SEC Ignored Letters Outlining Madoff’s Fraud


I have only been watching the Bernie Madoff affair from a distance — because despite the scale of the fraud, what has befallen the American and global economies and gut-punched real people’s lives make the Madoff scheme sadly, almost unbelievably trivial. But I was at a dinner recently with legendary journalist Arnaud de Borchgrave where he outlined how Madoff’s fraud had rippled through the wealthiest corners of the American Jewish philanthropic community — an old story now to many — but de Borchgrave has a way of making his commentary incredibly vivid.
Yesterday, de Borchgrave had an interesting piece on the UPI site further outlining the regulatory incompetence and negligence in the Madoff case when other whistle blowers were blowing their whistles loudly:

In 2000, Harry Markopoulos, a Greek-American leading expert on derivatives, wrote to the Securities and Exchange Commission’s Boston office to inform the federal watchdog of markets that Bernard L. Madoff was running “the world’s largest hedge fund fraud.” He stipulated, “My name not be released to anyone other than the branch chief and team leader in the New York region, without my express permission.”
Mr. Markopoulos was worried about his safety and that of his family. He said his report was written solely for the SEC’s internal use.” He was clearly afraid of assassination. But his red flag was only one of 28 such warnings to the SEC in the first eight years of the 21st century.
A Greek-American friend of Mr. Markopoulos, now in Switzerland, wrote in his blog, “He nailed Madoff, listing the back-door marketing and financing schemes as if he were an insider.
But the SEC did not respond. Powerful political voices ordered the SEC not to proceed. I am not naming names because libel laws mostly favor the criminal in Europe, and their names will never get past libel lawyers. The largest investors were not Jewish charities as was reported by New York newspapers, but French, Spanish and Swiss private banks.”
Mr. Markopoulos predicted the implosion of all the main funds (which he named) that dealt with Mr. Madoff four years before they imploded. That nobody listened or did anything about it is an even bigger scandal.
A total mental meltdown of 3,000 SEC bureaucrats, each presumably endowed with average mental faculties, and a headquarters festooned with red flags, taxes credulity.

Amazing, and just gross negligence all around.
President Obama has said that he isn’t going to enforce consequences and call for accountability in the nefarious acts done by the last administration in national security affairs. What about economic crimes?
— Steve Clemons


15 comments on “SEC Ignored Letters Outlining Madoff’s Fraud

  1. PJ says:

    While I believe the SEC is not very competent and undefunded at the same time, I doubt they were the real problem here. Madoff contibuted roughly half a million to politicians, much of it to Senator Schumer personally or for his senate campaign committee. People do not contribute politically without the expectation that they will get some benefit.
    I believe Madoff used his politacal connections to squash a number of SEC investigations. Hopefully, the truth will out.


  2. Miz H says:

    It seems the SEC is full of placemen and lawyers and does not have much expertise in auditing or analysing financial systems for making money. As an institution it has been too busy defining what it is not responsible for, typical of a lawyer run institution.
    In fairness whenever they did try to tackle some major issues, to curtail the more outrageous speculation and even possible market manipulation by the hedge funds, the big players reached for their lawyers and stopped it. Hedge funds are unregulated and resist any regulation but are now so embedded in the political system that it is impossible to eradicate them without major surgery – which politicians do not want.
    Still I am not entirely convinced by the conspiracy theory ie that major players behind the scenes told the SEC to lay off Madoff. If they knew he was running a major scam, it would end in tears sooner or later, or did they also tell Bernie to desist at the same time but he was already in too deep.


  3. Nell says:

    Arnaud de Borchgrave’s talent is for vividness, not truth or accuracy. He is a propagandist, someone with a talent for lurid rehash, not a reporter with strong and credible sources.
    If there is any truth to this story, some details would be helpful: when in 2000 was the letter written; to whom in the SEC was it addressed?.
    There’s no new information in de Borchgrave’s story other than the allegations in a Swiss blog — to which we’re not even given a link, by deBorchgrave or TWN. What a shoddy waste of time.


  4. Bob h says:

    In this case, it sounds like a Clinton-era crime.


  5. TonyForesta says:

    True that whomeveryouare. I agree with you wholeheartedly.


  6. ... says:

    tony – the real criminals are those where no accountability takes place and their actions have bearing over everyone… that would bring the conversation back to the federal reserve… it is fun to talk about the irs, the sec and etc. etc., but the real criminals are those who are out of the light and not answering to anyone..


  7. Pacos_gal says:

    I think that one of the answers to Tony’s statement is that the “haves”, are governed by themselves.
    Take a look at the people in charge, and all they do is switch places to other “in charge” jobs.
    One head of this organizatioin, moves over to head That organization, and then someone who was head of a different organization, moves in and take the first person jobs. It’s a shuffle, with very little new blood coming in.
    Even when someone new does make it up the ladder, they are quite often beholden or mentored by those who are already there, learning how to do things in the same old way.
    This is a vicious cycle and leads to no one really being held accountable when mistakes are made.
    Perhaps in this instance, the mistake is so large, that something will have to be done.
    It isn’t right when the small “have not” guys get taken to the cleaners, and it isn’t right when someone with a larger amount of money gets taken to the cleaners either. Just because you have money, doesn’t mean that is fair game to swindlers.
    We need to have laws and people who will uphold those laws be accountable to each and every individual.
    Who amongst us is going to feel safe about investing with these types of things popping up in the news, what seems like, every day.
    Investments are a part of our economy and help to keep things moving. Each of us need to be able to feel some type of security in our banks, our investment houses, and the people who are suppose to keep an eye on those institutions.


  8. TonyForesta says:

    There is a increasingly wild and dangerous expanding divide between thehaves and thehavenots. Not only, is this wild and dangerous divide defined in terms of sheer the imponderable wealth obscounded by the predator class and select beneficiaries of “bandit capitalism” – there is even more pernicious, dangerous and disturbing divide between the accountability to, and application and enforcement of the law and socalled justice. There are two entirely different systems and sets of rules. Thehaves play by are held to one set of laws and wanton unaccountability, and thehavenots are ruthlessly held to an entirely different rules and forcefull accountability.
    This is a telling quote from the article.
    “Following the end of the Cold War, democratic capitalism gradually morphed into crony and then casino capitalism shielded by obscurantist derivatives and hedge funds and outlandish executive compensation packages before sinking into bandit capitalism. Today, even some conservatives fear that institutions too big to fail may have to be nationalized. Already a ward of the federal government, Freddie Mac, after drawing $14 billion in taxpayer cash, was back at the federal window to ask for an additional $35 billion.”
    As DonS sad example proves, (I can offer hundreds of similar examples including my own) the criminals in the IRS are quick to pound down and brutally, mercilessly harrass poor and middle class Americans for thousands of dollars on one hand, – but turn a blind eye, or walk away from BILLIONS and BILLIONS of corporate and individual predator class dollars funnelled off and stashed away in countless offshore accounts with the specific intention of hiding, or dodging, or sheltering, refusing to meet tax obligations.
    Why are the public servants in the IRS woefully negligent in tracking down and prosecuting corporations and predator class individuals funnelling BILLIONS of dollars into off shore accounts intentionally avoiding tax obligations on one hand, – and savagely brutal in hunting down, harrassing, and ruthlessly penalizing poor and middle class Americans whose mistakes or maybe even purposefull dodges amount to only thousands of dollars? It is a grotesque abuse and perversion of justice and the law.
    Here’s the horrorshow truth; the total extent of derivatives market and obligations is somewhere between 500 and 650 TRILLION Dollars. – Again for clarity 500 to 650 TRILLION Dollars. That’s TRILLION. The combined GDP’s of all the nations on earth is well below these monsterous totals. Hense the great unwinding, and the total collapse of the financial system as we know. It was savagely corrupt, excessively criminal, and as a result the entire system has collapsed and cannot, and will be repaired or restored in it’s present form.
    There is not enough money on earth to unwind this criminal ponzi scheme (the derivatives market and alphabet soup of collateralized irredeemable debt obligations), and no way in hell to right or correct the failed, fraudant, criminal financial system.
    If there were applicable laws, and honest brokets, and leaders anywhere on earth, – all the banks would fail and collapse, and all the pertinent players would be deprived of their ill-gotten gains and sent to jail. Then after the dust settled from the great destruction, – new banks and hopefully a new more fair, transparent, lawful rigidly regulated and enforced financial system would be erected to replace the failed, fraudulent, and criminal system of bandit capitalism that has brought to entire world to the brink of certain economic collapse.
    Here’s the other bad news. The predator class may imagine they are safe thier oppulent palaces and immune the law, and far removed from the touch of the lowly plebes they seek to dominate and tower over, – but they are wildly mistaken. Desperate people do desperate things. There will be blood and a reckoning and a balancing.
    In a world where there are no laws, – there are no laws for anyone biiaaatches!


  9. Bob Morris says:

    Doug Kass said when this story broke that it will be bigger than Enron. de Borchgrave clearly knows more than he can say.
    Which “French, Spanish and Swiss private banks” are involved and who controlled them?
    Saul Alinsky once said about political organizing, and it certainly applies here too – pick a target and freeze it (in this case Madoff), the rats will crawl out to defend it, then you’ll know who you’re really dealing with.
    In this case, the rats will have to forced out into the open.


  10. Pacos_gal says:

    I just saw this too, an article by Lucinda Franks at the Daily Beast.
    In which she writes that sources have said this scheme was ongoing for more than 40 years and reveals that over 20 million papers related to the Madoff business have been found in a Queens warehouse.
    It certainly seems that it was a family business, with many of the people involved, having done business together for many, if not all of those previous 40 years.
    I don’t see any way that the Madoff affair can be swept under the carpet. There will have to be charges brought and the SEC is going to be on the front of the stage during this investigation.
    Rumors say that Madoff has been trying to cut a deal, but those are pretty vague and I don’t know what kind of deal he can cut, if he is the top guy and everyone else just worked with him in this. Perhaps a deal to keep his wife and children/relatives out of jail or with smaller sentences?
    The SEC certainly has a lot to answer for. Perhaps a few other organizations too.


  11. Pacos_gal says:

    Some of the things I’ve read about Madoff’s operation have made it seem like watching an episode of Soprano’s, except that it’s all within the financial community.
    The Toomre website has some interesting reading on it about Madoff, as does one of the blogs at TPM cafe site.
    These people have been in this business for a very long time. It must be one of the longest running ponzi schemes in history. When someone was questioned, they just closed shop in one place and opened in another and kept going.
    I don’t know if one can blame Mr. Markopoulos for not wanting his name put out in the open. When there are billions at stake monetarily, then you have reason to worry if you are the one to upset the golden apple cart.


  12. Ben Rosengart says:

    Obama hasn’t quite stated outright that he won’t seek
    accountability for nation security crimes. He’s just vaguely
    implied it. Unless I missed something.


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