Chidem Kurdas
It would make great satire. David Becker shaped regulatory policy for years as the Securities and Exchange Commission’s general counsel. His “wisdom and careful judgment” was celebrated by SEC Chair Mary Schapiro. Now his conflict of interest as an investor with Bernard Madoff is to be reviewed by Congress and the Justice Department. (more…)
Chidem Kurdas
An appeals court upheld the Madoff trustee’s decision that the former clients of the defunct firm have a claim only to the capital they originally invested, not the profits Madoff fraudulently reported on their accounts. This has precedent from past Ponzi schemes, where investors who took out more than their capital had to return the difference. It’s a reasonable principle not to allow fake profits, though a hardship on people who relied on them, like New York Mets owners Fred Wilpon and Saul Katz. The supposed gains, after all, came from other investors’ money.
But there’s something else going on. (more…)
Chidem Kurdas
In one particular respect, government-appointed bankruptcy trustees resemble Scheherazade of the 1,001 Arabian Nights. She had a secure tenure with the Sultan as long as she kept spinning the fairy tales. (more…)
Chidem Kurdas
Bernard Madoff told Securities and Exchange Commission examiners an evolving tale as to how he made money. He started with a black box, which may sound like another reason to suspect computerized models. One examiner wrote: “no discretion on the part of Madoff—everything is determined by the black box.”
Then Madoff changed his tune. Yes the computer model signaled when to enter and exit the market, but he “was adamant he also uses his ‘gut feel’ to make these decisions.”
The lesson from this little story: it is better to be presented with a black box than to be told the guy’s gut is making the money. (more…)
Chidem Kurdas
The Securities and Exchange Commission is working to improve its oversight process—-to prevent Madoff problems, as Michael Macchiaroli of the SEC’s Office of Risk Management described certain reform efforts at a conference of the New York State Society of CPAs.
The Dodd-Frank Act has created a rulemaking boom, including new rules for the implementation of mandatory SEC registration of hedge fund managers with more than $150 million in assets. It might help to look at what registration did in the past. So let’s consider the last investment adviser registration filing with the SEC by Bernard Madoff. (more…)
Chidem Kurdas
Hedge funds lose their clients and tend to shut down when they are investigated by government agencies or face civil lawsuits. Raj Rajaratnam’s Galleon Group and Arthur Samberg’s Pequot Capital, accused of abusing inside information, come to mind. Both long-time managers closed shop. (more…)
Chidem Kurdas
A central claim of the lawsuits brought by Irving Picard, the Madoff bankruptcy trustee, is that his various targets knew of the fraud, should have known or in some cases could have known. You start noticing how murky these allegations are when you talk with people who had dealings with Mr. Madoff. (more…)
Chidem Kurdas
There is one key interested party that is missing from the case filed against Citibank by Irving Picard, the government-appointed trustee of the Madoff estate. I went through the136-page complaint and nowhere did I see mentioned this group—hundreds of thousands of hidden and mostly nameless victims of the lawsuit. To declare a personal interest, I’m probably among them. (more…)
Chidem Kurdas
Funny thing about the NYT interview with Bernard Madoff. He sounds as if he’s following a script meant to support the charges made by Irving Picard, the Madoff estate bankruptcy trustee, against JP Morgan Chase and other defendants. (more…)
Chidem Kurdas
Financial fraud typically comes to light because someone complains. But as Harry Markopolos found out when he went to the US Securities and Exchange Commission with evidence against Bernard Madoff, complaining may not put an end to a scheme. And then people say you’re a joke! (See below.)
Indeed, the whistleblower’s lot is typically not a happy one, in the experience of Sherron Watkins, the accountant who detected that little accounting issue at Enron. (more…)
