC's bounty program if it turned out that Mr. Madoff was, in fact, front running.

An SEC spokesman wouldn't comment on the agency's communication with Mr. Markopolos.

In its resulting investigation, the SEC searched for evidence of "front running" but found no indications that was happening, according to an individual familiar with the matter.

Investigators also checked out Mr. Markopolos's claim that Mr. Madoff was running a Ponzi scheme. But the billions of dollars of assets held by Mr. Madoff's asset-management unit appeared to match those that various investment firms said they had placed with Madoff, suggesting that there weren't problems.

Today, it is now known that that Mr. Madoff had many more investors -- such as individuals and charities -- which weren't disclosed in regulatory filings, making it harder for investigators at that time to ascertain precisely how much money he was managing.

On Tuesday, SEC Chairman Christopher Cox also said that Madoff kept several sets of books and false documents. That, too, could have thrown off investigators a few years ago.
Rules Violations

As part of the inquiry, the SEC did find that the firm had violated technical rules about executing trades.

Early this year, Mr. Markopolos made one last major effort after receiving an email from Jonathan Sokobin, an official in the SEC's Washington, D.C., office whose job was to search for big market risks. Mr. Sokobin had heard about Mr. Markopolos and asked him to give him a call, according to an email exchange between them.

With low expectations, Mr. Markopolos got in touch. "The way I figured it," he says, "if they didn't believe you at $5 billion, and not at $10 billion, they didn't believe you at $30 billion, then why would they believe you at $50 billion?"

Funds Pulled

Mr. Markopolos also sent Mr. Sokobin an email -- with the stark subject line "$30 billion Equity Derivative Hedge Fund Fraud in New York" -- saying an unnamed Wall Street pro recently pulled money from Mr. Madoff's firm after trying to confirm trades supposedly done in his account, but discovering that no such trades had been made.

It was his last try. He never heard back about his allegations regarding Mr. Madoff.

"I felt pretty low," Mr. Markopolos recalls.

Mr. Sokobin, through an SEC spokesman, declined to comment.

Last Thursday, as Mr. Markopolos watched his children take a karate lesson near his home in Whitman, Mass., 20 miles outside Boston, he checked his voice mail, trying to ignore the noise from the children. Walking out to the foyer, Mr. Markopolos returned one of the calls, and heard an old friend tell him that Mr. Madoff had been arrested.

"I kept firing bigger and bigger bullets" at Mr. Madoff, "but I couldn't stop him," Mr. Markopolos says. With the SEC's mea culpa and Mr. Madoff's arrest, "I finally felt relief."

Write to Gregory Zuckerman at gregory.zuckerman@wsj.com and Kara Scannell at kara.scannell@wsj.com

http://online.wsj.com/article/SB122956182184616625.html


http://investorshub.advfn.com/boards/read_msg.aspx?Message_id=34269877&txt2find=misled

SEC Division Of Enforcement

Case Closing Recommendation

http://www.slideshare.net/hblodget/madoff-sec-recommendation-presentation

Run on 11/21/2007

SEC Charges Wall Street Professionals and Others With Widespread Insider Trading

FOR IMMEDIATE RELEASE
2008-301
http://www.sec.gov/news/press/2008/2008-301.htm

Washington, D.C., Dec. 18, 2008 -- The Securities and Exchange Commission today charged seven individuals and two companies involved in an insider trading ring, alleging that Matthew Devlin, a former registered representative at Lehman Brothers, Inc. in New York City, traded on and tipped his clients and friends with confidential, nonpublic information about 13 impending corporate transactions. Some of Devlin's clients and friends, three of whom worked in the securities or legal professions, tipped others who also traded in the securities of the companies involved in the transactions.

Additional Materials
Litigation Release No. 20831
http://sec.gov/litigation/litreleases/2008/lr20831.htm

SEC Complaint
http://sec.gov/litigation/complaints/2008/comp20831.pdf

According to the SEC's complaint, Devlin got the inside information from his wife, a partner in the New York City office of an international public relations firm working on the deals. Because the inside information was valuable, some of the traders referred to Devlin and his wife as the "golden goose." The SEC's complaint further alleges that Devlin was rewarded with cash and luxury items for providing inside information, including a widescreen TV, a leather jacket, and Porsche driving lessons.

The SEC alleges that the illicit trading occurred from at least March 2004 through July 2008, and yielded more than $4.8 million in profits. Related criminal charges by the U.S. Attorney's Office for the Southern District of New York were unsealed today against some of the defendants named in the SEC's complaint.

"The Commission is unwavering in its determination to pursue illegal insider trading by securities professionals, lawyers, and others," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "Today's enforcement action is another example of the exemplary working relationships among the SEC, criminal authorities, FINRA and other self-regulatory organizations."

Antonia Chion, Associate Director of the SEC's Division of Enforcement, added, "As alleged in our complaint, many of the defendants took steps to evade detection. This case demonstrates the SEC's ongoing commitment to pursuing sophisticated insider trading schemes."

The SEC's complaint alleges that although many of the defendants had accounts with Lehman, they often attempted to avoid detection by trading in the securities of the target companies in numerous accounts that were not associated with Lehman or Devlin. To further conceal their illicit trading, at least two of the defendants sold off some of the shares they had purchased based on inside information prior to public announcements of the deals. In addition, Devlin and one of his tippees arranged to buy shares on Devlin's behalf so Devlin could profit from the nonpublic information but evade scrutiny. When this tippee's name appeared on a watch list, Devlin and the tippee agreed that Devlin would stop providing him inside information.

The SEC's complaint alleges that, based on the information provided by Devlin, the defendants variously purchased the common stock or options of the following public companies: InVision Technologies, Inc.; Eon Labs, Inc.; Mylan, Inc.; Abgenix, Inc.; Aztar Corporation; Veritas, DGC, Inc.; Mercantile Bankshares Corporation; Alcan, Inc.; Ventana Medical Systems, Inc.; Pharmion Corporation; Take-Two Interactive Software, Inc.; Anheuser-Busch, Inc.; and Rohm and Haas Company. At the time that Devlin tipped the other defendants about these companies, each company was confidentially engaged in a significant transaction that involved a merger, tender offer, or stock repurchase.

The SEC's complaint, which also charges three relief defendants, contains the following allegations:

Bouchareb Trading Group

Devlin tipped Jamil Bouchareb, his friend and client at Lehman, about 12 of the deals. Bouchareb, a Miami Beach, Fla.-based trader, traded in his own accounts and tipped his friends and business partners. He also caused his parents to trade.

Bouchareb's tippees include his friend and business partner, Daniel Corbin, who traded in a number of the deals through accounts in the name of his companies, Augustus Management LLC and Corbin Investment Holdings LLC. Corbin, a Miami-based trader, shared some of the profits he made with Bouchareb. Bouchareb and Corbin also shared an interest in a number of accounts that traded in the deals. In turn, Corbin provided the information to his father Lee Corbin, an attorney based in White Plains, N.Y. Lee Corbin traded in his personal accounts in four of the deals and owned an interest in the Corbin Investment Holdings account that Daniel used to trade in the deals. Bouchareb and Corbin introduced Devlin to Lee Corbin, who steered Devlin business from some of his trusts and estates clients. Bouchareb also provided the information to his girlfriend, Maria Checa, who currently resides in Greensboro, N.C. Checa traded in her accounts, Checa International, Inc. and Playmate Capital LLC. Bouchareb shared in some of the profits that Checa made. In total, Bouchareb, Daniel Corbin, Lee Corbin, Maria Checa and Bouchareb's parents reaped illegal profits of more than $4.2 million.

Devlin's Other Tippees

Frederick Bowers, a registered representative at Lehman and one of Devlin's work partners, was tipped on at least three of the transactions. Bowers then tipped Thomas Faulhaber, one of Bowers' clients at Lehman. Faulhaber realized profits of approximately $217,000. Faulhaber kicked back cash to Bowers who shared some of it with Devlin. Devlin received at least $10,000.

Eric Holzer, Devlin's friend and a tax associate in the New York City office of an international law firm, traded in at least three of the transactions. Holzer reaped profits of $175,000 in his own accounts and two accounts controlled by his father. Holzer gave Devlin cash, some of which came from shares he had his father buy on Devlin's behalf.

Jeffrey Glover, another of Devlin's Lehman clients and an investment adviser, traded in at least five of the deals. Glover, who is a resident of Bellaire, Texas, made approximately $189,000 in illicit profits.

Devlin, Bouchareb, Daniel Corbin, Bowers, Faulhaber, Holzer, Glover, Corbin Investment Holdings, LLC and Augustus Management, LLC are charged with violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5 and 14e-3. The SEC seeks injunctive relief, disgorgement of illicit profits with prejudgment interest, and financial penalties. Checa, Checa International, Inc. and Lee Corbin are charged as relief defendants and the SEC seeks their trading profits.

The Commission thanks the U.S. Attorney's Office and the Federal Bureau of Investigation for their assistance in connection with this matter. The Commission also thanks FINRA, NYSE Regulation, Inc., the International Securities Exchange and the Options Regulatory Surveillance Authority for their assistance.

# # #

For more information, contact:

Antonia Chion
Associate Director, SEC's Division of Enforcement
202-551-4842

Kara Brockmeyer
Assistant Director, SEC's Division of Enforcement
202-551-4767


http://www.sec.gov/news/press/2008/2008-301.htm

SEC charges "Golden Goose" and six others in huge insider trading case

December 18, 2008 at 3:55 pm
http://www.securitiesdocket.com/2008/12/18/sec-charges-golden-goose-and-six-others-in-huge-insider-trading-case/

The SEC today announced that it has charged seven individuals, including several Wall Street professionals, and two companies involved in an insider trading ring. The SEC alleges that Matthew Devlin, a former registered representative at Lehman Bros., traded on and tipped his clients and friends with confidential, nonpublic information about 13 impending corporate transactions.

According to the SEC's complaint, Devlin got the inside information from his wife, a partner in the New York City office of an international public relations firm working on the deals. The SEC stated today that "because the inside information was valuable, some of the traders referred to Devlin and his wife as the "golden goose.'" Devlin was allegedly rewarded with cash and luxury items for providing inside information, including a widescreen TV, a leather jacket, and Porsche driving lessons. The illegal trading allegedly produced more than $4.8 million in profits.

Related criminal charges by the U.S. Attorney's Office for the Southern District of New York were unsealed today against some of the defendants named in the SEC's complaint.

The trading at issue involved the following public companies: InVision Technologies, Inc.; Eon Labs, Inc.; Mylan, Inc.; Abgenix, Inc.; Aztar Corporation; Veritas, DGC, Inc.; Mercantile Bankshares Corporation; Alcan, Inc.; Ventana Medical Systems, Inc.; Pharmion Corporation; Take-Two Interactive Software, Inc.; Anheuser-Busch, Inc.; and Rohm and Haas Company. Each company was confidentially engaged in a significant transaction that involved a merger, tender offer, or stock repurchase.

http://www.securitiesdocket.com/2008/12/18/sec-charges-golden-goose-and-six-others-in-huge-insider-trading-case/

UPDATE: Madoff's Rise Fueled By Leverage, Controversial Fees

December 18, 2008: 02:01 PM ET
http://money.cnn.com/news/newsfeeds/articles/djhighlights/200812181401DOWJONESDJONLINE000907.htm

SAN FRANCISCO (Dow Jones) -- Bernard Madoff, the alleged perpetrator of what could be the largest Ponzi scheme in history, relied on a network of leverage providers and controversial fee arrangements built up over more than a decade to feed his operation.

The scandal, which may trigger at least $17 billion in losses, shows how much the hedge-fund business relied on trust and personal relationships rather than the rigorous due diligence typically demanded by institutional investors and lenders that have come to dominate the industry in recent years.

"It's gone from being an old boy's network to a real business. If you knew the right people, or if the right people could vouch for you, you were in," said Sol Waksman, president of BarclayHedge, which tracks the performance of managers in the $1.5 trillion hedge-fund industry. "That's what due diligence was -- checking the references."

"It's human, but that's what conmen are all about," he added. "They prey on trust."

Madoff, founder of Manhattan-based Bernard L. Madoff Investment Securities, was arrested and charged with securities fraud last week in what federal prosecutors called a Ponzi scheme that could involve losses of more than $50 billion. Ira Lee Sorkin, a lawyer representing Madoff, didn't return calls and emails seeking comment.

Tremont Group Holdings and Fairfield Greenwich Group, two of the oldest hedge- fund investment firms, said they had $10.8 billion with Madoff this week -- more than half of the total assets managed by the firms.

Other firms that put clients' money with Madoff include Union Bancaire Privee, the largest fund-of-hedge-funds business in the world with roughly $1 billion of exposure, and Banco Santander (STD), reported to have about $3 billion at risk via its Optimal fund-of-funds unit.

Ascot Partners, a hedge-fund firm run by former GMAC chairman Ezra Merkin, had $1.8 billion with Madoff, while Fix Asset Management, run by Charles Fix, a member of a Greek brewing family, had roughly $400 million.

Allure and cachet

Madoff founded the firm that bears his name in 1960 and with brother Peter, he built one of the largest market-makers in the U.S., with many of the world's top financial institutions as clients.

But he also began an investment business just as the modern hedge-fund industry was starting to grow in the late 1980s and early 1990s. As a former chairman of the board of the Nasdaq Stock Market and member of the board of the Securities Industry Association, Madoff had the right reputation in a business that still mostly relied on personal connections to wealthy people to raise money.

As early as 1990, the Kingate Global Fund, partly overseen by Tremont, was up and running with Madoff as the portfolio manager.

At that time, the hedge-fund industry had less than $40 billion in assets, according to Hedge Fund Research.

Investing with Madoff's firm was counted as a privilege when it was one of just a few dominant big names in the industry. Investors rarely saw details of the funds' strategies or checked trading positions -- what's known as due diligence in the industry today.

That was part of the hedge-fund industry's allure, and Madoff basked in its glow. He was known as a top manager who didn't let just anyone invest with him and who had a way of making money that he didn't want to disclose because it was so valuable.

Investors were grateful for access on any terms. And the only way to get it was through gatekeepers like Fairfield, run by Walter Noel and Jeffrey Tucker, and Tremont, then headed by Sandra Manzke and Robert Schulman.

By January 2008, Madoff had $17 billion in assets under management, according to a regulatory filing. The hedge-fund industry had nearly $2 trillion after several years when institutional investors like pension funds and endowments poured money in.

Cautionary tale

Madoff's investing empire may have unraveled a decade ago, in the wake of the collapse of hedge-fund firm Long-Term Capital Management in 1998.

By that time, banks had begun lending to investors in hedge funds to help increase returns. This was mostly done with funds of hedge funds, which allocate client money to a group of underlying managers. That way, if one or two managers blew up, the banks would still get their loans repaid.

But Madoff had such a strong reputation and had already reported such steady returns that banks were willing to lend to vehicles that invested just with him.

Fairfield Sentry Ltd., the main Fairfield Greenwich fund that invested with Madoff, reported annual returns of at least 18% from 1991 through 1998, with only seven down months.

In the late 1990s, Comerica Inc. (CMA), a Detroit bank now based in Dallas, lent roughly $150 million to a Tremont fund called the Broad Market Prime Fund, which invested in Madoff, according to two people familiar with the situation.

But when Long-Term Capital Management collapsed in 1998, Comerica decided to get out of the hedge- fund lending business, putting the loan to the Tremont vehicle in danger. A spokeswoman for the bank said it doesn't invest with Madoff and declined to comment further.

If Tremont couldn't find another lender, it may have had to redeem more than $ 100 million from Madoff. Redemptions on a much larger scale this year were probably the catalyst that uncovered his alleged fraud.

Zurich Capital Markets

But Tremont's problem was solved in 1998 when Zurich Capital Markets, a unit of Swiss insurer Zurich Financial Services (ZFSVY), took over the Comerica loan, according to these two people who spoke on condition of anonymity.

The Zurich unit was building a hedge-fund lending business at the time, becoming in the years that followed one of the largest players in the field. By the end of 2001, it controlled structured products backed by $10.2 billion of investments in more than 600 hedge funds.

This was very profitable. In 2001, Zurich Capital Markets made $117 million in profit, up 95% from a year earlier. Most of that came from lending to hedge funds, according to the insurer's annual report for that year. A Zurich spokesman didn't immediately respond to a request for comment on Thursday.

While Zurich Capital Markets and some rivals continued to lend to Madoff, others -- such as RBC Capital Markets and Societe Generale's Lyxor unit -- wouldn't. That's because, even in the 1990s, there were doubts about his investing operation. With hindsight, these now look like more obvious red flags.

The funds were marketed as using a "split-strike conversion" investment strategy. This is relatively simple, but other fund managers using similar strategies couldn't match Madoff's stellar returns.

Other concerns focused on Madoff's family, which seemed to control all of the important positions at the firm.

By 2003, Zurich Financial was struggling in the wake of the bust in dot-com stocks and decided to sell businesses that weren't part of its main insurance operations.

The company put Zurich Capital Markets up for sale and SocGen was considering buying it, but the French bank ultimately turned down the deal because it was worried about taking on exposure to Madoff, according to a person familiar with the situation. A SocGen spokeswoman declined to comment.

Instead, rival BNP Paribas bought the business. After Madoff was arrested, BNP disclosed more than $400 million of exposure to Madoff, partly from loans made to funds of hedge funds.

Other lenders

Other firms that invested with Madoff used leverage too, and that's generated a lot of the exposure that banks face from Madoff.

Fix Asset Management, run by Charles Fix, offered feeder funds into Madoff with names like Harley and Santa Clara. The firm also offered traditional funds of hedge funds that allocated money to a range of underlying managers. But some of these invested in the Madoff feeders too, according to investors.

Some of these vehicles could be leveraged roughly three times, the investors added, on condition of anonymity. A spokeswoman for Reed Smith, the law firm representing Fix, declined to comment.

Earlier this week European and Asian banks revealed at least $4 billion of exposure from loans they made to funds that invested with Madoff.

There's no evidence that the banks were involved in any wrongdoing and most have said they are shocked by the alleged fraud.

But the banks lent money based on one manager, not a basket of different underlying funds exposing them more directly to problems and reliant on the firms that had long-term relationships with Madoff, such as Fairfield and Tremont.

Lawsuits

But lawsuits are already being filed by investors in some of these feeder funds, alleging they didn't do proper due diligence on Madoff.

In 2006, New York Law School's endowment invested $3 million in Ascot Partners, a firm run by former GMAC Chairman Ezra Merkin that had most of its $ 1.8 billion in assets with Madoff.

The law school sued Ascot this week, claiming Merkin failed to perform " appropriate due diligence that would have revealed material irregularities in the investments, operations and financial reporting of Madoff," according to a copy of the complaint.

It also alleges that Ascot suggested it was going to diversify by putting money with a number of different managers. Instead, Merkin "abandoned diversity by giving a single third-party manager, Madoff, management responsibility and discretion over Ascot's funds," the suit said.

Merkin's lawyer has said he's a victim of Madoff's alleged fraud and plans to defend the suit vigorously.

Conflict

Fairfield and Tremont, the hedge fund firms that invested the most with Madoff, have made similar statements. There's no evidence they did anything wrong.

"We are shocked and appalled by this news," Jeffrey Tucker, founding partner of Fairfield Greenwich, said in a statement. "We have worked by Madoff for nearly 20 years, investing alongside our clients. We had no indication that we and many other firms and private investors were the victims of such a highly sophisticated, massive fraudulent scheme."

"Tremont was victimized by not just a person but also a scheme and a complex process designed to deceive individuals and organizations, managers and analysts - including some of the largest, sophisticated financial institutions in the world," a spokesman for that firm said.

Schulman, who helped run Tremont until he retired in June, declined to comment. Manzke, who helped start the firm in the 1980's, wasn't available to comment, according to a representative at her new firm Maxam Capital Management.

However, several hedge fund investment firms either turned down opportunities to invest with Madoff or pulled money out because they were concerned about his operations.

One red flag was that Madoff didn't charge any fees to feeder funds like Fairfield Sentry, Kingate Global and Tremont's Broad Market vehicles. Instead, his market-making unit earned commissions from doing all the trades for his investment operations.

That is a conflict of interest because, in theory, a manager could churn his portfolio to earn more commissions.

"I've always thought that was a conflict of interest," said Leslie Lake, managing director of Invus Financial Advisers, which invests more than $1 billion in hedge fund managers.

Investment decisions should be based on the future performance of managers. Fee arrangements like Madoff's can "cloud your judgment," she added.

Madoff Securities, the brokerage unit, initiated trades for Madoff's investment business, executed the trades and was the custodian and administrator of the assets, according to Aksia, which researches hedge funds, including several that invested with Madoff, for institutions such as pensions and endowments.

"This seemed to be a clear conflict of interest and a lack of segregation of duties is high on our list of red flags," Aksia Chief Executive Jim Vos said in a recent letter to clients.

Fees

While Madoff didn't charge fees, Fairfield Sentry charges its investors a 1% annual management fee and 20% of any profit each year, according to a spokesman for the firm. Earlier this decade, there was no management fee and a 20% performance fee.

Tremont charged an annual management fee of 1% to 1.5%, according to a person familiar with the firm.

Kingate Global charges a 1.5% annual management fee, according to a marketing document for the fund that was obtained by MarketWatch.

This type of fee arrangement is more profitable than the typical fund of hedge funds business.

When a firm allocates money to a range of underlying hedge funds, those managers usually charge 2% annual management fees and 20% performance fees. Funds of hedge funds firms then charge their clients 1% annual management fees and take roughly 10% of any profit each year.

With more than half of their assets invested with Madoff, Fairfield and Tremont likely generated much of their profit from this relationship. Their remaining funds of hedge fund business were likely less lucrative.

Fairfield Greenwich reported $250 million in revenue last year, $160 million of which came from the relationship with Madoff, the Wall Street Journal reported this week.

Tremont used to be a publicly-traded company and its 2001 annual report suggests how profitable its relationship with Madoff had become.

Fees from Tremont's proprietary investment funds jumped 46% to $11.9 million during 2000. Four funds, including the Board Market Prime Fund and Kingate Global, which invested with Madoff, accounted for 96% of that jump in fees, according to the annual report.

Oppenheimer Funds, the giant mutual fund company owned by MassMutual, acquired Tremont for more than $100 million in 2001.

Roughly half of what Oppenheimer bought may have been tied to fees flowing from Tremont's investments with Madoff. A person close to Tremont said this week that the firm had $3.3 billion invested with Madoff, more than half its total assets under management.

Fairfield Greenwich agreed to acquire Bank Benedict Hentsch, a Geneva-based private bank, in September. But after Madoff was arrested, the two firms agreed to unwind the deal.

(END) Dow Jones Newswires
12-18-08 1401ET

http://money.cnn.com/news/newsfeeds/articles/djhighlights/200812181401DOWJONESDJONLINE000907.htm

Florida Pawn Shop Booming After Madoff Revelation

http://www.npr.org/templates/story/story.php?storyId=98293155

All Things Considered, December 15, 2008 · Since Wall Street investment manager Bernard Madoff's alleged Ponzi scheme was revealed, business has been booming at a pawn shop near Palm Beach, Fla., where many of Madoff's investors are based.

A Wall Street Journal story Monday noted some of the calls that Royal Pawn & Jewelry Inc. owner Levi Touger fielded over the weekend. People offered to pawn a Ferrari, a Tiffany ring and a yacht worth over $500,000 -- not the average pawn shop fare. But Touger tells Michele Norris that his shop has been busy since the credit crunch began a year ago, "regardless of this story."

While most people caught in the Madoff scandal have been mum about their losses, Touger says some of his customers have confirmed that they were caught in it. Victims of the scheme have tried to pawn everything from high-end and low-end jewelry to specialty tennis rackets to a 72-inch plasma screen TV that retails for about $12,000.

"Anything I can price, I'll try to help you and give you something for it," Touger says -- meaning "fast cash loans -- that's the motto of our business."

Most of his customers "are somewhat humbled," he says, so he tries to be understanding and help them get some closure. But he also has to be realistic. A customer may be shocked to learn, for example, that a diamond that cost $30,000 is worth only about $8,000 on the wholesale market.

Pawn shops are not necessarily associated with the very rich -- so, when things go bad, does this test the age-old question: Are the rich really different?

"One of the most successful pawn shops in the country is in Beverly Hills. Need I say more?" Touger says. "Are the rich different? They're not."

http://www.npr.org/templates/story/story.php?storyId=98293155

Madoff -- Where was the New York State Society of CPAs?

Saturday, December 13, 2008
http://robspooner.blogspot.com/2008/12/madoff-where-was-new-york-state-society.html

The firm of Friehling & Horowitz, auditors of sorts for Bernard Madoff's financial empire, belonged to the New York State Society of CPAs. You can go to their Web site and search for Mr. Friehling yourself. He's right there, a member, apparently in good standing. More than in good standing. A July 15 newsletter from NYSSCPA shows board members of their various chapters. David G. Friehling is shown as a board member for the Rockland chapter. Earlier in the year, on April 15, he has an article in the newspaper of the NYSSCPA and is identified as the president of the Rockland chapter. The newspaper is, ironically, named The Trusted Professional.

CPAs perform three levels of services on annual statements. They render compilations, reviews, and audits. A single person would have trouble doing a compilation on financials as complex as Madoff's. A proper compilation would have been impossible without a team of CPAs, and Friehling is reported to have worked alone.

But an audit?! It can't have been a secret in Rockland, or at the HQ of NYSSPCA, that Friehling & Horowitz audited Madoff. Any sensible CPA must have realized that he could not either (a) conduct an audit that would meet AICPA standards or (b) remain independent when clearly, he can't have had any other clients. He has no Web page and he runs from essentially a storefront. No alarms bells anywhere?

The NYSSCPA has noticed the Madoff scandal and published an article on it. The article does not note, as other journalists have, the peculiarity of Madoff's outside auditor.

http://robspooner.blogspot.com/2008/12/madoff-where-was-new-york-state-society.html

New York State Society of Certified Public Accountants
Chapter Officers and Executive Boards 2008-2009
http://www.nysscpa.org/trustedprof/708a/tp13.htm

The chapters are a critical element in the success of the New York State Society of CPAs. Without them, many Society services would not be possible. As the lifeblood of the Society, the chapters require a strong and motivated leadership. Our thanks to everyone who has generously decided to volunteer his or her time to support and promote the profession and the Society during the upcoming year. If you would like to get involved, please contact your chapter president.

Rockland Chapter Executive Board

David G. Friehling

November 15, 2006 The Newspaper of the NYSSCPA Vol. 9, No.20

The IRS Offers a Pleasant Surprise

By David G. Friehling, Rockland Chapter President-Elect

The IRS surprised me this summer, but not in the usual "grab for the aspirin and the antacid" way. The IRS pleasantly surprised me.

Our chapter secretary, Shari Berk, and I, in consult with our respective spouses, decided to attend the IRS Tax Conference in Orlando. With the kids away it seemed that no matter how the conference turned out, several days in Orlando with friends (without the kids) would be a fun time.

Imagine our surprise when we found ourselves enjoying not only the water rides and fine dining (without the kids), but a really well run conference that imparted a load of valuable professional information, as well as an opportunity for one-on-one personal consultation at the "help" tables with the very people who are often difficult to reach on the phone! I was even able to register for IRS e-services in a matter of minutes, between my courses.

The conference's administrative infrastructure was wonderful. We scanned our I.D. cards upon entering each seminar room and the CPE credits were automatically recorded into their system. Within a couple of weeks after the conference, we received a listing of the courses we had taken with the corresponding CPE credits earned--and the information was all correct!

There was also a large vendor display open during the length of the conference where we stopped in several times, loading our complimentary conference satchels with heaps of mouse pads, trinkets for our desks and stress-relieving squeeze toys.

It was truly an enjoyable experience. The classroom instructors held our interest, and the choice of classes was so diverse and the scheduling so accommodating that we were kept professionally engaged from 8:00 a.m. until 3:00 p.m.--which also gave us time for a dip in the pool and a visit to the parks (without the kids) using our reduced-price convention-rate park passes.

We were late to bed and early to rise each day, but without the stress that usually accompanies anything IRS--we weren't even tired! We're looking forward to attending the IRS conference again next year. Anyone willing to watch the kids?

David G. Friehling can be reached at friehlings1@aol.com.

http://www.nysscpa.org/trustedprof/1106a/rockland.htm

Madoff's auditor... doesn't audit?

The three-person firm that apparently certified Madoff's books has been telling a key accounting industry group for years that it doesn't conduct audits.

By Alyssa Abkowitz
Last Updated: December 18, 2008: 8:17 AM ET
http://money.cnn.com/2008/12/17/news/companies/madoff.auditor.fortune/?postversion=2008121808

(Fortune) -- The three-person auditing firm that apparently certified the books of Bernard Madoff Investment Securities, the shuttered home of an alleged multibillion-dollar Ponzi scheme, is drawing new scrutiny.

Already under investigation by local prosecutors for its potential role in the scandal, the firm, Friehling & Horowitz, is now also being investigated by the American Institute of Certified Public Accountants, the prestigious body that sets U.S. auditing standards for private companies.

The problem: The auditing firm has been telling the AICPA for 15 years that it doesn't conduct audits.

The AICPA, which has more than 350,000 individual members, monitors most firms that audit private companies. (Public-company auditors are overseen, as the name suggests, by the Public Company Accounting Oversight Board, which was created in 2003 in response to accounting scandals involving WorldCom and Enron.)

Some 33,000 firms enroll in the AICPA's peer review program, in which experienced auditors assess each firm's audit quality every year. Forty-four states require accountants to undergo reviews to maintain their licenses to practice.

Friehling & Horowitz is enrolled in the program but hasn't submitted to a review since 1993, says AICPA spokesman Bill Roberts. That's because the firm has been informing the AICPA -- every year, in writing -- for 15 years that it doesn't perform audits.

Meanwhile, Friehling & Horowitz has reportedly done just that for Madoff. For example, the firm's name and signature appears on the "statement of financial condition" for Madoff Securities dated Oct. 31, 2006. "The plain fact is that this group hasn't submitted for peer review and appears to have done an audit," Roberts says. AICPA has now launched an "ethics investigation," he says.

As it happens, New York is one of only six states that does not require accounting firms to be peer-reviewed. But on the heels of the Madoff revelations, on Tuesday, the New York State senate passed legislation that requires such a process. (The bill now awaits Gov. David Paterson's signature.) "We've not been regulated in the fashion we should've inside the state," says David Moynihan, president-elect of the New York State Society of Certified Public Accountants.

David Friehling, the only active accountant at Friehling & Horowitz, according to the AICPA, might seem like an odd person to flout the institute's rules. He has been active in affiliated groups: Friehling is the immediate past president of the Rockland County chapter of the New York State Society of Certified Public Accountants and sits on the chapter's executive board.

Friehling, who didn't return calls seeking comment, is rarely seen at his office, according to press reports. The 49-year-old, whose firm is based 30 miles north of Manhattan in New City, N.Y., operates out of a 13-by-18-foot office in a small plaza.

A woman who works nearby told Bloomberg News that a man who dresses casually and drives a Lexus appears periodically at Friehling & Horowitz's office for about 10 to 15 minutes at a stretch and then leaves. (State automobile records indicate that Friehling owns a Lexus RX.) The Rockland County District Attorney's Office has opened an investigation to see if the firm committed any state crimes.

People who know Friehling, through the state accounting chapter and through the Jewish Community Center in Rockland County (where he's a board member) were reluctant to discuss him. Most members of both boards wouldn't comment except to say they were surprised by Friehling's connection to Madoff.

"He's nothing but the nicest guy in the world," says David Kirschtel, chief executive of JCC Rockland. "I've never had any negative dealings with him."
First Published: December 17, 2008: 8:38 PM ET


Who isn't a Madoff victim? The list is telling.

Madoff mess exposes fund ripoffs

Madoff mess: Another black eye for banks

http://money.cnn.com/2008/12/17/news/companies/madoff.auditor.fortune/?postversion=2008121808

Questions about NY firm that handled Madoff audit

By JIM FITZGERALD | Associated Press Writer
December 17, 2008
NEW CITY, N.Y.
http://www.newsday.com/news/local/wire/newyork/ny-bc-ny--madoffscandal-aud1217dec17,0,5423504,full.story

The office for Bernard Madoff's sole auditor exudes anything but wealth and intrigue: It is next door to a pediatrician in a drab suburban building. The tiny storefront is discreetly labeled "Friehling & Horowitz" on its single glass door.

The people milling around outside are not high-end investors; they are mothers with children, waiting for the doctor's office to open.

But the auditor, a 49-year-old accountant named David Friehling, is now enmeshed in one of Wall Street's biggest scandals and is under criminal investigation in a case that has left people in financial ruin around the world.

The fact that a such a small accounting business was the main auditor for Madoff's multibillion-dollar operation has emerged as one of the most mysterious elements of the case. Experts say it would be preposterous for a tiny firm to audit properly an operation the size of Madoff's.

"What if General Motors had a three-person accounting firm doing its audits?" said Jim Vos, CEO and head of research at the hedge fund consulting firm Aksia LLC in New York City, 30 miles south of this suburb.

Colleague Jake Walthour said, "Most hedge funds, even when they are small, use one of four or five big-name firms. And this wasn't one of them."

Calls to the firm have gone unanswered this week, and the storefront has been locked every day this week. On Wednesday, a notice of a failed UPS delivery was hung on the door.

Friehling's home nearby is on a private road that was blocked by a security car, and no one answered the phone.

Rockland County District Attorney Thomas Zugibe, who is investigating the firm, said this week he did not know where Friehling was and had not had any contact with him. Zugibe's investigators were at the Friehling office Monday morning, knocking fruitlessly at the locked door.

If Friehling's independent audit reports were fraudulent, "You're dealing with some very serious felony offenses under state law," the district attorney said.

"When people make a decision on whether to invest, they do look to see that there was an independent auditor's report and whether or not it was objective and whether or not it basically laid out the strength of the company."

The accounting firm has not been charged, and the U.S. attorney's office would not confirm whether the business is under investigation.

On Wednesday, the American Institute of Certified Public Accountants said it has opened an ethics investigation of Friehling & Horowitz. Spokesman William Roberts told The Associated Press that the firm had been falsely reporting that it was not doing auditing work, thereby avoiding periodic reviews.

Vos' company looked into Madoff's firm last year and warned investors off, finding several "red flags." One was the size of Friehling's firm. A private investigator reported to Aksia that there seemed to be one person working there. Phone calls were not returned until someone finally answered and said the firm was not open for business, Vos said.

"We found that there were just three employees, the two principals and a secretary," Vos said.

One of the principals, 80-year-old Jerome Horowitz, actually left the firm in 1997, state records show. He now lives in Florida and may be Friehling's father-in-law.

This stands in sharp contrast to big auditors such as Ernst & Young, PricewaterhouseCoopers and KPMG _ established firms that have the manpower to handle a huge client like Madoff.

Vos also noted that Madoff had used a pre-existing licensed firm, unlike other frauds where swindlers created fictional auditing firms that issued fraudulent reports.

"It's a real firm, that's what's hilarious." he said. "Their story is going to be that they were fooled. ... It is possible."

Asked if the accountant could have been fooled by Madoff, the district attorney said, "Independent auditors don't depend on what they're given. They're supposed to dig into things."

The firm seems to have a clean record. Jane Briggs of the state Education Department, which licenses certified public accountants, says there has never been any disciplinary action _ and none is pending _ against Friehling or the firm.

The business has no current tax problems, and there is no record of judgments against it or a criminal record for Friehling.

Little is known about Friehling's other clients or how he came to be Madoff's auditor. State documents indicate that it is a firm engaged in the business of tax preparation, bookkeeping, accounting and auditing.

Friehling is a registered Democrat who voted this year and is a past president of the county chapter of the state CPA society. He is on the board of the Jewish Community Campus in West Nyack, a community center where spokesman David Kirschtel said Friehling is "a nice guy, generous, always supportive of the community."

Kirschtel said the group had not invested in the Madoff funds.

The district attorney, while acknowledging that his investigation was in its early stages, said, "It's a local accounting firm that may well be a critical partner in the largest financial fraud that we've ever seen."

Mitchell Gusler, a fellow member of the CPA society, said Wednesday he last saw Friehling at a chapter function in the first week of December.

"None of this makes any sense," he said.

___

Associated Press Writers David B. Caruso and Marcy Gordon contributed to this report.

http://www.newsday.com/news/local/wire/newyork/ny-bc-ny--madoffscandal-aud1217dec17,0,5423504,full.story

...investor losses exceeded at least about $50 billion, according to a criminal complaint filed by federal prosecutors in Manhattan. That figure represents the collective amount that investors believed they had invested with the firm -- not the amount they initially invested, known as principal, according to people familiar with the investigation.

http://online.wsj.com/article/SB122953110854314501.html

Scope of Alleged Fraud Is Still Being Assessed

DECEMBER 18, 2008, 9:41 A.M. ET
By AMIR EFRATI
http://online.wsj.com/article/SB122953110854314501.html

Federal investigators are closer to determining the extent of the massive fraud they say was pulled off by money manager Bernard Madoff, which two people familiar with the scheme say lasted for more than 20 years.

Separately, Mr. Madoff, 70 years old, agreed to bail terms that include home detention and electronic monitoring.

Investigators have been looking through records at Mr. Madoff's firm since his arrest last week on a criminal charge of securities fraud, but they still haven't released information on how much in assets the firm currently has or how many clients invested with Mr. Madoff.

These investigators, which include the Securities and Exchange Commission and a court-appointed trustee who is handling the firm's liquidation, have a rough understanding of the damage to investors but have yet to pinpoint the exact figure, said a person familiar with the matter. The alleged fraud scheme is believed to be one of the largest in U.S. history.

Mr. Madoff's sons, Andrew and Mark, who worked with their father at the firm, told the FBI last week that their father confessed to them that his investment-advisory business was a "giant Ponzi scheme" and that investor losses exceeded at least about $50 billion, according to a criminal complaint filed by federal prosecutors in Manhattan. That figure represents the collective amount that investors believed they had invested with the firm -- not the amount they initially invested, known as principal, according to people familiar with the investigation.

According to the criminal complaint, Mr. Madoff (pronounced MADE-off) told his sons there was approximately $200 million to $300 million left in his business as of last week and that he wanted to distribute to employees before turning himself in to authorities. The sons told the FBI that they had previously understood that the investment-advisory arm of the firm had between $8 billion and $15 billion in assets.

While Mr. Madoff's firm reported to the SEC that it had $17 billion in assets at the start of 2008, federal authorities now believe that figure was fictional, according to a person familiar with the investigation.

Investors and other affected parties have disclosed combined exposure to Mr. Madoff's alleged fraud of more than $25 billion. The victims range from Fairfield Greenwich Group, an asset-management firm that has said about $7.5 billion of its assets were invested with vehicles connected to Mr. Madoff as of Nov. 1, to charities and individual investors.

Federal prosecutors handling the criminal case against Mr. Madoff are looking into whether anyone else may have been involved in the alleged fraud, said a person familiar with the matter. Investigators are also focusing on how Mr. Madoff raised money and what role his wife, Ruth Madoff, may have played in that process, people familiar with the matter said. Mrs. Madoff once worked at her husband's firm, say people familiar with the firm.

A court-appointed trustee, lawyer Irving Picard, who took control of the firm's U.S. operations Monday night and is sifting through its affairs, is in regular contact with the FBI, according to a person familiar with the matter.

Meanwhile, New York lawyer Lee Richards, who was appointed by a U.S. federal judge to marshal the assets of non-U.S. entities owned by Mr. Madoff, has taken control of Mr. Madoff's U.K. operation, Madoff Securities International. The firm places bets on European stocks with the Madoff family's own money, says a spokesman for the head of the firm. The spokesman said the firm, which has ceased operations, holds £105 million, or about $160 million, that belongs to the Madoffs.

As part of Mr. Madoff's court-approved bail agreement, he will wear an electronically monitored ankle bracelet and will be confined to the New York City area. He also must remain in his Upper East Side penthouse apartment from 7 p.m. to 9 a.m. His wife surrendered her passport and pledged properties she owns herself or jointly with Mr. Madoff in Manhattan, Montauk, N.Y., and Palm Beach, Fla., to help secure the $10 million bond.

Earlier, a federal judge had given Mr. Madoff until Wednesday to find a total of four co-signers for his bail package. But the government Wednesday agreed to two co-signors -- Ruth and Mr. Madoff's brother, Peter -- who would be on the hook financially were Mr. Madoff to violate bail terms. After his arrest last week, he was released on a personal recognizance bond secured by his apartment in Manhattan, which is worth about $7 million.

Write to Amir Efrati at amir.efrati@wsj.com

http://online.wsj.com/article/SB122953110854314501.html

Copy of Class Action Complaint in Kellner v. Madoff (with corrected link): http://is.gd/ckO1

Trading Suspensions December 17, 2008 Yatinoo, Inc.
http://www.sec.gov/litigation/suspensions/2008/34-59110.pdf

See also Order (Release No. 34-59110; December 17, 2008)
http://www.sec.gov/litigation/suspensions/2008/34-59110-o.pdf

SECURITIES AND EXCHANGE COMMISSION Washington, D.C.

SECURITIES EXCHANGE ACT OF 1934 CORRECTED RELEASE NO. 59110 / December 17, 2008

The Securities and Exchange Commission announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the "Exchange Act"), of trading of the securities of Yatinoo, Inc. ("Yatinoo") at 9:30 a.m. EST on December 17, 2008, and terminating at 11:59 p.m. EST on December 31, 2008.

The Commission temporarily suspended trading in the securities of Yatinoo because of questions that have been raised concerning the accuracy and adequacy of publicly-available information about Yatinoo securities, including information in the market place concerning the number of Yatinoo's issued and outstanding shares and market capitalization, and Yatinoo's operations. Questions have also arisen about trading activity in the market for Yatinoo securities. Yatinoo securities are quoted on the Over-the-Counter Bulletin Board under the trading symbol YTNO.

The Commission cautions brokers, dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company.

Further, brokers and dealers should be alert to the fact that, pursuant to Rule 15c2-11 under the Exchange Act, at the termination of the trading suspension, no quotation may be entered unless and until they have strictly complied with all of the provisions of the rule. If any broker or dealer has any questions as to whether or not he has complied with the rule, he should not enter any quotation but immediately contact the staff in the Division of Trading and Markets, Office of Interpretation and Guidance, at (202) 551-5777. If any broker or dealer is uncertain as to what is required by Rule 15c2-11, he should refrain from entering quotations relating to Yatinoo's securities until such time as he has familiarized himself with the rule and is certain that all of its provisions have been met. If any broker or dealer enters any quotation which is in violation of the rule, the Commission will consider the need for prompt enforcement action.

If any broker, dealer, or other person has any information which may relate to this matter, they should contact John Polise, Assistant Director, at (202) 551-4981, or by email at polisej@sec.gov.

Carlo (Charles) Ponzi

http://www.u-s-history.com/pages/h1800.html

http://www.amazon.com/Ponzis-Scheme-Story-Financial-Legend/dp/0812968360/ref=pd_sim_b_1/186-7090318-9424810

Another LI law firm targets Madoff

BY JAMES BERNSTEIN
james.bernstein@newsday.com
December 18, 2008
http://www.newsday.com/news/local/crime/ny-bzscam185969323dec18,0,7924137.story

A second major Long Island law firm said yesterday it will take legal action against Bernard Madoff, the prominent Wall Street money manager accused of operating a Ponzi scheme that cost investors $50 billion.

Mineola-based Meltzer Lippe Goldstein & Breitstone Llp said it is seeking relief for Madoff investors who paid taxes on "fictitious income." It also said it did not believe a class-action - filed by another Long Island law firm - was an effective way to recover lost money.

Ruskin Moscou Faltischek of Uniondale said last Friday it was seeking class-action status on behalf of investors who say they lost money to the 70-year-old Madoff, who founded Madoff Investment Securities Llc in Manhattan in 1960.

Stephen Breitstone, an attorney at Meltzer Lippe, said Madoff investors may have paid income taxes on paper gains from their investments, and that they may be able to recover some of that money.

"A lot of investors, especially the real wealthy ones, would just roll over their investments and reinvest it, and that would cause the account to grow significantly," Breitstone said.

But recovering the money won't be easy, he added. There is generally a two-year statute of limitations on claiming refunds and a three-year limitation on amending a return. A key question may be how far back prosecutors determine Madoff's alleged scheme goes.

Breitstone also said his law firm did not believe a class-action was the best way to recover money. "I don't see a class-action being successful," he said. There are too many different types of investors - large, small, hedge fund, financial institution - to fit into a "class," he added.

Barbara L. Cerrone, a spokeswoman for Ruskin Moscou, said, "We are not going to comment on a press release issued by anyone at this stage."

Madoff, a former chairman of the Nasdaq Stock Market, was arrested last week at his Manhattan apartment, and allegedly told FBI agents that he had operated a Ponzi scheme that swindled investors out of $50 billion. If that is so, it would be the largest such scheme in U.S. history.

http://www.newsday.com/news/local/crime/ny-bzscam185969323dec18,0,7924137.story

Madoff Misled SEC in '06, Got Off

DECEMBER 18, 2008
By GREGORY ZUCKERMAN and KARA SCANNELL
http://online.wsj.com/article/SB122956182184616625.html

Securities and Exchange Commission investigators discovered in 2006 that Bernard Madoff had misled the agency about how he managed customer money, according to documents, yet the SEC missed an opportunity to uncover an alleged Ponzi scheme.

The documents indicate the agency had Mr. Madoff in its sights amid multiple violations that, if pursued, could have blown open his alleged multibillion-dollar scam. Instead, his firm registered as an investment adviser, at the agency's request, and the public got no word of the violations.

Harry Markopolos -- who once worked for a Madoff rival -- sparked the probe with his nearly decadelong campaign to persuade the SEC that Mr. Madoff's returns were too good to be true. In recent days, The Wall Street Journal reviewed emails, letters and other documents that Mr. Markopolos shared with the SEC over the years.

When he first began studying Mr. Madoff's investment performance a decade ago, Mr. Markopolos told a colleague at the time, "It doesn't make any damn sense," he and the colleague recall. "This has to be a Ponzi scheme."

For Mr. Markopolos, the arrest last week of Mr. Madoff was something of a vindication after his long campaign. At a certain point, he says, "I was just the boy who cried wolf."

A lawyer for Mr. Madoff declined to comment on Mr. Markopolos's allegations.

On Jan. 4, 2006, the SEC's enforcement staff in New York opened an investigation, based on Mr. Markopolos's allegations, into whether Mr. Madoff was, in fact, running a Ponzi scheme. The SEC staff received documents from Mr. Madoff and Fairfield Greenwich, a hedge fund that placed money with Mr. Madoff on behalf of its clients. The SEC also interviewed Mr. Madoff, his assistant, an official from Fairfield Greenwich and another employee.

Among other things, the SEC found that Mr. Madoff personally "misled the examination staff about the nature of the strategy" used by the Fairfield funds and other hedge-fund accounts, and also "withheld from the examination staff information about certain of these customers' accounts," the SEC documents say.

The SEC report said that neither Mr. Madoff nor the Fairfield funds disclosed to investors in the Fairfield funds that Mr. Madoff was the investment adviser.

A lawyer for Fairfield couldn't be reached for comment.

The SEC report also said Mr. Madoff had violated rules requiring investment advisers to register with the SEC, which makes them subject to inspections and examinations. Investment advisers must register if they have more than 15 clients.

The staff recommended closing the investigation because Mr. Madoff agreed to register his investment-advisory business and Fairfield agreed to disclose information about Mr. Madoff to investors. The SEC report said the staff closed the case "because those violations were not so serious as to warrant an enforcement action."

Mr. Markopolos says his suspicions started in late 1999, after a colleague returned from New York with tales of Mr. Madoff's trading prowess. Whether the markets were up, or down, Mr. Madoff managed to clock in with steady gains of 12% or so a year, reportedly achieving that by trading a mix of stocks and stock-index options.
Liked the Look

Mr. Markopolos says his bosses liked the look of those returns -- and asked him why he couldn't do the same thing.

Under pressure to deliver, Mr. Markopolos and a colleague at their Boston investment outfit tried to reconstruct Mr. Madoff's purported strategy. Their results paled in comparison, and Mr. Markopolos began suspecting possible fraud.

His bosses told him to go back and check the math, given Mr. Madoff's renown as a trader.

So Mr. Markopolos turned to Daniel DiBartolomeo, a top financial mathematician in Boston. Mr. DiBartolomeo says he spent hours poring through Mr. Markopolos's data, and ultimately agreed: The strategy Mr. Madoff said he used couldn't have achieved the returns he boasted of.
'Sounds Serious'

In early 2000, Mr. Markopolos shared his explosive concerns with Edward Manion, a staff examiner at the SEC's Boston office.

In his documents, Mr. Markopolos said that there's a chance "I'm an idiot for wasting your time." But he argued forcefully that "I believe an SEC visit is warranted" to look into Mr. Madoff's practices.

"This sounds serious," Mr. Manion told him, inviting Mr. Markopolos in for a meeting.

In May 2000, Mr. Markopolos says he sat down with Mr. Manion and an SEC attorney.

Mr. Markopolos argued his case: A key part of Mr. Madoff's strategy relied on buying and selling options on the Standard & Poor's 100-stock index. But Mr. Markopolos said his research showed there weren't enough S&P-100 options in existence at the time to support Mr. Madoff's stated strategy, given all the money he seemed to be managing. So something else must be going on.

Mr. Markopolos, a native of Erie, Pa., who had trained in "unconventional warfare," including intelligence gathering, as a reservist in the Army, says he came to "consider Madoff a domestic enemy."
Outsized Gains

In the months after the initial meeting with the SEC, Mr. Markopolos kept hearing about Madoff's outsized gains, and how the firm was growing -- sparking frequent calls to Mr. Manion to discuss the case.

Over a year passed. Then, in late 2001, Mr. Manion told Mr. Markopolos the case appeared to have fallen through the cracks. He asked Mr. Markopolos to resubmit his documents and arguments, so they could be passed on to the SEC's New York office.

Mr. Markopolos sent the documents, adding three pages arguing that the fraud was growing in size as Madoff's assets under management grew beyond $12 billion.

Mr. Markopolos also diagrammed how he believed the Madoff organization seemed to work, using a Byzantine flow chart with circles, squares, rectangles and arrows.

Mr. Markopolos continued to receive sympathetic calls from Mr. Manion. "He's the one that kept me going, I would have stopped long ago," Mr. Markopolos says.

But Mr. Manion pointed out that any investigation would have to be conducted by the New York office, where Mr. Madoff's firm was based.

Mr. Markopolos says that worried him. "I was told that the relationship between the SEC's Boston and New York offices is about as warm and cordial as the Yankees-Red Sox rivalry," Mr. Markopolos says.

Mr. Markopolos left his firm in 2004, and started a fraud-investigation practice. Mr. Markopolos's old colleagues, prodding him not to give up, spoke by phone for hours at a time about Mr. Madoff.

"Some people play fantasy sports, that was how it was with us -- Madoff was our fantasy sport," Mr. Markopolos recalls. "We wanted him nailed."

In 2005, an SEC official in Boston called to say the agency was again looking into the case, and told Mr. Markopolos to contact Meaghan Cheung, a supervisor in SEC's New York office, Mr. Markopolos recalls.

In November 2005, Mr. Markopolos sent Ms. Cheung a 21-page report outlining his concerns.

He presented a series of 29 "red flags," ranging from in-depth mathematical calculations that purported to show the Madoff investment strategy couldn't work, to little more than rumor or innuendo -- such as claims that a group of Arab investors were barred from using a major accounting firm to examine Mr. Madoff's books.

He also questioned the fact that Mr. Madoff, unlike most money managers of his stripe, didn't charge his investors a fee for handling their money. Instead, he seemed to make profits on commissions generated by the trades on investors' behalf.

"Bernie Madoff's returns aren't real," Mr. Markopolos said. "And if they are real," it's because Mr. Madoff might be engaging in "front running," or buying shares for his investors' accounts just before filling orders for other clients that have the potential to send the price higher, an illegal practice.

Mr. Markopolos's allegations against Mr. Madoff were far from bulletproof. Mr. Markopolos provided no definitive evidence of a crime. His reports were laden with frothy opinions.

In his lists of "red flags," he occasionally got things wrong. Sometimes he even misstated the starting date of his own campaign against Mr. Madoff.

Ms. Cheung was a respected attorney known for quickly bringing high-profile charges against executives of cable-television company Adelphia Communications several years earlier, after that company issued a questionable earnings report.

Mr. Markopolos thought he had a chance for his campaign to succeed.

"I had my hopes up, I thought it was a good enough package that they would go and shut this man down," Mr. Markopolos recalls.

He sent an email adding more evidence -- noting that he might be eligible for the SEC's bounty program if it turned out that Mr. Madoff was, in fact, front running.

An SEC spokesman wouldn't comment on the agency's communication with Mr. Markopolos.

In its resulting investigation, the SEC searched for evidence of "front running" but found no indications that was happening, according to an individual familiar with the matter.

Investigators also checked out Mr. Markopolos's claim that Mr. Madoff was running a Ponzi scheme. But the billions of dollars of assets held by Mr. Madoff's asset-management unit appeared to match those that various investment firms said they had placed with Madoff, suggesting that there weren't problems.

Today, it is now known that that Mr. Madoff had many more investors -- such as individuals and charities -- which weren't disclosed in regulatory filings, making it harder for investigators at that time to ascertain precisely how much money he was managing.

On Tuesday, SEC Chairman Christopher Cox also said that Madoff kept several sets of books and false documents. That, too, could have thrown off investigators a few years ago.
Rules Violations

As part of the inquiry, the SEC did find that the firm had violated technical rules about executing trades.

Early this year, Mr. Markopolos made one last major effort after receiving an email from Jonathan Sokobin, an official in the SEC's Washington, D.C., office whose job was to search for big market risks. Mr. Sokobin had heard about Mr. Markopolos and asked him to give him a call, according to an email exchange between them.

With low expectations, Mr. Markopolos got in touch. "The way I figured it," he says, "if they didn't believe you at $5 billion, and not at $10 billion, they didn't believe you at $30 billion, then why would they believe you at $50 billion?"
Funds Pulled

Mr. Markopolos also sent Mr. Sokobin an email -- with the stark subject line "$30 billion Equity Derivative Hedge Fund Fraud in New York" -- saying an unnamed Wall Street pro recently pulled money from Mr. Madoff's firm after trying to confirm trades supposedly done in his account, but discovering that no such trades had been made.

It was his last try. He never heard back about his allegations regarding Mr. Madoff.

"I felt pretty low," Mr. Markopolos recalls.

Mr. Sokobin, through an SEC spokesman, declined to comment.

Last Thursday, as Mr. Markopolos watched his children take a karate lesson near his home in Whitman, Mass., 20 miles outside Boston, he checked his voice mail, trying to ignore the noise from the children. Walking out to the foyer, Mr. Markopolos returned one of the calls, and heard an old friend tell him that Mr. Madoff had been arrested.

"I kept firing bigger and bigger bullets" at Mr. Madoff, "but I couldn't stop him," Mr. Markopolos says. With the SEC's mea culpa and Mr. Madoff's arrest, "I finally felt relief."

Write to Gregory Zuckerman at gregory.zuckerman@wsj.com and Kara Scannell at kara.scannell@wsj.com

http://online.wsj.com/article/SB122956182184616625.html