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Tag: SEC

  • Madoff Case Sparks Talk Of ‘Clawbacks’

    Bernard Madoff
    Bernard Madoff

    BLOG UPDATE 2:19 P.M. EST (U.S.A.): La Tribune, a French business newspaper, is reporting that a founder of Access International Advisors, a hedge fund with large sums invested with Bernard Madoff, has been found dead in his New York City office building.

    Rene-Thierry Magon de la Villehuchet, 65, was found this morning. The French newspaper called it a suicide, as have other media outlets, but the medical examiner hasn’t listed a cause of death.

    Here, below, our earlier post . . .

    In the CEP autosurf Ponzi scheme case, a court-appointed receiver filed dozens of lawsuits against program “winners,” forcing them to return profits on the theory there can be no winners in an illegal enterprise. The receiver, William F. Perkins, placed CEP in bankruptcy and then methodically went about the task of clawing back money for the estate.

    Perkins, who effectively is running CEP as a debtor-in-possession, has negotiated settlements with a number of winners.

    Last month he triumphed over CEP’s owners, Clayton Kimbrell and Trevor Reed, in a civil trial for fraud and breach of fidiciary duty.

    Judge James E. Massey ordered Kimbrell and Reed to return about $1.5 million in fraudulent transfers they made to themselves, family members, employees and other CEP principals.

    Some of the clawback cases against CEP winners still are being heard, about 17 months after the initial filing. More than 20 trials against individual defendants are scheduled next month in U.S. Bankruptcy Court in Atlanta.

    CEP was declared a Ponzi by a federal judge, while Madoff remains an alleged Ponzi operator who told authoritites that the Ponzi could amount to $50 billion in losses.  The July 2007 SEC complaint against CEP said about $12 million flowed through the firm in an illegal securities offering.

    Perkins maintains a CEP website from which visitors may access all the court documents. It’s well worth a visit.

    Talk in the Madoff case has turned to what the court-appointed receiver might do to recover cash. Owing to the size of the alleged scheme, things could get downright ugly. In theory, people who made withdrawals could be ordered to return them — and this group includes individual investors, money managers and charities.

    Lawyers are apt to use terms such as “fictitious profits” and “fraudulent conveyance” to describe redemptions by investors before the Ponzi collapse. The prospects are horrifying because investors didn’t know anything untoward was occurring behind the scenes, and many of them likely have spent all or part of the money.

    See this Bloomberg News story.

    If the case follows the CEP model, Madoff and insiders — if any — could be forced to return illegal transfers. Prior to his arrest, Madoff said he wanted to distribute up to $300 million to employees. If such transfers were made — recently or in years past in the form of bonuses — it’s possible that the money could be ordered returned even if spent.

    Ugly doesn’t even begin to describe the battles that could ensue. Charities that relied on Madoff to manage money used for good deeds and took dedemptions could be targeted to pay the money back. There is the potential for pain in many, many places, and it’s possible the clawbacks could go back six years.

    Blinded to the reality that Ponzi schemes can have devastasting consequences, some autosurf supporters still are arguing that the government has no business sticking its nose in where it doesn’t belong.

    Incredibly, an autosurf whose launch is set for next year has targeted nonprofits in early promotions. Promoters have suggested it’s a great way to publicize the business and get cash flow.

    AdSurfDaily, which has ceased to operate in the wake of the government’s August seizure of nearly $100 million, promoted at least one nonprofit, funding it with $100,000 in “ad packs” and asking members to contribute.

    “ASD President, Andy Bowdoin, has generously donated 100,000 ad packages to this organization,” the ASD Breaking News site said on July 5, about a month prior to the seizure.

    ASD encouraged members to send donations for the charity to ASD headquarters and even to transfer “donations from your [ASD] Cash Balance.”

  • SEC Says It Missed Chance To Unravel Madoff Scheme; Probe Indicates Madoff Cooked Books And Falsified Docs

    Christopher Cox
    Christopher Cox

    BLOG UPDATE 12:12 P.M. EST (U.S.A.): A bail hearing for Bernard Madoff rescheduled for today has been canceled. Madoff was ordered last week to produce two additional co-signers to guarantee his $10 million bail, but was unable to come up with them. A federal judge, with consent of the prosecution, now has ordered Madoff placed on electronic monitoring and home detention, with a curfew between 7 p.m. and 9 a.m. His wife, Ruth, was ordered to surrender her passport.

    Here, below, our earlier post . . .

    The Securities and Exchange Commission said late yesterday that it had received “credible and specific” leads about alleged wrongdoing by Bernard Madoff a decade ago and failed to respond properly.

    Meanwhile, the agency has found evidence that Madoff kept multiple sets of books to help his securities firm pull off a Ponzi scheme that could cost investors $50 billion or more.

    In a dramatic concession, SEC Chairman Christopher Cox ordered an internal investigation of the agency to include a probe of contacts the agency had with Madoff family members.

    Shana Madoff, Madoff’s niece, is married to Eric Swanson, a former SEC attorney who once was a supervisor in an SEC unit that made an inquiry into Madoff’s business practices. Shana Madoff is the Madoff firm’s compliance attorney and the daughter of Peter Madoff, Bernard Madoff’s brother, and the firm’s chief compliance officer.

    Swanson, through spokesmen, told the New York Times that he did not begin to date his wife until years after the SEC inquiry and was not a participant in an inquiry during their romantic lives. Swanson and Shana Madoff married in 2007.

    Cox ordered SEC employees who had anything beyond “insubstantial personal contacts with Mr. Madoff or his family” to recuse themselves from the probe.

    “Since commissioners were first informed of the Madoff investigation last week, the Commission has met multiple times on an emergency basis to seek answers to the question of how Mr. Madoff’s vast scheme remained undetected by regulators and law enforcement for so long,” Cox said.

    “Our initial findings have been deeply troubling,” Cox continued. “The Commission has learned that credible and specific allegations regarding Mr. Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action. I am gravely concerned  by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them.”

    Rather than use formal investigative powers and subpoena power, Cox said, the agency “relied upon information voluntarily produced by Mr. Madoff and his firm.”

    Madoff might have been cooking the books, Cox said.

    Records investigators have viewed in recent hours are “increasingly exposing the complicated steps that Mr. Madoff took to deceive investors, the public and regulators,” Cox said. “Although the information I can share regarding the ongoing investigation is limited, progress to date indicates that Mr. Madoff kept several sets of book and false documents, and provided false information regarding his advisory activities to investors and to regulators.”