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Posted by hoangtran204 trên 27/01/2009

Mass. investor saw inside Madoff scam
Friday December 19, 8:30 am ET
By Jay Lindsay, Associated Press Writer

Massachusetts investor saw inside Madoff scam 9 years ago, but few listened BOSTON (AP) — His repeated warnings that Wall Street money manager Bernard Madoff was running a giant Ponzi scheme have cast Harry Markopolos as an unheeded prophet.

But people who know or worked with Markopolos say it wasn’t prescience that helped him foresee the collapse of Madoff’s alleged $50 billion fraud. Instead, they say diligence and a strong moral sense drove his quixotic, nine-year quest to alert regulators about Madoff.

“He followed through on everything he ever did. He never let up,” said his mother, Georgia Markopolos, in an interview Thursday. “Some kids just let it go if it’s too hard, but he wouldn’t do that.”

“He feels very sorry for these people that got taken,” she added. “It wouldn’t have happened if they would have listened to him long ago.”

Markopolos waged a remarkable battle to uncover fraud at Madoff’s operation, sounding the alarm back in 1999 and continuing with his warnings all through this decade. The government never acted, Madoff continued his ways, and people lost billions.

Markopolos reached his conclusion with the help of mathematicians like Dan diBartolomeo, whose analysis of the Madoff’s methods in 1999 helped fuel Markopolos’ suspicions.

“People should have seen the writing on the wall,” diBartolomeo said.

Markopolos did not respond to multiple e-mail or phone requests for an interview.

The 52-year-old resident of Whitman, about 20 miles south of Boston, grew up in Erie, Pa., the oldest of three siblings.

His mother said her son was a little nerdy as a child, as well as occasionally mischievous and unfailingly honest. She recalled an incident where he pelted his elementary school with eggs in the middle of winter, but no one saw him. Time passed with no confession from anyone, until Markopolos stepped forward, admitted he did it, and cleaned the school himself.

Markopolos became an adept hunter and fisherman as he grew up, like many from the rural area, but also showed early aptitude at academics, as well as a willingness to question authority.

“He used to challenge the teachers,” his mother said with a laugh. “He’d tell them he had the right answers, but they had the wrong questions.”

Markopolos graduated from Cathedral Prep in Erie in 1974, then in 1981 from Loyola College in Maryland, which his mother said he paid for on his own. After time in the Army and in the financial services field, he earned a graduate management degree from Boston College in 1997.

By 1999, he was working for Rampart Investment Management Co. and charged with doing competitive research on Bernard L. Madoff Investment Securities, which was using a similar investment strategy as his company, but far outperforming it. Part of Markopolos’s research included a visit to diBartolomeo, whom he knew from his professional circle.

“I think he was curious about how his competitor was doing so much better than they were,” diBartolomeo recalled.

Researching Madoff’s numbers, using data the firm distributed to prospective investors, diBartolomeo concluded within hours that it was impossible for Madoff to get the returns he reported while using the strategy he said he used.

“As the market goes up and down, this strategy should have done a little better or a little worse, just like everybody else,” he said. “Instead, it appeared to be indifferent as to whether the market went up or down. They made money all the time.”

Markopolos complained to the SEC’s Boston office in May 1999, saying it was impossible for the kind of profit Madoff was reporting to have been gained legally.

But Madoff continued to thrive, even as Markopolos continued to pursue the case.

In 2005, he submitted a report to the SEC saying it was “highly likely” that “Madoff Securities is the world’s largest Ponzi scheme.” In the report, he says he knew his research could ruin people’s careers and asked the SEC be discreet about circulating the report and his name.

“I am worried about the personal safety of myself and my family,” he wrote.

The report highlights 29 “red flags” about Madoff’s business, among them the returns of a third-party hedge fund managed by Madoff’s firm which had negative returns in just seven on the 174 months Markopolos analyzed.

“No major league baseball hitter bats .960, no NFL team has ever gone 96 wins and only 4 losses over a 100 game span, and you can bet everything you own that no money manager is up 96% of the months either,” he said.

His warnings were heard too late, and he’s become a symbol of a botched oversight of Madoff by the SEC. His mother says the father of three boys under 5 has been bombarded by media requests. Now, a man who tried to be heard for years is going to lay low for a bit, she said.

“Right now, he’s out relaxing some place,” he said. “I can’t even get in touch with him.”

http://biz.yahoo.com/ap/081219/madoff_scandal_whistleblower.html

————————————————————————————————

THE SEC WATCHDOG WHO MISSED

MADOFF

DON’T BLAME ME: CHEUNG

By LORENA MONGELLI and DAN MANGAN

January 7, 2009

The Securities and Exchange Commission‘s New York watchdog, under fire for failing to uncover Bernard Madoff‘s alleged $50 billion Ponzi scheme – despite a dead-on tip by a whistleblower – yesterday tearfully defended herself, arguing that she and the agency did the best job possible.

MORE: Prosecutors Reveal Madoff’s Treasure Trove

Judge to Consider Jailing Madoff

NYU ‘BERNED’ FOR $94 MILLION

EDITORIAL: THE STENCH AT GMAC

“Why are you taking a mid-level staff person and making me responsible for the failure of the American economy?” an upset Meaghan Cheung, with eyes tearing up, told The Post.

“I worked very hard for 10 years to make a career, and a reputation, and that has been destroyed in a month,” said Cheung, who was the SEC’s branch chief of the New York enforcement division during that unit’s earlier probe of Madoff’s brokerage business.

The 37-year-old has been singled out by whistleblower Harry Markopolos as the woman who failed to detect the scam despite his lengthy warnings. It was Cheung who signed off on a 2006 SEC investigation that effectively gave Madoff the all clear.

She said, “I was shocked” to learn last month that Madoff had been charged with – and confessed to – operating a massive Ponzi scheme at his Manhattan firm that swindled thousands of investors.

“I think it’s a tragedy,” said the married mother of two, who is a graduate of Yale University and Fordham University Law School.

But when asked if she would have done anything differently in her Madoff probe – which ended with “no evidence of fraud” – she demurred.

“I can’t answer that,” said Cheung, who left the SEC in September for personal reasons unrelated to Madoff. “If someone provides you with the wrong set of books, I don’t know how you find the real books.”

“Everyone in the New York office behaved ethically and responsibly and did as thorough an investigation as we could do,” said Cheung. “I supervised some lawyers and I was supervised by many levels above me. I’m just mid-level management.”

“I had no incentive to give anyone a pass. I had an incentive to bring cases that should be brought, especially big cases,” she said. “I was not influenced, and I don’t believe anyone in the New York office was influenced, by any other desire than to find out the truth. . . There is no other reason to work there for so long, except that I love what I do.” She added, “No one in my office had any incentive to miss something like this.”

Regarding Madoff specifically, Cheung said, “I never met the man. I had no personal connection, no financial connection, no social connection.”

Cheung spoke outside her Flatiron District co-op after media reports detailed how the SEC failed to catch Madoff even after investigating his Manhattan broker-dealer firm at least eight times over 16 years.

Some of those reports have noted an April 2008 e-mail that Markopolos wrote another SEC exec.

“Cheung, branch chief in New York, actually investigated [Markopolos’ claims] but with no result that I am aware of. In my conversations with her, I did not believe that she had the derivatives or mathematical background to understand the violation,” Markopolos wrote.

Cheung said that when she read a critical New York Times piece on Sunday mentioning that e-mail, she was on a plane with her children, and that she burst into tears.

As for Markopolos’ reference to her supposed lack of mathematical acumen, Cheung said, “Investigations are conducted by lawyers and examiners and investigators. We have experts available to help us.”

Cheung and other SEC staffers had met Markopolos in New York in November 2005, after years of him suggesting to the agency that Madoff was an arch-crook. Markopolos once had worked at a rival firm, but Cheung told The Post, “I didn’t have enough interactions with [Markopolos] to be able to judge his motivations.”

Markopolos gave the investigators a long memo that flatly said that “Madoff Securities is the world’s largest Ponzi scheme.”

Soon after, in January 2006, the New York branch of the SEC opened an enforcement case on Madoff based on Markopolos’ claims. The document authorizing that probe is signed by three SEC staffers: Cheung, attorney Simona Suh, and Assistant Director Doria Bachenheimer.

But after interviewing Madoff and a principal of Fairfield Greenwich Group -his biggest hedge-fund investor – as well as reviewing documents, the SEC probe “found no evidence of fraud,” according to a case closing recommendation signed off by those three staffers.

The probe did find that Madoff had violated regulations by acting as an investment adviser without registering, but said he should not be disciplined because he had remedied the situation.

Philip Michael, a lawyer for Markopolos, said the failure by Cheung and the other probers to find Madoff’s fraud suggests that “she just didn’t understand what was going on” even after Markopolos gave her a road map.

Brad Friedman, a lawyer for Madoff’s victims, called the SEC’s failure to find the fraud “stunning.”

“They had every red flag in the world,” Friedman said. “Even with a map and a flashlight, they couldn’t find it.”

As to why the SEC didn’t discover the fraud, Cheung said. “We still don’t know exactly what happened. We don’t know when it started.”

“It’s personally very upsetting, especially, since I am not able to respond in any substantive way. . . I’m not in a position to defend myself. I am forced to see one side of the story,” Cheung said, referring to Markopolos’ characterization of her.

“He has no basis to judge what we did or did not do in any investigation because we’re not able – as we told him at the time – we were not able to give him updates as to what we were or were not doing with his information. And that is a strong commission policy, that we do not disclose what is happening in a confidential, non-public investigation. And that is for the benefit of everyone.”

“There’s nothing I can say about what we did in this investigation other than to say we worked as hard as we could,” she said. “I was not influenced, and I don’t believe anyone in the New York office was influenced by any other desire than to find out the truth.”

“With the SEC, we’ll never have search warrant authority to knock down somebody’s door, and search his secret records, and nobody would want to live in a world where we could do that,” she said. “We conduct investigations professionally and without regard to the stature of the people. You should be able to see that from the kind of cases that we bring.”

Cheung adamantly denied looking the other way for future gain in the financial industry. “Any allegations that we were somehow swayed by the prospect of a high-paying job are ridiculous and unfair. . .. Allegations of impropriety and unethical behavior are so unfair and hurtful.”

She said, “I have never been pressured to walk away from a case by any of the career staff or division of enforcement. I don’t believe the New York office has ever walked away from a case based on influence or the reputation of individuals involved. We have investigated fraud and pursued it.”

As for her future, “I am staying home with two kids now,” she said. “I didn’t leave for a high-paying job. My reason for leaving was purely personal. I never interviewed for another job.”

dan.mangan@nypost.com

Miami SEC bashed for dropping Bear Stearns case

Oct 15, 2008 (The Miami Herald – McClatchy-Tribune Information Services via COMTEX) — BSC | Quote | Chart | News | PowerRating — The Securities and Exchange Commission’s Miami office had it all worked out: It was ready to charge Bear Stearns with fraud for overvaluing certain debt securities. After months of settlement talks, the commission agreed that Bear Stearns would pay $500,000 in penalties.

Then, suddenly, the SEC simply dropped the case.

“Christmas is coming early” this year, David Nelson, head of the SEC’s Miami office, allegedly told a Bear Stearns lawyer. “Bear Stearns can keep their money.”

Now the SEC’s inspector general, H. David Kotz, is blasting the Miami office for failing to vigorously pursue the matter and is recommending sanctions against Nelson.

The SEC disputes the conclusions of the report and called it misleading.

Bear Stearns’ risky bets on securities tied to subprime mortgages led the bank to the verge of bankruptcy before it was rescued earlier this year by rival JPMorgan Chase.

The case in question involved not subprime mortgages but corporate debt securities bought by a Puerto Rican bank. But to Iowa Republican Sen. Charles Grassley, ranking member of the Senate Finance Committee, who requested a probe of the case, the incident raises questions about whether the Miami office’s conduct delayed awareness of risky practices that contributed to Bear Stearns’ collapse.

As the office was investigating Bear Stearns in 2005, the U.S. attorney in New York had its own criminal inquiry into questionable pricing of debt securities sold by the firm. Yet the SEC never sought to learn the details of that case, the report states.

“A significant opportunity to . . . uncover evidence of a systematic problem at Bear Stearns was lost through neglect,” the report concludes.

Underlying these events, the report noted, was that Bear Stearns’ lawyer, Michael Trager, worked at the SEC with Nelson in the 1980s. While the report found no direct link between Nelson’s decision to close the investigation and his relationship with Trager, “even the appearance of a conflict is disturbing and could potentially damage the reputation of the Commission,” it states. Trager didn’t respond to a request for comment.

In a response sent to SEC commissioners, the agency’s Enforcement Division said the report “relies on speculation and innuendo to support its harsh conclusions.”

Nelson, who has run the Miami office for eight years, referred an inquiry to a spokesman who declined comment.

The report gives this account:

Starting in 1999, W. Holding Co., an affiliate of Puerto Rico’s third-largest bank, began buying $64 million in bonds and loans bundled into securities from Bear Stearns’ Latin American group.

The Bear Stearns trader calculated his own prices for the securities — in violation of company policy.

When W. Holding discovered the improper valuations, it failed to follow proper accounting rules, resulting in overstated net income.

The SEC’s Miami office investigated and indicated it would bring an enforcement action for fraud against Bear Stearns for providing false price information.

In discussions that began in fall 2005, W. Holding agreed to settle for an injunction with no civil penalty.

The case against Bear Stearns stagnated for more than a year amid personnel changes at the SEC’s Miami office. Chedley C. Dumornay, who became SEC assistant regional director in early 2006 and had supervision of the case, conceded it was “sort of back-burnered.”

It wasn’t until November 2006 that the SEC notified Bear Stearns it would proceed with enforcement.

Dumornay, based on conversations with Nelson and Glenn Gordon, the Miami office’s associate regional director, proposed to Bear Stearns lawyer Trager that the firm pay $5 million to resolve the case. Trager offered to settle for $250,000, which the Miami staff considered “insulting.” Trager upped the offer to $500,000.

Terms were worked out in early 2007. Trager persuaded the SEC to replace the fraud charge with an administrative proceeding for failing to supervise its trader. Charges against two bank executives were dropped.

But later that summer, Nelson closed the case. He called Trager to share the news: “You’re going to be happy with the surprise,” Nelson said he told Trager.

Miami staffers were told the case was closed because of “litigation risk.” Nelson told Kotz the age of the case was the reason.

In its “case closing recommendation” against Bear Stearns, the Miami office gave a different take. “While there is evidence of potential wrongful conduct, we do not believe it would make a sufficiently compelling case for fraud,” it stated. Among its reasons: Bear Stearns’ role in providing false pricing information lacked a “connection with” the purchase or sale of a security.

Some staffers Kotz interviewed expressed dismay. One lawyer said he ‘wanted to scream and yell and . . . go argue and say, ‘Why the heck did you guys do this?’ ”

Richard Brodsky, a Miami securities lawyer who once worked in the SEC’s Enforcement Division in Washington, said it’s not uncommon for staff attorneys invested in a case to want to proceed.

“Whether to bring a case or not is a complicated decision based on a variety of factors,” Brodsky said.

The fact that Walter Ricciardi, SEC’s Enforcement Division deputy director at the time, and Joan McKown, chief counsel for the division, approved the decision not to bring the case “weighs, in my mind, in favor of that decision,” Brodsky said.

Still, he questioned why the SEC would have exacted a settlement from Bear Stearns before deciding the case wasn’t worth bringing.

“I think it’s very unfortunate and sad that David finds himself in this situation,” said Mitchell Herr, a Miami securities lawyer who worked with Nelson at the SEC. Herr called Nelson a “scapegoat” and pointed out Enforcement Division leadership supported Nelson in a memo to the commission.

Grassley, who in April called on Kotz to investigate why the SEC declined to bring a case, found the report “disturbing.”

“While it is not clear whether more aggressive action in this case could have helped the SEC identify systemic risks at Bear Stearns much earlier, it certainly demonstrates the culture of deference at the SEC in dealing with the big players on Wall Street,” Grassley said .

Kotz referred the matter to the SEC for disciplinary or performance-based action against Nelson.

The SEC said it doesn’t comment on personnel actions that are active.

http://www.tradingmarkets.com/.site/news/Stock%20News/1945036/

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