Given all these matters relating to the IRS -- given its malfeasant use of a paper-review-only process when approving Madoff, given this incredible misuse of a process designed for private letter rulings in which the goal is not to prevent fraud, given the IRS' consequent flouting of Congress' intent that it effectively enforce fiduciary standards to protect IRAs, given its consequent responsibility for the last four and one half years of the Madoff scam, given the possibility that the case is a canary in the coal mine -- given all this, the question arises of why did Doug Shulman have a letter written to me that disclosed how the IRS (malfeasantly) goes about approving non-bank custodians. The question is fascinating though one cannot presently know its answer. There are all kinds of possible speculations, with mine presupposing that Shulman and/or other high IRS officials saw the letter before it went out -- which seems to me likely when the matter is of such importance as the matter addressed in the letter of August 21st from Hulteng. My supposition that Shulman and other high officials saw the letter could be wrong, of course, and, if it is wrong, maybe they just didn't realize that the game was explosive and thus gave my letter to Hulteng's office to answer without the top guys like Shulman vetting the answer before it went out. But let us assume my speculation that the letter was vetted is correct. Why was the letter sent out?
My speculation begins with the fact that Shulman, as far as I know, is reputed to be a good guy. I am prone to believe this reputation on the theory that apples don't fall far from trees. My wife and I have known his parents for 50 years (his mother and my wife roomed together in Ann Arbor one semester and his father was my classmate there in law school), they are good people, and it is therefore likely their son is too. Further to the point, he was nice enough to personally call me (unexpectedly) to tell me why he would be unable to write a response to a letter (not discussed in this post) that I sent him on March 3, 2009. Being a good person might well cause someone to be sympathetic to the disaster that has befallen so many Madoff victims and to therefore think that, even if privacy rules preclude discussion of Madoff's case in particular, and even if that would justify a refusal to set forth any kind of answer to my inquiry (just as the IRS refused to answer my previous FOIA request), a response that at least sets forth the general process should be sent to an inquiry from a victim about how did the IRS come to approve Madoff.
There is also the possibility that, realizing how badly so many people have been hurt, Shulman, being a good guy, decided to give me information that did not on the surface seem damaging to the IRS, but which he knew might nonetheless be used by victims in efforts to recoup. Possibly knowing this, perhaps he even decided to give out the information as a vehicle for attempting to circumvent those in the IRS, or Treasury, or higher who don't want to do anything to help Madoff's victims. These latter speculations will be regarded as Machiavellian (though we all know it's how Washington works). But they are not impossible, although one must keep in mind that they are only speculations.
Finally, before turning from the question of the IRS to another piece of this potpourri, let me say one last thing; let me echo a point I once made previously in a posting on a different subject. If readers do not remember anything else written in this post or in its continuations, I beseech them to remember this: the IRS now appears to have surely admitted, in the letter of August 21st, that its review of Madoff was a paper-only-review -- was a review that was an open invitation for any liar, any Madoff, to receive IRS approval as a non-bank custodian by means of egregious fraudulent misstatements, and to thereby receive aid from the IRS in defrauding victims. The IRS has admitted that it did no on the ground review and inspection, used a process that destroyed Congress' powerfully expressed intent that it effectively impose and carry out fiduciary rules, and, for all we know, may have approved other fraudsters as well as Madoff. This is all crucial because (i) astounding, perhaps even criminal, government malfeasance was a major contributing cause to the huge losses suffered by Madoff victims; (ii) the government's incredible and even criminal malfeasance is a major reason why the government should provide restitution to Madoff victims -- regardless of what it does in other cases; (iii) the mass media seem not to care a whit so far about what the IRS did -- although legislators or their aides are sometimes astonished when they hear about it; and (iv) it is crucial, at least in my judgment, that the victims make a continuous major point of the malfeasance of both the SEC and the IRS if they, the victims, are to receive appropriate restitution to any significant degree.*
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