Then there are the twinned questions of who on Wall Street knew or had good reason to suspect that Madoff was perpetrating a fraud but did not report this to the SEC, and why didnt they report it to the SEC? In his warning memos to the SEC, Markopolos identified four major companies or prominent individuals who were knowledgeable about derivatives and who, he said, were persuaded that Madoff could not be for real. They included heads of equity derivatives trading at Morgan Stanley, Goldman Sachs, J.P. Morgan and CitiGroup. In complaints he has filed, Picard has listed no less than seven prominent houses that he thinks refused to do business with Madoff because of serious concerns that his operations were not legitimate. They include Socie'te' Ge'ne'rale, Goldman Sachs, CitiGroup, Morgan Stanley, Merrill Lynch, Bear Stearns, and Credit Suisse. From their refusal to do business with Madoff, one deduces, as Picard has indicated, that they suspected Madoffs bona fides. In addition, one has read of others who suspected or had reason to question Madoffs bona fides, especially if they were rich enough to have expensive professionals assess Madoff for them (i.e., do due diligence for them) or were themselves wealthy professionals, sometimes obscenely wealthy professionals, who could do this for themselves. One even reads of wealthy persons who apparently were not financial professionals but who heard rumors that touted them off Madoff.
Did any of these people or institutions let the SEC know of their suspicions -- warning from the likes of Goldman, Sachs, CitiGroup, or Morgan Stanley, for example, might have forced the SEC to move, after all. If, as is apparently the case, they -- and other types whom Joe Nocera consorts with but to whom the rest of us have no access -- didnt tell the SEC of their suspicions, why didnt they? If memory serves, Markopolos, in his prior lengthy warnings to the SEC, and then in his testimony to Congress, implied that those experts silence was a product of concern that their lawyers, for some reason (natural lawyeresque caution and fear of slander suits, one supposes), would not let them talk openly to investigators, plus a Wall Street code of silence arising because everyone on Wall Street has skeletons. Whatever the reasons, these powerful Wall Street institutions and persons did a profound disservice to thousands upon thousands of people by not informing authorities of their suspicions and of the underlying reasons. But right now we know relatively little about the universe of people who held suspicions, their reasons (if different from red flags that Markopolos wrote of), why they failed to alert the authorities, or how, it appears, certain non professional but very wealthy people seemed to get the word that touted them off Madoff. Nor does the mass media seem to have an interest in tracking down any of this.
So. . . . . . . we are currently in a place (so to speak) where a simply fantastic amount about the Madoff scam remains unknown; more remains unknown than I can ever remember being true at the time of the plea and sentencing of the lead culprit in any other major fraud case. To a significant extent, one thinks, the present lack of knowledge is a result of the absence of a trial in the Madoff case -- Judge Chin did us no favors by letting Madoff plead instead of forcing a trial at which much would inevitably be revealed. Also responsible for the current lack of knowledge is the typical dearth of serious investigatory work by the mass media -- which steadfastly refuses to look into the IRS connection, among other important problems. The extent to which the dearth of knowledge will be rectified by ongoing investigations by prosecutors and Picard, by an investigation by a possible special prosecutor (Professor Elizabeth Warrens name has been floated in this connection), by investigations by Congress, by future work by authors of books on the Madoff matter, or by future trials (which I doubt will occur because culprits are likely to cop pleas), is presently unknown. And I, for one, cannot think of any way -- not one -- in which this vast lack of knowledge is doing any good for anyone connected with the Madoff affair who is honest. That it is vitally helpful for many who were dishonest goes without saying, of course.*
* This posting represents the personal views of Lawrence R. Velvel. If you wish to comment on the post, on the general topic of the post, or on the comments of others, you can, if you wish, post your comment on my website, VelvelOnNationalAffairs.com. All comments, of course, represent the views of their writers, not the views of Lawrence R. Velvel or of the Massachusetts School of Law. If you wish your comment to remain private, you can email me at Velvel@VelvelOnNationalAffairs.com.
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