SEC under fire after failing to act for years on specific Madoff tips

December 17, 2008

NY (ChattahBox) — Outrage is building as to how Bernard Madoff was able to avoid scrutiny from the Securities and Exchange Commission (SEC) for so many years. The alleged Wall Street swindler behind the world’s biggest financial fraud had even advised the U.S. government on how to spot con artists.

After his arrest last week, Madoff confessed that his long established investment fund was ‘just one big lie’. Investigators say the once well-respected former chairman of the Nasdaq electronic stock exchange evaded suspicion for years by robbing Peter to pay Paul. In a pyramid con – known in America as a Ponzi scheme – Madoff allegedly used money from new clients to pay out earlier investors. The house of cards came tumbling down when investors demanded billions of their money back because of the worldwide credit crunch. And the SEC is now under growing pressure to explain how it allowed Madoff to stay one step ahead of the law for so long, despite numerous ‘red flag’ warnings.

Financial experts claim the SEC should have shut Madoff down years ago. As long ago as 1992, Madoff came under investigation for brokering $500 million in unregistered securities, but got off without even a slap on the wrist because he claimed he didn’t know the money had been raised outside the auspices of the SEC. The SEC also received a letter in 1999 accusing Madoff of running a pyramid scheme, but the agency didn’t conduct even a routine examination of the investment firm until last week. A 2001 article in the financial newspaper Barron’s questioned how Madoff made stunning double-digit returns year after year irrespective of stock slumps. And rival trader Harry Markopolos has been lobbying the SEC for nearly a decade to take action against Madoff because he was convinced his stock options strategy was fake. One top hedge fund warned clients not to invest with Madoff last year, saying his books were audited by Friehling and Horowitz, a three-person accounting firm based in a tiny shop in a New York suburb. Friehling and Horowitz – now under investigation as part of the probe – consists of one partner in his late seventies who lives in Florida, a secretary and one active accountant.

Rather than investigate Madoff, the government appointed him in 2000 to its Advisory Committee on Market Information, set up to protect investors and compell financial firms to be more open about their dealings. At one SEC hearing in 2004, Madoff joked with then chairman William Donaldson, saying: ‘Our firm has made a fairly decent living as a fast market competing with a slow market, so I’m not sure it’s in our own best interest for everyone to become a fast market.’ A fast market is when there is a combination of high volatility and heavy trading, with sales of shares usually outnumbering the buys. Commissioners laughed openly as Madoff agreed ‘to take off our selfish hats here and speak for the public good.’

The scandal may now spell the end of the SEC as a separate agency with Washington already looking at ways of overhauling the regulation of financial firms in the wake of the Wall Street crash.

Meanwhile scores more charities, banks and individual investors revealed yesterday they face ruin as a result of the global con that could cost victims a staggering $50 billion. The giant fraud has especially hurt charities with some being forced to close their doors. DreamWorks animation studio boss Jeffrey Katzenberg has lost millions and his Hollywood partner Steven Spielberg’s charity was also hit. British and European banks,including the Royal Bank of Scotland and HSBC, are among those who have seen hundreds of millions of pounds simply disappear. Another big loser was Fred Wilpon, owner of the New York Mets baseball team. The biggest individual loser was said to be 95-year-old philanthropist Carl Shapiro, who had $545million of his personal fortune tied up with Madoff as well as $145million from his family charity.

‘It is devastating to think that so many charities, institutions and individuals that had put their trust in Mr Madoff have had their lives so negatively impacted,’ said Mr Shapiro, who had a ‘close, personal relationship’ with Madoff for more than 50 years.

The Greenwich, Connecticut-based Fairfield Group investment firm was the biggest reported loser overall with $7.5billion of its funds missing. The town of Fairfield, Connecticut, has lost a reported $42million of its pension plan for police, fire fighters and local government employees on Madoff investments.


Comments

One Response to “SEC under fire after failing to act for years on specific Madoff tips”

  1. Milley on December 17th, 2008 10:50 am

    Madonna knows people will only remember the first report of the $60 million to Guy.

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