Madoff pyramid fraud puts US finance ...

Financial commentators let loose on the US financial system Tuesday as more firms announced losses in the suspected multi-billion-dollar swindle run by ex-Wall Street heavyweight Bernard Madoff.

[chad]

www.lavinstudio.com

[waltky]

Feds find more Ponzi schemes...

[b]Feds uncover two more investor Ponzi schemes[/b]
[i]More investors are learning the hard way that, as Warren Buffett is fond of saying, it's when the tide goes out that you find out who has been swimming naked.[/i]

On Thursday, authorities announced two alleged Ponzi schemes, just weeks after the arrest of investor Bernard Madoff stunned Wall Street. Madoff was arrested for allegedly running one of the largest investment frauds in history in a $50 billion Ponzi scheme. The latest schemes show how alleged frauds are unraveling as investors get more averse to risk. In a Ponzi, a portion of the cash brought in from new investors is given to older investors in the form of a return. If cash stops coming in, or current investors demand their cash at the same time, the scheme collapses.

The two latest cases announced Thursday:

•The Securities and Exchange Commission charged Joseph Forte, 53, of Broomall, Pa., with allegedly taking $50 million from up to 80 investors. Forte reported annual returns of 18.5% to 38% since 1995 by betting on the direction of the Standard & Poor's 500 index, the complaint said. But Forte consistently lost money, racking up trading losses of $3.3 million, the complaint said, and withdrew $23.1 million of the $50 million he raised. Forte was not registered with the SEC. The SEC learned of the alleged fraud when Forte turned himself in in late December after he was unable to raise enough money from new investors to cover the redemption requests from existing shareholders, says Daniel Hawke of the Philadelphia regional office of the SEC. Attempts to reach Forte on his cellphone were unsuccessful.

•The U.S. Attorney of the Western District of New York and the SEC charged Richard Piccoli, 82, of Williamsville, N.Y., with operating a scheme that took at least $17 million from investors since 2004. Through his company Gen-See, the complaint said, Piccoli promised returns of at least 7.1% from returns that came from buying high-quality residential mortgages. Records show no real estate transactions. Piccoli, who could not be reached Thursday, largely targeted clergy and religious charities by advertising in Catholic newspapers, the complaint said. Experts anticipate more revelations of alleged frauds. "It's consistent with previous times when markets are down. The rocks get exposed when the tide has washed away," says Joel Cohen, deputy head of Clifford Chance's litigation and dispute resolution practice.

http://www.usatoday.com/money/markets/2009-01...

[Ramafuchs]

"Bernard Madoff has been sentenced to 150 years in prison for one of the biggest investment frauds in Wall Street history. The punishment seems to fit the crime....

But there is no closure here. We can’t let Madoff’s sentence distract us from the underlying problems.

This isn’t just about Madoff. This is about the system in which Madoff’s scam took place. This is about systemic fraud and malpractice, the cultural trade of due diligence for easy profit. It’s about conflicts of interest where companies paid ratings agencies for their ratings. It’s about ideological blinders that let regulators and the Federal Reserve look the other way while banks turned into betting parlors.

So Madoff got 150 years for breaking into the bank. Fine.

But what about the guard who was asleep out front? What about the clerk who forgot to lock the door? What about the $300 billion that Citigroup walked out with from one vault, and the $200 billion that AIG took from another? Does anybody know where that money went or what we got for it? Don’t they get in trouble too? Did you know that, or do you know why, Goldman Sachs is paying its biggest bonus payouts in its 140 year history?

That’s why we need a Pecora Commission. We’ve been calling for a “grand inquest” in the spirit of Ferdinand Pecora, the fierce New York City prosecutor who investigated the crash of 1929 as general counsel of the Senate Banking and Currency Committee. Pecora hauled the robber barons into daylight and dismantled them on public cross examination. He subpoenaed the documents, dug behind the deals and took testimony under oath. His efforts paved the way for the regulatory reforms — the Securities Act of 1933, the Glass-Steagall Act of 1933 and the Securities Exchange Act of 1934 — that held the house together until modern conservatives took them apart in the name of efficient deregulation.

To its credit, Congress is leaning towards a do-over. It created the new Financial Crisis Inquiry Commission to investigate how fraud, regulatory lapses, monetary policy, and obscure accounting and lending practices contributed to the current financial crisis. After much opposition, the Commission even has subpoena power.

All the Commission needs now — and fast — is members. Real ones, with fire in their bellies. Members who aren’t afraid to put people in jail.
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[Ramafuchs]

Madoff, sentenced Monday to 150 years in prison for bilking investors of billions, should be exhibit A in why the dark world of totally unregulated private money managers and hedge funds should be opened to the light of systematic government supervision. Instead, he is being treated as an aberrant menace, with the danger removed once the devil incarnate, as his victims describe him, is locked up and the key thrown away.

For goodness' sake this was not some sort of weird outsider who flipped out, but rather a key developer of the modern system of electronic trading and a founder and chairman of Nasdaq. Madoff often was called upon to help write the rules on financial regulation and therefore became quite expert at subverting them.
When Levitt worked for Clinton as head of the SEC, he teamed up with Alan Greenspan, Robert Rubin and Lawrence Summers to destroy what remained of financial service industry regulation imposed by President Franklin Roosevelt in response to the Great Depression. In recent years Levitt, alone among that gang of four, has criticized that action and accepted some personal responsibility for the subsequent financial meltdown.

He was right again when he stated in his January article: "The Madoff scandal should be a wake-up call for more consistent, uniform, and rigorous regulation of investment advising ... the final prod for a fundamental reform of the financial regulatory structure.... "

He gets it. Let's hope that Congress does too and is not fooled by the argument of Wall Street lobbyists that Madoff was a lone rotten apple now safely discarded.
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