All of this raises an overarching question with regard to Madoff, to wit, how in the hell did Madoff become an approved nonbank custodian for IRA accounts in 2004?
It has been widely believed, of course, that Madoff's firm refused to handle IRA accounts itself -- that, if one desired an IRA account, one had to work through FISERV or its predecessors (like Retirement Accounts Incorporated). Lately, however, we are beginning to hear of people who say they had an IRA account directly with Madoff, not through FISERV. And, in any event, since FISERV and its predecessors never had in their custody any securities purchased by Madoff for customers (they couldn't have had them, since Madoff never bought securities), Madoff was what I have heard referred to as a subcustodian for FISERV (at least he would have been a subcustodian had he actually bought securities for the accounts). So, one way or another Madoff was a nonbank custodian -- or at least would have been had he bought securities instead of faking it.
Alright, so here is a guy who comes to the IRS and says he wants to become an approved nonbank custodian of securities, and who gets approved by the IRS in 2004. How did that happen? Did the IRS simply ignore its own regulations? For instance, did it ignore its own requirement that he not own more than fifty percent of the company? Did it not check to see whether he had a separate trust division. Did it not check to see whether securities were kept in an adequate vault and not commingled, and whether there was a permanent record of assets put into and taken out of the vault? Did it not check to see whether fiduciary records were kept separate from other records? Did the IRS not examine Madoff's books and records, as it had been claiming a right to do for two decades, since 1984?
Had the IRS done these things to determine compliance with its own regulations regarding becoming an approved nonbank custodian for IRAs, had it done these things which it seems that it must not have done, it almost surely would have discovered Madoff was a fraud. Madoff's game almost surely would have been up. The IRS would have found, for example, no vault with securities. It would not have found any securities. It would have found no separate trust division. It would have found no books and records of the kind needed to be a nonbank custodian of IRAs. It would have found that Bernie Madoff owned almost the whole damn business, not a "mere 50 percent.
But since the IRS approved Madoff as a nonbank custodian in 2004, it must not have done these things. Its approval of Madoff, moreover, raises additional questions. Why did Madoff seek IRS approval in 2004? What did he gain from it, especially since he was telling people that he would not accept IRA accounts (except through FISERV). (Was he afraid of lawsuits for being a nonapproved nonbank sub custodian?) And knowing in advance, as he must have, what the IRS regulations required, how did Madoff even dare to apply for approval as a nonbank custodian? Was the fix in somehow?
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