11 December 2008

Former NASDAQ Chairman Charged in $50 Billion Ponzi Scheme

"Do you know where your money is?"

Bernard L Madoff Investment Securities is the 23rd largest market maker on the Nasdaq for hedge funds and banks handling about 50 million shares per day.

The firm specialized in handling orders from online brokers in some of the largest U.S. companies, including General Electric Co. and Citigroup Inc.

Their Financial Advisory Business is separate from their market-making business with approximately 20 customers.

The $50 billion in confessed total losses does not quite square up with $17 billion under management at the advisory firm, even in these heady days of leverage.

Where and when is the unidentified loss of $33 billion going to hit?

Naked shorts which cannot be covered? Levered positions that are now vaporized?

Who are the twenty or so customers of the Financial Advisory business?

Who was his auditor? Who in the NASD knew about this? Who was handling his back office work?

Is the ghost of Richard Whitney walking the floor of the Exchange tonight?

cf. Richard Whitney, President of the NYSE 1930-35

Richard Whitney Warning Against the Securities Act of 1934 - Video

Securities and Exchange Commission
SEC Charges Bernard L. Madoff for Multi-Billion Dollar Ponzi Scheme

Washington, D.C., Dec. 11, 2008 — The Securities and Exchange Commission today charged Bernard L. Madoff and his investment firm, Bernard L. Madoff Investment Securities LLC, with securities fraud for a multi-billion dollar Ponzi scheme that he perpetrated on advisory clients of his firm. The SEC is seeking emergency relief for investors, including an asset freeze and the appointment of a receiver for the firm.

The SEC's complaint, filed in federal court in Manhattan, alleges that Madoff yesterday informed two senior employees that his investment advisory business was a fraud. Madoff told these employees that he was "finished," that he had "absolutely nothing," that "it's all just one big lie," and that it was "basically, a giant Ponzi scheme." The senior employees understood him to be saying that he had for years been paying returns to certain investors out of the principal received from other, different investors. Madoff admitted in this conversation that the firm was insolvent and had been for years, and that he estimated the losses from this fraud were at least $50 billion. (From 17 billion under management? Offer him the position of Treasury Secretary. This guy is a financial genius! - Jesse)

"We are alleging a massive fraud — both in terms of scope and duration," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "We are moving quickly and decisively to stop the fraud and protect remaining assets for investors, and we are working closely with the criminal authorities to hold Mr. Madoff accountable."

Andrew M. Calamari, Associate Director of Enforcement in the SEC's New York Regional Office, added, "Our complaint alleges a stunning fraud that appears to be of epic proportions."

According to regulatory filings, the Madoff firm had more than $17 billion in assets under management as of the beginning of 2008. It appears that virtually all assets of the advisory business are missing.

Madoff founded the firm in 1960 and has been a prominent member of the securities industry throughout his career. Madoff served as vice chairman of the NASD, a member of its board of governors, and chairman of its New York region. He was also a member of NASDAQ Stock Market's board of governors and its executive committee and served as chairman of its trading committee.

The complaint charges the defendants with violations of the anti-fraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. In addition to emergency and interim relief, the SEC seeks a final judgment permanently enjoining the defendants from future violations of the antifraud provisions of the federal securities laws and ordering them to pay financial penalties and disgorgement of ill-gotten gains with prejudgment interest.

The SEC's investigation is continuing.

The SEC acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York.