why did Madoff go undetected?

71 posts / 0 new

Sun, 2009-02-22 11:58

NorthReport

It's not rocket science why Madoff and others are able to pull off these scams. It's very easy with the help they get from professionals.

Ethical lawyers and accountants could have saved the day

http://www.sltrib.com/opinion/ci_11751607

The way I see it, these professions were created in large measure to make business play by the rules. Accountants make sure that public companies are being upfront with shareholders and the taxman. Civil practice lawyers advise clients about the legality of their actions and are ethically bound to protect the integrity of the legal system.

But rather than helping to keep things honest, these professionals in dozens of high-profile examples have used their education, skill and expertise to conspire with confidence men. They sold their good names for a big payout, caused widespread pain and dragged the rest of their profession through the mud.

Turn over a scandal such as Enron's book-cooking or Bernie Madoff's Ponzi scheme, and you unearth the slimy residue of accountants and lawyers who helped design it, justify it or cover it up.

So, what to do? How about we change the rules and culture of these professions.

"Is Law (Still) an Honorable Profession" is the title of a call-to-arms lecture by professor Stephen Gillers of New York University School of Law. An expert in legal ethics, Gillers says the answer is for lawyers to stop being "skilled facilitators of whatever legal goal a paying client may desire" and start saying "no" when those goals are morally bankrupt.

In his talk, presented earlier this month at the Central Synagogue in Manhattan, Gillers describes the ways that lawyers and accountants have assisted in exploiting the trust of vulnerable people in order to serve a client and enrich themselves.

The savings and loan crisis of the 1980s, which, like today's credit crisis, is an instance of bankers' unadulterated greed resulting in huge taxpayer liabilities, would never have happened were it not for the active participation or acquiescence of lawyers and auditors.

Clever lawyers for Big Tobacco deep-sixed scientific evidence that tobacco kills by "concocting a theory that laboratory results were protected by attorney-client privilege," Gillers says.

In today's economy, lawyers and accountants are an integral part of complex commercial and financial transactions. They should ask themselves whether they are facilitating something that is not just strictly legal but also decent and honorable.

Loyalty to a client does not mean an attorney should "aid morally offensive goals, even if they are legal," Gillers says.

This admonition is not aimed at criminal defense lawyers, who defend their client in a forum where the other side -- the state -- has a lawyer, too. Rather, Gillers is exhorting civil lawyers who operate as behind-the-scenes advisors. These lawyers often have a financial incentive to manipulate and distort the law.

Forget the money and refuse the client, Gillers says. "You don't get a pass from moral responsibility because you acted for a client."

It would be nice to think that the lawyers for all those predatory banks making subprime "liar" loans are now feeling a tenth of the pain suffered by a family ousted from their home due to foreclosure. But it isn't likely. The culture that permeates today says that securing clients and doing their bidding is all that matters.

We need a return to honor, meaning you don't scour the law trying to find some way to permit your client to harm others and then hide behind a legal opinion. And you don't use legerdemain accounting to burnish a client's financial statements in a way that will mislead.

This should go without saying. Too bad it has to be said.

Sun, 2009-02-22 14:28

#53

Lard Tunderin Jeezus Lard Tunderin Jeezus's picture

I would add that where there has clearly been an effort to 'skirt' legality, as in so many of these cases, that there should be an obligation for the profession to rule upon the propriety of the action - and if judged unacceptable by their peers, it should deemed illegal retroactively, and be made prosecutable.

This would force those initiating these games to have their more questionable gambits reviewed and approved before proceeding; and make the entire profession accountable to society at large.

Sun, 2009-02-22 14:50

#54

NorthReport

Unfortunately hat's never ever going to happen, as these professions have too much of a vested interest in keeping things basically the way they are now.

Mon, 2009-02-23 08:57

#55

NorthReport

Madoff's Investors Face Dim Prospects in Court

http://www.washingtonpost.com/wp-dyn/content/article/2009/02/21/AR2009022100116.html?hpid=sec-business

The securities laws may be your worst enemy if you lost money in the Madoff scam. Investors are suing the feeder funds that channeled their money to Bernard Madoff, accusing the feeders of fraud, negligence or breach of fiduciary duty. On the surface, the cases sound like slam dunks.

They're not. Congress and the courts have spent more than a decade writing and affirming laws that protect companies from irate investors. Those laws may turn out to be feeder fund protection acts.

Mon, 2009-02-23 09:03

#56

abnormal

Lard Tunderin' Jeezus wrote:

I would add that where there has clearly been an effort to 'skirt' legality, as in so many of these cases, that there should be an obligation for the profession to rule upon the propriety of the action - and if judged unacceptable by their peers, it should deemed illegal retroactively, and be made prosecutable.

A couple of problems with this statement. You're mixing two concepts "unacceptable" and "illegal" - the fact is there are lots of things that are unethical but not illegal. [To use a completely unrelated and somewhat extreme example, I'm sure that the religious right would apply that phrase to abortion.] And you can't "invent" a law and deem something illegal retroactively. Either it was legal at the time or it wasn't (if what you're saying is that someone has to look at the transaction in question after the fact and ask if it was illegal under the laws in effect at the time it was done and, if so, the responsible individuals should be prosecuted, that's a different question). If what you're saying is that people should be prosecuted for following the letter of the law but not the spirit, how do you decide what's acceptable and what isn't?

Quote:
This would force those initiating these games to have their more questionable gambits reviewed and approved before proceeding

This is typical practice in any case. If a company wants to enter into any sort of unique transaction which will have a significant impact on the balance sheet or income statement it will first have it reviewed by its internal people (accountants, lawyers, and whoever) and they'll often use outside consultants as part of that. Then the deal typically is presented to one of the audit firms (not the company's auditors - SOX won't let them do that). If and only if that firm signs off on the deal will it be presented to the company's actual auditors. [That actually means that a significant number of transactions are actually reviewed by two of the Big Four accounting firms.]

Quote:
..and make the entire profession accountable to society at large.

I honestly don't understand that statement. As a rule, the public has no idea of the role of auditors, they don't understand the accounting rules, and they don't read annual reports. There is usually an incredibly detailed discussion of risk factors, contingent liabilities, and so forth in the notes to the financials.

If you look at Arthur Andersen as an example - they ended up being charged over the Enron mess - fact is they were ultimately found not guilty - of course that didn't help the 60,000 people that lost their jobs when AA went belly up.

Mon, 2009-02-23 09:15

#57

wwSwimming

Madoff didn't go un-detected. But in corporate America whistleblowers are generally not rewarded. You make more money being a yes-person, until you're in a position to commit fraud yourself.

If you're in that position, you avoide whistleblowers & you hire yes-persons & "team-players."

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

http://LASIK-Flap.com ~ Health Warning about LASIK Eye Surgery

Sat, 2009-02-28 19:49

#58

NorthReport

Madoff transferred $164 million to US from UKAlleged fraudster moved $164m from UK business in weeks leading up to arrest over alleged $50bn scam

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5818142.ece

The two transactions were between the investment business in London and Bernard Madoff Investment Securities in Manhattan and were worth about $164 million in total.

"Our current understanding is that the sole business of MSIL was to engage in proprietary trading, and that MSIL was funded almost entirely by capital from Mr Madoff," the documents said. "We have uncovered no evidence to date indicating that MSIL had any customers or clients, or that it conducted any trades on behalf of third parties."

Wed, 2009-03-11 18:07

#59

Lard Tunderin Jeezus Lard Tunderin Jeezus's picture

Quote:
Of course Madoff had clients of every creed and nation, but he made a speciality of trolling for Jewish money. His fraud ranks as a major ethnic cleansing in 21st-century America.
How did Madoff, despite widespread suspicions across many years, continue to allure so many investors, smart fellows like Steven Spielberg, well equipped with expert number crunchers?

The most gullible dupes of all are those who preen themselves as being privileged accomplices in a profitable conspiracy, at scant risk to themselves. Many of Madoff's clients were not so naive as to believe he had a virtuous investment model that permitted him to report 10–12 per cent annual returns on capital invested, through boom and bust. They thought Bernie's 'model' took the distinctly unvirtuous form of insider information. Thus did Madoff's prosperous victims fatally miscalculate the dimension of the swindle.

...if everyone believes themselves to be one of the 'insiders', everyone wants the scam to continue.

After Madoff, America's Own Ponzi Scheme Unwinds

Wed, 2009-03-11 21:39

#60

DrConway

Re LaRouche

A stopped clock may be right twice a day but that doesn't mean you should use it to tell time.

Re CPP

I knew it was a bad idea as soon as Paulie Pockets announced it, without mentioning the management expense ratio or how much his rich buddies would get out of handling risk-free stock trades - heads they get a commission, tails they get a commission and the taxpayer still loses.

If I had my druthers I'd charge Paulie Pockets with conspiracy to misappropriate taxpayer funds for personal benefit, a.k.a. fraud.

People should be making a huge stink about the fact that the CPP is STILL invested in the stock market, a known haven for crooks and ripoff artists.

The paper economy is not a substitute for the real economy.

Wed, 2009-03-11 23:01

#61

NorthReport

Who else listened to the interview with one of the victims, a Mr Shapiro this eveining?

Anyway Shapiro who obviously was very rich at one time, because he invested millions with Maydoff, now says he is close to broke, and wants his government to bail him out. These are the type of people who wanted no regulations, and no taxes for the rich. Let him launch a civil action against all the GOP cronies since Reagan who deregulated everything. There might even be some Democrats in the mix, that he could sue as well. What Shapiro and his ilk don't get, is they had the kind of government they wanted, as the rich usually do get their way.

Thu, 2009-03-12 02:47

#62

Fidel

DrConway wrote:

Re LaRouche

A stopped clock may be right twice a day but that doesn't mean you should use it to tell time.

I realize that now after several posters jumped all over me. I've determined on my own that Larouche is a US capitalist of the Alexander Hamiltonian kind, and he is a global warming denier. I'm disappointed for him on both those items.

He also thinks Newtonians are cult followers of empiricist Paulo Sarpi's dogma - that the Queen and Phil are drug dealers - Marx was a British asset - Smith plagiared Quesnay - and that British imperialists have been working to destroy America by financial capitalism.

I did like his ideas proposed during a run for presidential candidacy to transform the US economy into a high tech one based on science and medical research as main drivers. And he thinks a renaissance in nuclear power expansion and research into completing the nuclear fuel cycle is on order.

Quote:
The paper economy is not a substitute for the real economy.

That's what Larouche says.

Tue, 2009-03-17 21:10

#63

NorthReport

More special privileges for the rich. Well maybe not quite so rich any more, but nevertheless why just these poor, poor victims.

I.R.S. Plans a Deduction for Madoff Victims

http://www.nytimes.com/2009/03/18/business/18madoff.html?_r=1&hp

The plan represents the first time the I.R.S. has come forward with a policy on the treatment of Mr. Madoff’s victims, who include Elie Wiesel, the Holocaust survivor and Nobel laureate; Steven Spielberg, the filmmaker; and John Malkovich, the actor, among scores of other individuals, charities and universities.

Tue, 2009-03-17 21:30

#64

Jingles

Rich celebrities get special treatment. Meanwhile, back in the real world:

[img]http://img61.imageshack.us/img61/8619/katrinaaftermath66zn.jpg[/img]

Tue, 2009-03-17 23:36

#65

Sven

For anyone interested in a great article about Madoff (and a personal look at many of the people he defrauded), check out this month's [url=http://www.vanityfair.com/politics/features/2009/04/madoff200904][color=... Vanity Fair[/u][/color][/url] article about him.

_______________________________________

[b]Eleutherophobics of the World...Unite!!![/b]

Sat, 2009-03-21 11:02

#66

abnormal

[quote][b]U.S. regulator probing "rampant Ponzimonium"[/b]

Hundreds of people in the United States are under investigation for financial scams, many involving Ponzi schemes, a U.S. regulator said on Friday, calling the phenomenon "rampant Ponzimonium."

While none are as mammoth as disgraced financier Bernard Madoff's $65 billion fraud, multimillion-dollar "mini Madoffs" are proliferating from New York to Hawaii, the head of the Commodity Futures Trading Commission said.

So far this year, the agency has uncovered 19 Ponzi schemes, which depend on an influx of new capital instead of investment profits to pay existing investors.

That compares with just 13 for all of 2008.

"Because of the economy, people are seeking redemptions more than they ever have and that's making a lot of these scams go belly up," Bart Chilton, commissioner of the Washington-based Commodity Futures Trading Commission, said in a telephone interview.

In the last month alone, his agency has pursued investment fraud in Pennsylvania, New York, North Carolina, Iowa, Idaho, Texas and Hawaii.

Chilton called the problem "rampant Ponzimonium" and "Ponzipalooza" -- a play on the word "Lollapalooza," an American music festival featuring a long list of acts.

Many of the financial scams are small but grew fast to support lavish lifestyles

[i]snip...[/i]

As the economy soured... investors demanded their money back and grew suspicious when they couldn't access their own funds, said Chilton.

The Commodity Futures Trading Commission shares oversight of financial markets with the Securities and Exchange Commission, which also faces a swelling casebook of Ponzi schemes

[i]snip...[/i]

The SEC has taken emergency action in 24 cases this year "to halt ongoing fraud," said SEC spokesman John Heine.

The FBI is also ramping up probes of financial wrongdoing. The agency has 43 corporate fraud cases under way directly related to the financial crisis, FBI Deputy Director John Pistole told a Congressional panel on Friday.

The CFTC, which set up a task force last year to pursue foreign currency Ponzi schemes and fraud, discovered about $80 million invested in four Ponzi schemes this month. That followed 10 such schemes in February totaling about $1.46 billion, and about $450 million in such scams in January.

[i]etc...[/i]

http://www.reuters.com/article/domesticNews/idUSTRE52J48B20090320

Thu, 2009-07-02 01:03

#67

NorthReport

So Madoff gets 150 years so that the rest of Wall Street goes free. What an absurd sentence.

Rolling Stone expose: Goldman Sachs behind every market crash since 1920s

http://rawstory.com/blog/2009/07/rolling-stone-expose-goldman-sachs-behi...

Fri, 2009-07-03 13:19

#68

Doug

At least we get this small moment of schadenfreude:

Poor dear, Ruth Madoff has to use the subway now.

Sun, 2009-07-05 23:02

#69

M. Spector M. Spector's picture

Quote:
The 150-year sentence is headline grabbing, but what should surprise us is not that Madoff got such a long sentence, but that other corporate criminals escape with light sentences or no criminal prosecution at all.

In August 2006, U.S. Federal District Court Judge Judith Kessler adjudged the leading tobacco companies to have engaged in a 50-year long conspiracy to deceive the public about the health risks of smoking and to addict children to tobacco. Millions in the United States -- and many more around the world -- have died as a result of this conspiracy. But you won't find any tobacco executives in jail for this "extraordinary evil."

Twenty-five years ago, poisonous gas escaped from a factory run by the chemical company Union Carbide in Bhopal, India. Many thousands died, many more were debilitated or badly injured, and the plant site remains polluted. Despite charges of culpable homicide, executives from Union Carbide (now merged into Dow Chemical) were never tried or sent to jail.

In 1989, the Exxon Valdez hit a reef in Prince William Sound Alaska.
Eleven million gallons of crude oil spilled onto 1,500 miles of Alaskan shoreline, killing birds and fish. The spill ruined the livelihoods of thousands of Native Americans, fishermen and others. The captain was convicted of a misdemeanor and sentenced to community service. Exxon pled guilty to misdemeanor violations of federal environmental laws. No executives went to jail.

Victims of horrendous human rights abuses and environmental destruction caused and abetted by oil companies operating in Burma (Unocal/Chevron), Nigeria (Shell and Chevron), Ecuador (Texaco/Chevron) and Indonesia (Exxon), among other places, have -- with lawyers and international solidarity campaigns -- waged heroic and increasingly successful efforts to obtain monetary compensation for the wrongs they have suffered. But there's no prospect of CEO and executive perpetrators of those wrongs being criminally prosecuted.

For two decades, the multinational oil companies and the giant coal producers have engaged -- and continue to engage -- in a prolonged campaign to deny and discredit climate change science. In doing so, they have imperiled the planet and its people. Paul Krugman, properly, calls this treason against the planet. But while execution is the highest penalty for treason against country, treason against the planet won't even get you the equivalent of a parking ticket.

[b]What to make of the disparity between the appropriate sentencing for Bernard Madoff and the get-out-of-jail free approach for other leading corporate criminals and malefactors? There are a few lessons and conclusions.[/b]

First, the Madoff case differs from many of these other examples of corporate wrongdoing in that the individual perpetrator is so closely related to the victims. Although he was handling billions of dollars, Madoff had a skeleton staff, and he had personal connections with many of those he swindled. As a result, the victims and the public's anger is visceral and very targeted -- not directed at an amorphous giant corporation.

Second, Madoff's victims have power. They have the ability to hire lawyers, and to organize for redress and retribution. Corporate crime victims in poor communities, or in poor countries, generally do not have this kind of power. Nor do those who will fall victim in the future to consequences of actions carried out today.

Third, and relatedly, the penalties for financial crimes are generally much stiffer than for other corporate crimes. The New York Times has an interesting feature comparing Madoff's sentence to other white-collar, financial criminals, many of them convicted of Enron-era crimes; Madoff's sentence is much longer, but the others received stiff penalties as well. By contrast, it is very rare to see a felony prosecution for corporate killings.

Finally, and most important, one of the signal powers of corporations is their ability to influence the law and culture so that their most heinous acts are not considered criminal. Knowingly addict millions of children to a deadly habit? Not a crime. Collaborate with military regimes and destroy lives and livelihoods in poor countries? Not a crime. Endanger the planet with greenhouse gas pollution -- and then mobilize politically to block emergency efforts to save the earth? Not a crime.