Add this Page to Facebook!   Submit to Twitter   Submit to Reddit   Submit to Stumble Upon   Pin It!   Fark It!   Tell A Friend  
Printer Friendly Page Save As Favorite Save As Favorite View Article Stats
2 comments

General News

Does SEC's Failure To Unmask Madoff Make It Liable?

By (about the author)     Permalink       (Page 1 of 1 pages)
Related Topic(s): ; ; ; , Add Tags Add to My Group(s)

Must Read 1   News 1   Valuable 1  
View Ratings | Rate It

Headlined to None 2/5/09
Become a Fan
  (42 fans)

opednews.com

A Massachusetts law school dean that lost money invested with swindler Bernard Madoff says the Securities and Exchange Commission (SEC) was “willfully, horribly negligent” in failing to monitor Madoff's operation. This raises the question of whether the SEC is liable to repay the investors who, collectively, lost billions of dollars. 

Lawrence Velvel, dean of the Massachusetts School of Law at Andover, said, “The SEC’s incredible willful negligence” to not seriously investigate Madoff’s operations despite repeated red flags and written warnings of his criminality probably makes the agency liable to legal action by aggrieved investors.

The SEC, he said, “has no discretion—none—to fail to follow up, with serious investigations, when presented with knowledgeable, detailed, obviously highly competent, and in many respects easily ‘checkable’ allegations of...a huge fraud that is fooling thousands of people, stealing billions of dollars, and causing horrible injustice.”

Equally bad, says Velvel, the SEC was responsible for a lot of people being sucked into Madoff in the first place, because in 1992 it publicly announced that there was no fraud.Referring to the preponderant majority of Madoff’s victims, Velvel said, “These are not the billionaires, or the huge institutions, that could hire expensive experts in due diligence…These are the plain people who worked hard and saved all their lives, as capitalism says they should, and who…depended on their government to protect them…but were failed by it because of one of the most willfully negligent, incompetent, and perhaps even complicitous courses of action any agency has ever engaged in.”

Velvel also said The Financial Industry Regulatory Authority (FINRA), a private organization of brokerage industry members supposedly dedicated to “investor protection and market integrity,” is also probably liable for damages. FINRA examined Madoff every two years from 1960 onwards, and in 2007 FINRA conducted a sloppy probe that concluded parts of Madoff’s operation had no customers when, in fact, it had thousands.

What’s more, “If FINRA had so much as competently checked whether the company had the securities and money it claimed, it would have uncovered the fraud,” Velvel writes.

Velvel also says investors should not be required to return sums Madoff told them they had and which they innocently withdrew from Madoff to live on. “This is terrifying to people, and, rightly so. Having been wiped out . . . people now face the prospect of being obligated to give back six years of withdrawals---often withdrawals they needed to live, as with older people.” These people often have no money to give back.Velvel is also critical of the fact that there is only a three year period for which Madoff investors can reclaim taxes they paid on “phantom income”---money Madoff falsely told them they had earned, so they paid taxes on it. He notes that when the IRS finds an individual guilty of tax fraud it can collect taxes going back 25 years or more because it had a right to the money.  When it had no right to the money, the defrauded investor can only go back three years.  So the IRS does not allow the same right to those defrauded that it claims for itself.

The SEC had been informed at least as far back as 1999 by investment professional Harry Markopolos, in a major study, that Madoff’s business “could not possibly be on the up and up,” Velvel says, and Markopolos kept reminding the agency periodically but to no avail.

Again, the SEC was warned about Madoff in an article written in 2001 for the little known hedge fund-industry publication “MAR/Hedge” by reporter Michael Ocrant.Finally, most investors knew nothing about a 2001  Barron’s article by reporter Erin Arvedlund “that focused on secrecy” by Madoff and that should have been a red flag to the SEC, yet the SEC did nothing.

 The SEC should also have tumbled to Madoff’s crimes, Velvel says, because he was handling many billions of other peoples’ money with a tiny, three-person auditor shop, only one of whom was an accountant, and because Madoff handled his own trades rather than have an independent firm make them, and did not use an independent custodian, both of which would have helped to ensure that the claimed securities and money existed. As it turned out, Madoff lied to investors about trades he was making in their behalf.

A former U.S. Justice Department attorney, Velvel is co-founder and Dean of the Massachusetts School of Law at Andover and regarded as one of the nation's leaders in reforming the way legal education is taught and making quality legal education available to minorities and students from families of modest means.                                                                # (Sherwood Ross is a media consultant to the Massachusetts School of Law at Andover. Reach him at sherwoodr1@yahoo.com)

 

Sherwood Ross worked as a reporter for the Chicago Daily News and contributed a regular "Workplace" column for Reuters. He has contributed to national magazines and hosted a talk show on WOL, Washington, D.C. In the Sixties he was active as public (more...)
 
Add this Page to Facebook!   Submit to Twitter   Submit to Reddit   Submit to Stumble Upon   Pin It!   Fark It!   Tell A Friend
The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.

Writers Guidelines

Contact Author Contact Editor View Authors' Articles
Related Topic(s): ; ; ; , Add Tags

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

U.S. Overthrow in the Ukraine Risks Nuclear War With Russia

Radioactive Ammunition Fired in Middle East May Claim More Lives Than Hiroshima and Nagasaki

Obama Expands the American Warfare State

NSA MAY BE READING WINDOWS SOFTWARE IN YOUR COMPUTER

Is George W. Bush Sane?

Inside America's Biological Warfare Center

Comments

The time limit for entering new comments on this article has expired.

This limit can be removed. Our paid membership program is designed to give you many benefits, such as removing this time limit. To learn more, please click here.

Comments: Expand   Shrink   Hide  
2 people are discussing this page, with 2 comments
To view all comments:
Expand Comments
(Or you can set your preferences to show all comments, always)

There are so many ripple effects from the Madoff m... by Carola Von Hoffmannstahl on Thursday, Feb 5, 2009 at 10:20:40 AM
What are U suing for a position in the circus as ... by Markageloo Breza on Thursday, Feb 5, 2009 at 10:41:21 PM