Well, then, why do we not know these details over 3 - years
after the Madoff scam was uncovered? The
answer (or answers) to that, I'm afraid, is (or are) pretty simple. The only persons or organizations that have
the information needed to flesh out the details are the Securities Investor
Protection Corporation (SIPC) and its Trustee, Irving Picard (and his army of
lawyers, workers, and acolytes). In
order for the rest of us to flesh out the details, we have to obtain what
lawyers call "discovery" from SIPC and the Trustee. That is, we have to obtain from SIPC and the
Trustee, in law cases, the documents and information that will enable us to figure
out the details. I am assuming, of
course, that SIPC and the Trustee will not give the information to us
voluntarily, outside the four corners of law cases, because they benefit, and
for years have benefitted, from us
not knowing the details, as discussed later, and to date they have vigorously resisted any discovery of anything
in law cases.
Also to this day,
however, the lawyers arrayed against SIPC and the Trustee in law cases have
basically not pushed for, or even
sought, the needed discovery or any discovery. There has been only one exception. (Guess who that was?) This writer, acting as his own lawyer, sought
discovery on a number of issues in the Bankruptcy Court, sought to have the
Second Circuit require requested discovery, and then told the Supreme Court
that the absence of discovery was an important reason to hear the Second
Circuit's ruling on net equity. In the
Second Circuit and the Supreme Court a small number of other lawyers at least
mentioned the absence of discovery, after totally ignoring it in the Bankruptcy
Court, but there has been only one person really pushing for it. That person -- me -- lost in every court,
with SIPC and the Trustee vigorously, even stridently, and on one or two
occasions even falsely, resisting discovery and telling the courts, ultimately
with the support of the SEC and the sainted Solicitor General's Office of the
Department of Justice, that discovery was unnecessary or unneeded or what have
you.
So . . . . when you get
right down to the truth, the reason we cannot yet know all the details we would
like to know about what Madoff did, the reason we cannot know the full truth of
what happened, is that the Trustee and SIPC, supported by the courts and by the
Solicitor General, have not provided, and have strongly resisted providing, the
information needed to determine the full truth.
We know enough anyway to be pretty certain of the broad outline of what
happened, but not enough to know certain relevant details.
But
we do know that Madoff Securities was a single
corporation that was internally divided into an investment advisory arm, a
market making arm, and a proprietary trading arm. We also know that Bernie Madoff ran and had
sole control over the whole shooting match -- over the entire business and all
of its operations, including all three of its arms. Also, persons who traded for Madoff
apparently have said that the securities in which Madoff traded for his own
account were generally the same securities that appeared in investors' monthly
statements as the securities he allegedly was buying and selling for them. And we know that every year Bernie Madoff
transferred scores of millions of dollars from the so-called 703 Account at Chase
Bank, the account in which he put monies received from investors, into the
so-called Madoff 621 account at The Bank of New York, the primary bank account
for the proprietary trading and market making arms of Madoff's business.
This last point was told
to us by SIPC itself at page 20, and in a table on page 20, of a January 24,
2011 letter SIPC sent to a Congressman in answer to questions he asked SIPC. The letter thus said: "The table below includes amounts transferred
directly or indirectly from the Madoff 703 Account at Chase Bank, the primary
bank account used by House 17 (the investment advisory business), to the Madoff
621 Account at The Bank of New York, the primary bank account used by House 5 (the
proprietary trading and market making business)." The table referred to shows almost $734
million being transferred from 2000 to 2008 from the investment advisory bank
account (Chase 703) to the proprietary trading and market making bank account (Bank
of New York 621).
SIPC further said, on
the next page of its letter (page 21), that "the funds transferred from House
17 [the investment advisory business] were recorded by House 5 [the proprietary
trading and market making businesses] as revenue" for the latter and "represented
a substantial part of House 5's liquidity.
Without these funds from the IA [investment advisory] business, House 5
would have incurred annual net losses . . . ."
In other words, SIPC itself has told us that the monies Madoff took in
from victims/investors in his IA business were used to prop up and support his
market making and proprietary trading businesses, the latter of which deals in the purchase of securities for his own
account. As indicated, we do not
know the total amount of such securities he owned at any given time, though the
collective amount of securities and associated cash he had in any given year
must have usually been hundreds of millions or billions of dollars more than
the amount of monies transferred from Chase 703 to Bank of New York 621 during
that year, since the collective securities and cash included stocks and cash
from all prior years. But, as previously
indicated, we do know that Madoff was taking money from the investment advisory
business account (Chase 703) to support the proprietary trading arm of the
business which bought and sold securities for Madoff himself and to support his
market making.
To
deliberately repeat myself, even if we do not know all the details, we know for
certain that Madoff was using investors' money not to purchase securities for them, but for himself. And these were --
in some proportion currently unknown to us because SIPC and the Trustee will
not disclose the information necessary to calculate it -- the same securities
as he told investors he would buy for them and, on their monthly statements
told them that he had bought for them. Because he used investors' monies to buy the
very things he said he was going to buy - - to buy the very securities he told
the investors he would buy -- Madoff was not
running the kind of fraud called a Ponzi scheme, which exists when the crook
does not buy what he says he will buy, and simply blows the money in one way or
another. He was nonetheless, of course, running a fraud, with his fraud, as
said, being that he was not buying the securities for the investors, but for
himself (and for market making). (In law, I gather, the securities and any
profits, for dividends or interest on them belonged to the investors even
though Madoff bought the securities himself and thereby stole the investors'
money.)
So .
. . we know enough to be pretty certain of the broad outline of what happened,
but not enough to know certain relevant details.
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