March 26, 2014

Madoff Ponzi Scam: Five Ex-Aides Convicted of Securities Fraud, Victims to Recover $349 Million

In a new round of payments by Bernard L. Madoff Investment Securities LLC trustee Irving Picard, victims of the $17 billion Madoff Ponzi Scam are slated to receive around $349 million. The US Bankruptcy Court in New York must still approve the distribution, which would bring total payouts to $6 billion—34% of the principal lost.

A hearing for the distributions is scheduled in April. Payouts by Picard include up to $500,000 in advances each to victims that were made by the Securities Investor Protection Corp. Picard said that he hope to give victims full reimbursements.

One way he is doing this is by pursuing claims of approximately $3.5 billion from HSBC Holdings PlC (HSBA), UBS AG (UBS) and UniCredit SpA (UCG), which allegedly benefited from the multibillion-dollar Ponzi scam. In January, JPMorgan Chase & Co. (JPM) arrived at $325 million accord with Picard over allegations that the bank was negligent in not identifying the fraud and made money money from Madoff’s scam. Picard was able to recover $10 billion—59% of the principals lost by thousands of Madoff customers. The financial firm also consented to pay another $218 million to settle two related class actions filed with the help of Picard.

Madoff is currently serving a 150-year prison term over his Ponzi scam after he pleaded guilty to securities fraud. At least seven other people, including his brother Peter Madoff, also pleaded guilty to their involvement.

On Monday, a jury convicted 5 ex-Madoff employees of 31 counts of aiding his Ponzi scam. The defendants had argued that their ex-employer was the only one who knew what was really going on and that they had trusted in his honesty.

The government accused portfolio managers Annette Bongiorno and JoAnn Crupi and former operations director Daniel Bonventre of conspiring and lying to customers, falsifying records, and cheating on taxes while they worked at Bernard L. Madoff Investment Securities. Allegations against computer programmers George Perez and Jerome O’Hara included claims that they helped keep the Ponzi scam afloat by designing computer programs that would generate bogus records and trades.

Please contact our securities fraud lawyers if you suspect you were the victim of a Ponzi scam and sustained financial losses.

Jury Says 5 Madoff Employees Knowingly Aided Swindle of Clients’ Billions, NY Times, March 24, 2014

Madoff Victims Set to Get $349 Million From Trustee, Boosting Total to $6 Billion, Bloomberg, March 25, 2014


More Blog Posts:

Madoff Ponzi Scam Victims Win Right to Appeal for Interest, Stockbroker Fraud Blog, January 24, 2014
Madoff Victims May Have Numerous Sources of Recovery Says Secrurites Fraud Attorney, Stockbroker Fraud Blog, December 15, 2008

US Supreme Court Hears Oral Argument on the Impact of SLUSA on the Stanford Ponzi Scams, Institutional Investor Securities Blog, October 17, 2013

January 24, 2014

Madoff Ponzi Scam Victims Win Right to Appeal for Interest

A group of investors that were victimized in the Bernard Madoff Ponzi scam has won the right to appeal directly to a federal court about a bankruptcy ruling that prevents them from factoring in the amount of time they invested with the financial fraudster as interest that they want back. According to the US Court of Appeals in New York, the plaintiffs met the criteria for a “direct appeal” so that they won’t have to go through the district court first.

U.S. Bankruptcy Judge Burton R. Lifland had said that “time-based” calculations might not be fair to creditors who are last in line for payments and that this could give a windfall to claims by traders even though they weren’t victims of Madoff’s scam. Lifland recently passed way.

Madoff’s victims want bankruptcy trustee Irving Picard to put aside about $1.4 billion to pay back interest they say they are owed. They believe that factoring in time when equating damages allows for inflation to be considered.

Picard is working to repay thousands of investors that lost $17 billion in the fraudsters’ investment advisory business when the Ponzi scam failed in 2008. So far, he has gotten back over $10 billion via securities fraud settlements and lawsuits, with $4.9 billion handed over to investors. In 2011, Picard won an appeals ruling affirming his request to calculate losses according to cash that investors invested while subtracting money that was withdrawn instead of using the total found on final account statements of investors (which factored in bogus profits from fake trading).

Meantime, five ex-Madoff employees, accused of helping him run his Ponzi scam, are still on trial. The defendants include Daniel Bonventre, who is the ex-operations chief; Joann Crupi, who managed big accounts; Annette Bongiorno, who was in charge of the investment advisory unit; and Jerome O’Hara and George Perez, both computer programmers. The latter two are accused of writing code so that millions of bogus trade confirmation account statements were printed. All of them allegedly got rich from Madoff’s Ponzi scam. Six of their former colleagues are testifying against them.

The US government says that the five defendants used the fake statements and confirmations to deceive customers into thinking their funds were used to purchase securities when actually no investment trading was happening. The trial started in October.

Madoff, who pleaded guilty to fraud, is behind bars for 150 years. At least seven others have also pleaded guilty for their role in the Madoff Ponzi scam.

Ponzi Scam
Ponzi scams inevitably collapse when fraudsters are no longer able to draw in new investors to pay previous investors or when too many of the participants want their money back at the same time. Madoff’s Ponzi scam impacted not just regular retail investors but also the incredibly wealthy and famous.

Contact our Ponzi fraud lawyers if you want to know whether you have grounds for a securities case.

Madoff Victims Win Right to Direct Appeal Over Interest, Bloomberg, January 23, 2014

Judge: No interest on Madoff victims' money, Newsday, September 10, 2013


More Blog Posts:
Family Pleads Guilty to $10M Massachusetts Ponzi Scam, Stockbroker Fraud Blog, January 22, 2014

US Supreme Court Hears Oral Argument on the Impact of SLUSA on the Stanford Ponzi Scams, Institutional Investor Securities Blog, October 17, 2013

SEC Goes After Alleged Ponzi Scammers, Stockbroker Fraud Blog, November 15, 2013

June 5, 2013

FINRA Headlines: New ATSs Sweep Letters Issued, SRO to Provide Surveillance for Direct Edge Market Exchanges, Court Says Ex-AP of Defunct Member Firm Can Enforce Arbitration Pact, & Madoff Feeder Funds Are Not Required to Arbitrate Claims Against KPMG

FINRA Issues Sweep Letters About Alternative Trading Systems
The Financial Industry Regulatory Authority has put out a new round of sweeps letters asking for more information about its review of alternative trading systems. The SRO’s Trading Examinations Unit is reviewing the off-exchange trading venues.

FINRA wants firms to provide information about how subscriber order flow is identified within the ATS, whether they are tracking the different kinds of order types in use, and where the ATSs orders are routed. Sweep letters let the regulator determine how to better focus its exams and discover what new issues may have arisen.

FINRA to Provide Market Surveillance Services for Two Direct Edge Licensed Stock Exchanges
FINRA and Direct Edge, which is the biggest stock exchange operator in the country, have arrived at an agreement in which the SRO will provide market surveillance services for two licensed stock exchanges. This will give FINRA surveillance of over 90% of U.S. equities trading volume. Already, the agency conducts examination and disciplinary services for Direct Edge.

The agreement will go into effect during this year’s fourth quarter. Richard Ketchum, FINRA’s CEO and Chairman, said that not only does this strengthen the SRO’s ability to make sure that the market is integrity while protecting investors, but also, it will allow the regulator to do a better job of going after possible cross-market abuses. FINRA currently conducts market oversight and surveillance services for NYSE Euronext, Nasdaq, and others.


Ex-Associated Member of Defunct FINRA Member Firm CapWest Securities Inc. Can Enforce Arbitration Pact
The Fourth District of the California Court of Appeal held that third party beneficiaries of agents of a FINRA arbitration agreement can enforce that agreement by compelling arbitration even if the contracting member firm is not allowed to because its membership status with the SRO lapsed. Plaintiff Ronay Family Limited Partnership is suing Robert R. Tweed and Tweed Financial Services, Inc. over securities it bought that were offered by CapWest Securities, Inc. Tweed and his firm served as CapWest registered agents.

When the plaintiff opened an account with CapWest, it signed an agreement that included an arbitration clause with the defendants. However, after Ronay Family Limited Partnership sustained losses, it sued Tweed, his firm, and others, contending that the clause could not be enforced because CapWest had gone defunct and its membership with FINRA cancelled. The trial court agreed with the plaintiff. However, the California Court of Appeal disagreed.


Madoff Feeder Funds Not Required to Arbitrate Claims Against KPMG
The Massachusetts Court of Appeals says that investors in two Bernard Madoff feeder funds don’t have to arbitrate their claims against external auditor KPMG and, instead, they can proceed with their lawsuit. The plaintiffs, limited partners of the Rye Funds, sued fund manager Tremont Partners, its parent company Tremont Capital Management Inc., KPMG, and others after they lost $20 million in the wake of the Madoff Ponzi scam collapse. They are accusing KPMG of negligent misrepresentation, fraudulent inducement, and fraudulent inducement.

KPMG sought to throw out the claims against it, aruing that they were derivative and belonged only to the Rye Funds, which has arbitration agreements with Tremont. The court, however, says that the plaintiffs claims are direct, rather than derivative, and are therefore not subject to the arbitration terms noted in the engagement letter between Tremont and KPMG.

Targeted Examination Letters, FINRA

Direct Edge Selects FINRA for Market Surveillance, FINRA

Ronay Family Limited Partnership v. Tweed (PDF)

Askenazy v. KPMG LLP (PDF)


More Blog Posts:
FINRA Orders Wells Fargo & Banc of America’s Merrill Lynch Ordered to Pay $5.1M for Floating-Rate Bank Loan Funds Sales, Stockbroker Fraud Blog, June 4, 2013

FINRA Chief Ketchum Calls for Brokers To Better Inform Investors of Fixed Income, Structured Product Risks, Stockbroker Fraud Blog, May 29, 2013

LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog,

June 30, 2011

$750,000 Arbitration Award Against Stone & Youngberg LLC Confirmed by District Court

A district court has confirmed an arbitration panel’s $750,000 award to the Kay Family Revocable Trust in its securities case against Stone & Youngberg LLP. The trust sustained financial losses when its money was invested in the FutureSelect Prime Advisor II, which had most of its capital invested with Ponzi scam mastermind Bernard Madoff.

In its arbitration claim, Kay Family Revocable Trust claimed that S & Y failed to perform its requisite due diligence before recommending that the trust invest in the fund. S & Y rejoined with the argument that the trust had not succeeded in proving a causal link between the Madoff scheme and any alleged lack of due diligence. S & Y also argued it shouldn’t have to be responsible for the harm that the Trust suffered as a result of Madoff’s financial fraud. The brokerage firm even pointed to a federal district court ruling of a professional malpractice claim that concluded that “a simple ‘but for’ relationship between the claimed negligence and the injury” will not back up a finding of legal causation. S & Y also cited a decision by a federal appeals court that said it was up to a securities fraud plaintiff to prove that the loss it sustained was a foreseeable outcome of the alleged misrepresentation.

The U.S. District Court for the Northern District of California, however, concluded that the panel’s decision to confirm the award in favor of the investor and against S & Y was not manifest disregard of the law, but rather the application of the law to the facts the way it found them.

STONE & YOUNGBERG, LLC v. KAY FAMILY REVOCABLE TRUST UAD 02-07-90 FBO LENORE BLEADON UNDER TRUST A, Leagle.com, June 22, 2011

Stone & Youngberg, LLC v. Kay Family Revocable Trust UAD 02-07-90 FBO Lenore Bleadon Under Trust A, Justia Dockets, January 13, 2011


More Blog Posts:

Houston Securities Arbitration: FINRA Panel Orders Penson Financial Services, Inc. to Pay Boushy North Investments, Ltd. $500,000, Stockbroker Fraud Blog, June 11, 2011

District Court Wants to Know Why FINRA Arbitration Panel Denied Freecharm Ltd.’s Securities Fraud Claim Against One Atlas Financial Group LLC, Stockbroker Fraud Blog, June 11, 2011, May 31, 2011

Raymond James Must Pay $925,000 Over Auction-Rate Securities Dispute, Institutional Investor Securities Blog, September 1, 2010

Continue reading "$750,000 Arbitration Award Against Stone & Youngberg LLC Confirmed by District Court" »

March 16, 2011

Morgan Keegan & Co. Inc. Must Pay $250K to Couple that Lost Investments in Hedge Fund with Ties to Bernard L. Madoff Investment Securities

Financial Industry Regulatory Authority says that Morgan Keegan & Co, Inc. must pay over $250,000 in punitive and compensatory damages to Jeffrey and Marisel Lieberman. The couple suffered financial losses after investing in Greenwich Sentry LLP, a hedge fund whose assets were funneled to Bernard L. Madoff Investment Securities. FINRA contends that the brokerage firm failed to due enough due diligence on the Madoff feeder fund, and was “grossly negligent.”

The Lieberman, who are accusing the Regions Financial unit of fraudulent misrepresentation, negligence breach of fiduciary duty, and violations of Florida and Tennessee statutes, claim that Morgan Keegan and Julio Almeyda, one of its registered representatives, invested $200,000 of their money with Greenwich Sentry. The fund ended up filing for bankruptcy last November.

Per Morgan Keegan’s internal compliance rules, investors should only be allowed to place money in hedge funds if “speculation” is one among their main objectives when opening an account. “Speculation” was the last objective on the couple’s list. FINRA says that not only must the broker-dealer repay the couple’s entire loss of $200,000, but also they must also give them 6% annual interest from when the investment was made, $50,000 in punitive damages, and $14,000 in expert witness fees.

Meantime, the FINRA panel cleared Almeyda of wrongdoing, finding that he did not know that Morgan Keegan had not provided sufficient due diligence nor was he aware that he had given the Lieberman’s false and misleading information about their investments' risks.

Over the last year, Morgan Keegan has found itself dealing with hundreds of arbitration cases nvolving mutual fund investors alleging securities fraud related to the significant losses they sustained during the subprime mortgage crisis.


Related Web Resources:
Morgan Keegan Fined $250,000 Over Madoff Fund, Money News, March 7, 2011

Investors Succeed in Due Diligence Case Against Brokerage Over Madoff-Related Losses, BNA Securities, March 9, 2011


More Blog Posts:
Morgan Keegan to Pay $9.2M to Investors in Texas Securities Fraud Case Involving Risky Bond Funds, Stockbroker Fraud Blog, October 6, 2010

Morgan Keegan & Co., Inc., Morgan Asset Management, and Two Employees Face Subprime Mortgage Securities Fraud Charges by SEC, Stockbroker Fraud Blog, April 8, 2010

Morgan Keegan Ordered by FINRA Panel to Pay Investor $2.5 Million for Bond Fund Losses, Stockbroker Fraud Blog, February 23, 2010


Continue reading "Morgan Keegan & Co. Inc. Must Pay $250K to Couple that Lost Investments in Hedge Fund with Ties to Bernard L. Madoff Investment Securities" »

March 8, 2011

Texas Congressmen Seek Answers from SEC Chairwoman Regarding Conflict of Interest Related to Madoff Debacle

Texas Congressman Jeb Hensarling is one of four Republican members of the House Financial Services Committee wanting to know more about Securities and Exchange Commission Chairwoman Mary Schapiro’s role in managing the conflict of interest presented by appointing David M. Becker as the SEC’s general counsel. Becker, who is no longer in this post, is with someone with a financial interest in a Bernard Madoff investment account. As a senior policy director for the SEC involved in dealing with Madoff Ponzi scam, he played a role determining how victims would be compensated.

Becker’s ties with Madoff didn’t come to light until trustee Irving H. Picard sued him and his two brothers to get back more than $1million of the $2 million they had inherited from their late mother’s Madoff investment. The former SEC general counsel claims that he told Schapiro and the chief ethics officer of his Madoff-related financial interest. Now, however, SEC inspector general H. David Kotz says he wants to probe possible conflicts of interest related to Becker’s role with the SEC as someone who stood to benefit from decisions involving Madoff Ponzi scam victims. According to the New York Times, two unnamed sources say while the SEC agreed to return to investors only the funds they had placed in their Madoff accounts, Becker had pushed for allowing the victims to keep some of their investment gains.

Lawmakers say they want details of Schapiro’s talks with Becker about his Madoff ties. They also want to know whether she followed all the steps delineated in government ethics rules. Also getting into the mix is Texas Representative and Republican Randy Neugebauer, who is quoted in the New York Times as stating that he believes the SEC should be held to the same high standard of “transparency and disclosure” as it holds other companies.

Shepherd Smith Edwards and Kantas founder and Texas securities fraud lawyer William Shepherd also wants to know, “Why was Ms. Schapiro not questioned about her own role as the former head regulator at the NASD – now known as the Financial Industry Regulatory Authority (FINRA)? She held that position for almost a decade just prior to her appointment as SEC Chairwoman. As Madoff defrauded thousands of investors, FINRA/NASD has the primary duty to regulate securities dealers, including the Madoff securities firm, which reportedly had a substantial role in activities related to Madoff’s advisory firm, as it perpetrated the massive Ponzi scheme.”


Related Web Resources:
S.E.C. Chairwoman Under Fire Over Ethics Issues, The New York Times, March 8, 2011

SEC’s Top Lawyer Becker Sued for Inheriting Madoff Ponzi Profits, Bloomberg, February 23, 2011


More Blog Posts:

Texas Securities Commissioner Not Convinced SEC Has Reformed Itself Since Madoff Ponzi Scam, Stockbroker Fraud Blog, December 5, 2009

SEC, NASD, FINRA & SIPC: New SEC Report Card on Madoff Catastrophy Further Reveals How Investor Protection Is Severely Flawed!, Stockbroker Fraud Blog, September 3, 2009

Madoff Investors Who Were Victims of “Ponzi” Scam Contact Securities Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP to Explore Recovery Options, Stockbroker Fraud Blog, December 17, 2008

January 4, 2010

Number of Ponzi Scam Collapses Increased Significantly Last Year

The number of Ponzi scams that fell apart increased by nearly four times in 2009, compared to the year, before resulting in over $16.5 billion in investor losses. This figure comes from the Associated Press, which analyzed Ponzi schemes in all US states.

Additional findings from the AP analysis:

• Over 150 Ponzi schemes fell in 2009
• 40 scams collapsed in 2008
• Allen Stanford’s $7 billion international Ponzi scam and Scott Rothstein’s $1.2 billion scheme were among the larger plots that fell apart last year

Bernard Madoff’s $65 billion Ponzi scam wasn’t calculated into last year’s figures because he was arrested at the end of 2008.

In addition to increased enforcement efforts, the economic collapse can be credited with the discovery of many schemes that may have otherwise gone undetected. The number of people willing to invest in new ventures went down in 2009 while current investors rushed to pull out their money. As Ponzi scammers rely on new investors to not only pay the old investors but also fund their expensive lifestyles, many schemes collapsed. The discovery of Madoff’s Ponzi scam has also made investors more wary and regulators more alert.

Another scam of note is Tom Petters’ $3.65 billion scheme. Petters used Petters Group Worldwide, LLC to run his Ponzi scam. He is in prison waiting to receive his sentence. He could be sentenced to a life prison term.

In 2009, the Federal Bureau of Investigation opened over 2,100 securities fraud probes. That’s 350 more investment fraud investigations than the number of investment probes that were opened in 2008. The FBI had 651 agents working on high-yield investment fraud investigations last year. Also in 2009, the US Securities and Exchange Commission issued 82% more restraining orders against securities fraud cases than they did in 2008. Ponzi scams now compromise 21% of the SEC’s enforcement workload—up from 9% in 2005.

The number of civil actions (31) that the Commodity Futures Trading Commission filed last year has more than doubled since 2008. Many securities fraud cases from last year have not yet gone to trial.

Related Web Resources:
AP: Ponzi collapses nearly quadrupled in '09, Yahoo, December 28, 2009

2009: The Year of the Ponzi, ABC News

Charles Ponzi


Continue reading "Number of Ponzi Scam Collapses Increased Significantly Last Year" »

December 5, 2009

Texas Securities Commissioner Not Convinced SEC Has Reformed Itself Since Madoff Ponzi Scam

Denise Voigt Crawford, the Texas securities commissioner and current North American Securities Administrators Association president, says it isn’t evident that the US Securities and Exchange Commission has implemented key reforms to the issues that allowed the agency to fail to detect Bernard Madoff’s $50 billion ponzi scheme for almost 20 years. Speaking at the National Press Club on Friday, she accused the SEC of not doing enough to support legislation intended to increase investor protection.

Crawford claims staffers that work for the SEC hardly interact with investment fraud victims. Because many SEC employees would like to work on Wall Street, she contends that this makes it difficult for agency members to properly oversee a securities firm that could potentially become a future employer.

Seeking to make a number of changes to the financial-overhaul bill currently moving through Congress, NASAA wants states securities regulators to have jurisdiction over securities firms that manage up to $100 million in assets. It also wants broker/dealers, and not just investment advisers, to be subject to a fiduciary standard when giving investment advice. NASAA wants to terminate mandatory pre-dispute arbitration clauses that make investors to pursue their securities fraud claims in arbitration proceedings run by Financial Industry Regulatory Authority.

Responding to Crawford’s comments, SEC spokesperson John Nestor called her statements “uninformed” and cited the agency's proposal of the Investor Protection Act, its hiring of senior management, reforms made to internal operations, new rulemaking that is focused on investors, and an increase in investigations and penalties as among the numerous “dramatic” changes that the SEC has implemented since Madoff’s massive ponzi scam was discovered.

Related Web Resources:
State regulator: Jury still out on SEC post-Madoff, AP/Yahoo! News, December 4, 2009

2nd UPDATE:Texas Securities Regulator:'Jury Is Still Out' On SEC Reform, Wall Street Journal, December 4, 2009

Texas State Securities Board

North American Securities Administrators Association

Continue reading "Texas Securities Commissioner Not Convinced SEC Has Reformed Itself Since Madoff Ponzi Scam" »

November 20, 2009

Number of Securities Lawsuits Increased During 3rd Quarter

According to commercial insurance consulting firm Advisen, 169 securities lawsuits were filed during 2009’s third quarter—an 11% increase from the 152 complaints that were filed during the previous quarter. 249 securities lawsuits were filed in the 1st quarter.

The most common kind of securities lawsuit filed this past quarter was securities fraud lawsuits that were brought by law enforcement agencies and regulators. 70 securities fraud complaints and 55 securities class actions were filed during 3Q. 50 securities fraud complaints and 38 cases were filed in the 2Q.

Advisen Executive Vice president Dave Bradford says the percentage of securities fraud lawsuits is expected to grow now that the Securities and Exchange Commission appears to be increasing its securities fraud enforcement initiatives under President Barack Obama. The SEC has been attempting to recoup from its failure to detect the $50 billion Ponzi scam that Bernard Madoff ran for years.

One reason for the decline in securities lawsuits during the 3rd quarter may be due to a drop in credit crisis- and Madoff-linked lawsuits. Only 6 securities cases related to Madoff were filed in 3Q—compare that to the 54 lawsuits filed during 1Q and the 17 complaints submitted in 2Q. Since December 2008, at least 109 Madoff-related securities lawsuits have been filed.

Advisen reports that some 335 credit-crisis securities lawsuits have been filed. 46 complaints were filed in the 1Q, 24 in 2Q and 9 in 3Q.

During the 3rd quarter, 63 securities cases were awarded or settled. The average award or settlement was $11.6 million.

Securities Fraud Lawsuits
To increase your chances of recouping your investment, it is important that you speak with an experienced securities fraud law firm about your case.


Related Web Resources:
Securities lawsuits increase in third quarter: Advisen, Business Insurance, October 14, 2009

Feds say Bernard Madoff's $50 billion Ponzi scheme was worst ever, NY Daily News, December 13, 2008

September 3, 2009

SEC, NASD, FINRA & SIPC: New SEC Report Card on Madoff Catastrophy Further Reveals How Investor Protection Is Severely Flawed!

A new report by the Inspector General at the Securities Exchange Commission recounts 16-years of failures at the SEC which led to the financial crime of the century perpetrated by Bernard Madoff and his firm. The report states that the agency “never properly examined or investigated Madoff's trading and never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme.”

The IG confirms that the SEC failed to heed direct warnings and warning signs as early as 1992 which “could have uncovered the Ponzi scheme well before Madoff confessed” to the $50 billion fraud, leading to his 150 year prison sentence.

Critics of cecurities regulators and the securities regulatory system have for years complained that the system is not only inept but perhaps corrupt. Accusations have included that regulators overlook wrongdoing by Wall Street insiders while “rounding up the usual suspects" to appear as if they are doing their jobs. Madoff may be the poster child for this theory.

In the 1930’s, after the crash of 1929, securities laws were passed to protect investors which had recently grown from mostly east coast financial types to a broader group of wealthier Americans nationwide who invested through “wire houses.” In the second half of the 20th century, as more and more of us were drawn into the securities market, many claim that investor protection became more diluted allowing fraud to proliferate. SInce 2000 securities fraud has exploded.

The system of securities regulation works (or not) as follows: Congress delegated oversight of the industry to the SEC. The SEC then delegates day to day regulation of securities firms to “Self-Regulatory Organizations, or “SRO’s.” The largest of the SRO’s was the National Association of Securities Dealers, or NASD, which last year took over the regulatory authority of the second largest SRO, the New York Stock Exchange, and became the Financial Industry Regulatory Authority, or FINRA.

Yet, FINRA is neither the regulator of the entire financial industry, nor an “Authority.” It continues to be a non-profit corporation owned by securities firms, with a charter similar to that of a country club. FINRA makes rules and reports to the SEC regarding its rule changes and enforcement, but it is run by none other than the securities firms it purports to regulate. The NASD, now FINRA, then delegates regulation of each firm’s activities to the firm itself. Each firm designs its own regulatory system then submits this to FINRA for approval. “At least annually” a firm is supposed to be audited by NASD/ FINRA, with further action taken as complaints arise.

Thus, while the SEC is properly feeling heat over the Madoff mess, it was the NASD which had primary power to regulate its member, the Madoff Securities firm – “at least annually.” Here is some interesting info: Bernie Madoff was not only a prominent member of the securities industry, but served as vice chairman of the NASD, a member of its board of governors and chairman of its New York region. He was also a member of NASDAQ Stock Market's board of governors and its executive committee and served as chairman of its trading committee. Anyone else thinking about foxes and henhouses?

For almost a decade, the head of NASD enforcement, which had responsibility to audit Madoff Securities “at least annually, was Mary Shapiro. Ms. Shapiro left that job just this year when appointed by President Obama as Chairman of the SEC. Does this not comfort you as an investor?

If a brokerage firm fails, investors are protected by something called SIPC insurance. Protection by the Securities Industry Protection Corporation merely means that “what you see is what you get” in a securities account. If a brokerage firm goes out of business coverage for investors is $100,000 of cash in their account and up to $500,000 total, including securities. One problem is that investors are not covered for being defrauded into buying worthless securities. If the firm closes you get your securities, even if these have become worthless.

Yet, in the Madoff mess SIPC did not even want to pay for what was listed in accounts, saying these were just false entries. Perhaps because of the great notoriety, SIPC was forced to pay up. Thirty years ago, SIPC was set up to pay the above limits, which have not been raised with inflation. Instead, premiums paid by brokerage firms had been reduced from a small percentage of their revenues to only $150 annually by each firm. Thus, SIPC barely had the funds to even pay the difference in that recovered from Madoff and the tiny fraction covered by SIPC (less than 5% of the total lost!)

In a previous installment we covered the “race to the bottom” in securities regulation. Wall Street decries that if regulations are not further relaxed it can not compete with other countries. We feel this is a sham and further insult to an already beleaguered investing public.

June 24, 2009

SEC Securities Fraud Lawsuit Accuses Beverly Hills Money Manager Stanley Chais of Leading Investors Into Madoff Ponzi Scam

The Securities and Exchange Commission is suing Beverly Hills money manager Stanley Chais for securities fraud related to his alleged involvement in the Bernard Madoff Ponzi scam. The SEC alleges that Chais and four others worked collectively to raise billions of dollars from investors to fund the $65 billion scheme—the largest Ponzi scam in US history.

Chais investors’ accounts were worth almost $1 billion when the Ponzi scam finally collapsed. Chais, 82, is accused of collecting almost $270 million in investor fees. The Beverly Hills money manager, his family members, and associated entities are also accused of withdrawing almost $546 million in ill-gotten profits. The SEC is seeking financial penalties and the return of ill-gotten gains to investors.

The SEC complaint contends that Chais portrayed himself to his clients as an “investing wizard” and did not let them know that Madoff was actually in charge. The SEC says that Chais either knew that Madoff was running a Ponzi scam or was reckless for not knowing about the scheme. For example, Madoff never reported even one loss on thousands of “purported” stock trades on Chase’ accounts from 1999 to 2008. This alone should have been an indicator that Madoff’s reports were bogus.

Many of Chais’s investors have suffered as a result of the money manager’s alleged misconduct. For instance, the Los Angeles Times reports that Mark Peel, who is part owner and executive chef of Campanile, claims he lost $6 million from investments that Chais is accused of secretly making with Madoff. Peel had to sell his Hancock Park home because of the investment losses he sustained and almost all of his children lost their college funds.

Chais’s attorney denies that his client did anything wrong, did not know that Madoff was bilking investors, and was also a victim of the Madoff scam. Chais, 82, had over 40 accounts with Madoff for himself, family members, and other entities.

In another Madoff-related securities fraud case, the SEC has also filed a lawsuit against Cohmad Securities Corp, Chairman Maurice J. Cohn, executive Robert M. Jaffe, and COO Marcia B. Cohn over allegations that they ignored evidence that Madoff was engaged in a Ponzi scam and actively marketing opportunities with him.

Related Web Resources:
Beverly Hills money manager Stanley Chais accused of fraud, Los Angeles Times, June 23, 2009

Stanley Chais Accused Of Fraud - Raised Billions For The Bernie Madoff Ponzi Scheme, The Post Chronicle, June 22, 2009

Read the SEC Complaint (PDF)

Continue reading "SEC Securities Fraud Lawsuit Accuses Beverly Hills Money Manager Stanley Chais of Leading Investors Into Madoff Ponzi Scam " »

March 18, 2009

Madoff and Stanford Victims Can Claim Theft Losses as Tax Deductions, Says Internal Revenue Service

According to Internal Revenue Service Commissioner Douglas Shulman, investors who were defrauded by R Allen Stanford and Bernard Madoff can claim these theft losses as deductions when filing their taxes. The IRS announced these new procedures on Tuesday. These new IRS rules are applicable to victims of any Ponzi scam but the tax filings must be filed for the year 2008.

Theoretically, the investors would have been paying capital gains taxes if their investments had made profits. Now that it has been discovered that the profits were bogus, however, the IRS says that these same investors should be refunded those taxes.

Under the new guidance, investment losses incurred because of arrangements involving criminal fraud will be classified as theft losses instead of capital losses (usually capped at $3,000 annually). This will allow the victim to receive the larger deduction. For small businesses with $15 million in gross annual receipts, theft loss deductions can be carried back up to five years for 2008 returns instead of the usual 2-years. Also, fictitious income can also be claimed as theft losses.

Investors that file securities fraud lawsuits against Bernard Madoff because they were bilked by his multibillion-dollar Ponzi scam are allowed a 75% deduction for theft losses. Investors who don’t sue the 70-year-old investment advisor can obtain an immediate 95% deduction as soon as possible and seek to obtain the rest in the future if they don’t get back any of their monies. They could also take a deduction for investment income they thought they made.

Related Web Resources:
IRS Says Madoff Victims Can Claim Theft Losses, Bloomberg.com, March 17, 2009

IRS To Allow Madoff Victims To Deduct Theft Losses For 2008, Fox Business, March 17, 2009

Securities Investor Protection Corporation

Internal Revenue Service

Continue reading "Madoff and Stanford Victims Can Claim Theft Losses as Tax Deductions, Says Internal Revenue Service" »

March 9, 2009

UBS Sanctioned For Madoff-Related Losses by Luxembourg Financial Services Regulator

In Europe, the Luxembourg Commission de Surveillance du Secteur Financier (CSSF) has censured UBS’s Luxembourg-based branch for failing to execute due diligence and, as a result, allegedly allowing for the massive losses investors have incurred from the Bernard Madoff's $50 billion Ponzi scam. The Luxembourg financial service regulator is accusing Switzerland’s biggest bank of a “serious failure” in the way it managed a feeder fund that funneled assets to Madoff-related investments. Luxembourg’s CSSF is giving UBS three months to remedy the problems.

UBS, however, is disputing the CSSF’s claim that it violated its contractual obligation to clients. The investment bank says the Luxalpha fund was set up at the request of wealthy clients that wanted a tailor-made fund that would let them invest their assets with Bernard Madoff. UBS says these clients knew that it was not responsible for their assets' security.

Following news of the Madoff scheme and revelations that some French investors had allegedly lost billions of dollars because their investments were channeled to Madoff through Luxembourg-based mutual funds, the European Commission announced it would start investigating the way EU member states use the EU mutual fund regulatory regime (UCITS, which refers to Undertakings for Collective Investment in Transferable Securities).The EU also said that approval of a new regulatory regime will more than likely be delayed so more changes can be considered to ensure that investors are protected in the future from losses such as the ones that occurred with Madoff.

The French government accused UBS of lax supervision of mutual funds. French officials have also accused Luxembourg of being lax when it comes to EU mutual fund regulations. They've called on the EU to come up with stricter rules. Luxembourg, which has one of the EU’s mutual fund financial service sectors, disagrees with France’s accusations.

Madoff's scheme has resulted in massive losses for individual investors, institutions, world financial markets, politicians, charities, and many others.

Luxembourg regulator censures UBS over Bernard Madoff, Times Online, February 26, 2009

French investors to take legal action against banks over Madoff feeder funds, Times Online, January 14, 2009

Related Web Resources:
Feds say Bernard Madoff's $50 billion Ponzi scheme was worst ever, Daily News, December 13, 2008

Luxembourg's Commission de Surveillance du Secteur Financier

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January 26, 2009

District Court Denies Federal Government’s Request to Detain Investment Adviser Bernard Madoff After He Transferred $1 Million in Valuables

Earlier this month, the U.S. District Court for the Southern District of New York rejected a motion by the federal government to put investment adviser Bernard Madoff in jail. Madoff is charged with securities fraud over his involvement in a $50 million Ponzi scheme.

Federal prosecutors had claimed that the investment adviser violated the conditions of his bail when he removed nearly $1 million in valuables from his New York home in December and sent them to friends and relatives. Items that were mailed reportedly included more than 13 watches, an emerald ring, a diamond necklace, two cufflink sets, four diamond broaches, and other expensive jewelry.

Prosecutors say that Madoff’s actions were in violation of a preliminary injunction that prevented him from breaking up his assets so that his investor fraud victims could obtain restitution. Madoff’s attorneys, however, claim that their client did not think he was doing anything wrong and did everything he could to get the items back after he was told that he shouldn’t have sent them.

According to Magistrate Judge Ronald L. Ellis, however, the prosecutors’ argument wasn’t enough to mandate incarceration and the government made too huge a “leap” when it claimed that the community became endangered because Madoff transferred his assets. The district court did impose more bail conditions so Madoff cannot move additional items. The court also noted that these supplemental restrictions would provide additional protections.

Meantime, the Financial Industry Regulatory Authority says it has received at least 19 complaints about Madoff’s broker-dealer enterprise. However, FINRA noted that the complaints pertained to trading execution issues and not retail investment advisory issues or allegations of a Ponzi scam or fraud.

Related Web Resources:
U.S. loses another bid to jail Madoff, CNN Money, January 14, 2009

Madoff Is a 'Danger,' Argue Prosecutors, WSJ Online, January 8, 2009


Continue reading "District Court Denies Federal Government’s Request to Detain Investment Adviser Bernard Madoff After He Transferred $1 Million in Valuables" »

January 22, 2009

Madoff Investors May Have a Better Chance of Recovering their Investment Losses Through Tax Strategies Rather than Lawsuits

Investors who lost money in Bernard Madoff’s $50 billion Ponzi scam may have a better chance of recouping their losses through tax strategies rather than filing lawsuits. Under US tax law, Madoff clients are allowed to take income deductions for losses that occur due to theft. The claim can be filed for the year the loss was discovered, and there is reasonable expectation of recovery.

Madoff has been charged with securities fraud. The 70-year-old investment adviser allegedly confessed to swindling thousands of investors. If convicted, he could face up to 20 years in prison, have his assets forfeited, and be ordered to pay a $5 million fine.

Investors who were direct customers of Madoff can file their loss claims with the Securities Investor Protection Corporation. If they have determined that they are not likely to recover from an SIPC claim, they can file for a theft-loss deduction. Per this provision, Madoff’s victims who are eligible to file an SIPC claim but don’t would get their deduction reduced by the $500,000 cap on SIPC coverage for securities losses. According to the Internal Revenue Service, the loss from 1 occurrence has to be above $100, with the total loss needing to be over 10% of someone’s adjusted gross income for the year when the deduction is claimed.

Another recovery option for Madoff investors is the “claim-of-right” tax refund. This could allow some investors to eliminate income connected to Madoff’s investment advisory business from previous tax returns and allow them to declare the income tax that was paid on these amounts as 2008 tax payments. If the theft loss is greater than the income of the taxpayer from the year when the tax was discovered, it could be carried forward up to 20 years and back three years in order to lower taxable income. Taxpayers may also be able to submit amended returns as far back as three years so an adjustment can be made for income that wasn’t actually earned. The IRS has benefited from Madoff’s alleged Ponzi scam because it was paid taxes on what might be billion of dollars in bogus profits.

According to Shepherd Smith Edwards & Kantas LTD LLP Founder and Investment Fraud Attorney William Shepherd, “For years, our firm has assisted clients to seek millions in tax refunds and loss carry forwards for ‘theft losses.’ This is not a simple process because the IRS regularly opposes such claims. Victims are best served by working with both accounting and legal specialists experienced in the three step process: (1) Provide evidence that other recovery loss alternatives have been exhausted; (2) File the necessary documents to seek casualty-theft losses, including back-up - and later further back-up; and, (3) Engage skilled legal professionals that have the experience to respond to IRS challenges, drive the recovery process, and appeal IRS decisions when necessary. As most citizens know, dealing with the IRS is often treacherous.”

Related Web Resources:
Madoff Clients May Recoup More Losses Through Taxes Than Suits, January 22, 2008

Bernie Madoff Ponzi Scheme: Victim List Grows, The Huffington Post, December 15, 2008


Related Web Resources:
Securities Investor Protection Program

Internal Revenue Service

January 5, 2009

Investor Fraud Lawsuits Stemming $50 Billion Ponzi Scheme May Name Madoff's Family Members as Additional Defendants

The civil lawsuits that will be brought by the victims of Bernard Madoff’s $50 billion fraud scam are expected to be numerous and massive. Not only will they likely target Madoff and his firm, Bernard L. Madoff Investment Securities LLC., but a number of his family members who work for the firm could also be named as defendants.

The company’s chief compliance officer and senior managing director is Madoff’s brother Peter. Madoff’s sons, Mark and Andrew, also are employed by the firm, as is Shana Madoff, Peter’s daughter. While Madoff has maintained that no family members were involved in the Ponzi scheme and that he acted alone, actual knowledge doesn’t have to be involved when there is a fiduciary relationship or if recklessness or negligence is a factor for someone to be held liable.

According to Securities and Exchange Commission staff attorney Peter J. Henning, two main types of litigation are expected from the Madoff scheme. One type of securities fraud litigation will target Madoff, his company, and his family members. Another kind of investor fraud lawsuit will target third parties, such as investment advisers, feeder funds connected to Madoff’s company, and other parties that sent investors Madoff’s way.

Complications are expected. Determining the liability of people who acted in an agent role but did not receive compensation when they referred investors to Madoff, differentiating between claimants that invested in feeder funds and those who directly invested with Madoff, and determining whether money can be gotten back from investors who redeemed their funds earlier, are just some of the difficulties that are likely to arise.

Already, a number of investors have filed class action and group lawsuits against the 70-year-old financial adviser, who remains under house arrest. In October, Bernard L. Madoff Investment Securities LLC., was the 23rd biggest market maker on Nasdaq.

Related Web Resources:
Suits From Madoff Fraud Will Be Massive, Will Involve Family Members, Attorneys Say, BNA, December 22, 2008

Bernie Madoff Victim List, Huffington Post, December 15, 2008

Bernard L. Madoff Investment Securities LLC

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December 17, 2008

Madoff Investors Who Were Victims of “Ponzi” Scam Contact Securities Fraud Law Firm Shepherd Smith Edwards & Kantas LTD LLP to Explore Recovery Options

Wall Street Icon Bernard Madoff’s $50 billion “Ponzi” scam may very well have bilked hundreds, even thousands, of investors of their money. Now, many of Madoff’s victims are contacting the securities fraud law firm of Shepherd Smith Edwards & Kantas LTD LLP to find out how they can recover their investments.

According to SSEK Founder and Stockbroker Fraud Attorney William Shepherd, “a number of recovery options” exist, including pursuit of:

• Securities Industry Protection Corp: SIPC has a $500,000 maximum guarantee limit per account. Its reserves are also limited and it needs government infusion to be able to cover losses in the billions of dollars. To be able to recover claims, legal action against SIPC is usually necessary. On Monday, a judge ruled that investors who were Madoff’s direct clients are covered under SIPC.

• The entities and individuals that make up Madoff’s financial empire.

• Third party participants.

• Parties that placed other people’s money into Madoff accounts.

The stockbroker fraud law firm is also exploring other sources of investor relief. "Our firm has also assisted many clients to qualify for substantial tax rebates based on overpayments and/or loss reclassification," says Securities Fraud Attorney Shepherd.

Madoff, who is the founder of Bernard L Madoff Investment Securities, LLC and the former chairman of Nasdaq, was arrested and charged with securities fraud last week. The US Attorney’s office in the southern district of New York says Madoff himself admitted to defrauding clients for up to $50 billion. Already, investors have reported at least $23 billion in losses. Victims of Madoff’s investment scam include not only his direct clients, but also investors in feeder funds that were set up by external investment advisory firms.

SSEK is offering Madoff investors a free consultation to evaluate their possible securities fraud claims and review their recovery options.

Wall Street's Latest Downfall: Madoff Charged with Fraud, Time, December 12, 2008

Madoff Victims May Have Numerous Sources of Recovery Says Shepherd Smith, Edwards & Kantas LTD LLP Securities Law Firm Founder, MarketWatch.com, December 15, 2008

Bernard L Madoff Investment Securities, LLC