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Bernie & Ruth & Chuck & Hillary No, we’re not suggesting a sequel to the 1969 film, Bob & Carol & Ted & Alice, a film starring Natalie Wood, Robert Culp, Elliott Gould, and Dyan Cannon as hip new-age couples struggling with the temptations of mate-swapping. What concerns us here is a much more serious real-life drama in which some 4,800 investors have been defrauded of an estimated $64.8 billion by an unscrupulous New York investment advisor, Bernard Madoff. Although, given the principal actors in the film and in the ongoing Madoff scandal, some interesting parallels might be drawn.
Madoff, CEO of Bernard L. Madoff Investment Securities, LLC, a Wall Street investment advisory, former Chairman of the NASDAQ Exchange, admired and trusted by thousands of America’s wealthiest individuals and foundations, has done more to destroy the faith of the American people in those who are entrusted with the responsibility for growing and managing our invested capital than any living human being. Because of Madoff, millions of Americans now lay awake at night questioning whether their stock portfolios, their mutual funds, and their annuities are safe and secure.
On a day when Madoff faced hundreds of his investors in a Manhattan courtroom, before being assigned a prisoner number and hauled off to jail, more questions have been raised than have been answered. Most importantly, to what extent have the bureaucrats at the Securities & Exchange Commission (SEC) failed in their responsibility to regulate and police the securities industry? In the Madoff case they obviously dropped the ball, and it’s not because they weren’t warned.
For example, we know that in 2005, a Boston investment advisor and derivatives expert, Harry Markopolos, submitted a nineteen-page report, anonymously, to the SEC saying it was "highly likely” that Madoff Securities was "the world's largest Ponzi Scheme.” Markopolos reminded the SEC that he had first brought the Madoff matter to the attention of their Boston field office in 1999, during the Clinton Administration, but no action was taken. In his report he asked the SEC to be discreet about circulating the report, saying, "I am worried about the personal safety of myself and my family.”
In his filing, Markopolos suggested two possible scenarios. Under Scenario #1, which he described as "unlikely,” he said, "I am submitting this case under Section 21A(e) of the 1934 Act in the event that the broker-dealer and (electronic communication network) depicted is actually providing the stated returns to investors, but is earning those returns by front-running customer order flow. Front running qualifies as insider trading since it relies upon material, non-public information, that is acted upon for the benefit of one party to the detriment of another party.”
Under Scenario #2, which Markopolos described as "highly likely,” he said, "Madoff Securities is the world’s largest Ponzi Scheme. In this case there is no SEC reward payment due the whistle-blower so basically I’m turning this case in because it’s the right thing to do.”
In neither case was any action taken by the SEC auditors. Why? Is it because Madoff has friends in high places? The Center for Responsive Politics has looked into the Madoff family’s political contributions between June 1993 and October 2008. Federal Election Commission records show that members of the Madoff family made some 250 political contributions to 45 candidates and committees totaling $391,350. .
Two of the largest recipients of Madoff family cash were Senators Chuck Schumer (D-NY), $27,000, and Hillary Rodham Clinton (D-NY) $23,500. The Madoff family also made seven contributions totaling more than $104,000 to the Democratic Senatorial Campaign Committee, a committee chaired by Schumer. Other major recipients of Madoff cash were Cong. Ed Markey (D-MA), $34,000; and Senator Ron Wyden (D-OR), $25,000.
So how did Madoff Investment Securities, "the world’s largest Ponzi Scheme,” escape detection for over a decade in both Democratic and Republican administrations? Did senior Democrats in Congress take steps to run interference for Madoff?
Those within the SEC, past and present, who had every opportunity to intervene, but didn’t, must be brought before Congress and publicly exposed. And those who refuse to disclose details of how they managed to overlook Madoff’s criminal activity should be indicted and prosecuted
According to The Washington Post, an internal probe at the SEC is said
to focus, in part, on the relationship between Madoff’s niece, Shana
Madoff, and her husband, Eric Swanson. Shana Madoff served as compliance
officer for the Madoff firm, while Swanson, a former SEC official, was
involved in a 2004 SEC examination of Madoff’s business prior to their
marriage. Swanson also conducted an internal review of a Madoff
examination that occurred in 1999. The SEC maintains, according to the Post, that Swanson played no role in any Madoff examinations after the onset of his personal relationship with Shana Madoff. And while it would be irresponsible not to examine what impact the Madoff-Swanson relationship might have had on the SEC’s overall failures, it is unlikely that Swanson would have been in a position to have a controlling influence over multiple SEC investigations of that magnitude.
Two other possibilities present themselves. First, as Madoff heads off to prison… probably for the rest of his life… some question whether he entered a guilty plea, without offering a defense and without the benefit of a jury trial, in order to protect his wife, Ruth, his brother, Peter, and his two sons, Mark and Andrew, from being prosecuted. That suspicion will likely cause federal investigators to look more closely at the role played by other members of the Madoff family.
And finally, for a case of this magnitude to be rushed through the system, from indictment to incarceration, in such a short time frame makes one wonder if there are not more powerful forces acting behind the scenes. If undue influence was exerted in Washington it is much more likely that such pressure would have come from influential members of Congress. The SEC should be required to provide copies of all emails and other communications, written and telephonic, between members of Congress and the Madoff firm. And if that avenue of investigation runs into a roadblock we can be relatively certain that we are on the right track. The story of Bernie & Ruth & Chuck & Hillary might prove to be far more intriguing, and far more rife with villains, than that of Bob & Carol & Ted & Alice. |
