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Madoff Victims Call Out FINRA

Posted by Larry Doyle on September 3, 2009 8:26 AM |

Is Uncle Sam, in the form of the SEC, attempting to issue a mea culpa, mea culpa, mea maxima culpa in the bungling of the Madoff investigation and trying to conveniently turn the page?

The American public learned very little with the release of the SEC Inspector General David Kotz’s review of the SEC’s failure to expose the Bernard Madoff Ponzi scheme. In fact, having just finished reading the Executive Summary of his investigation, I would maintain it is largely an extended regurgitation of much of what Harry Markopolos provided in his Congressional testimony last February.

What was Harry’s conclusion of his exhaustive pursuit to expose the Madoff scam? The SEC is incompetent.

What was the Inspector General’s conclusion from his investigation? In so many words, Kotz lays out the same results. The SEC was incompetent on so many fronts from the early 1990s until Madoff was exposed last December. For those who would like to read Kotz’s 22-page summary of his investigation, just click on the image below.

Is this all the public gets? Is this all the public can expect from our regulators? Nothing more than a mea maxima culpa? How about a real pursuit of the total truth? This Madoff affair has many more legs. Let’s navigate.

Ronnie Sue Ambrosino, head of the Madoff Victims Coalition for Investor Protection (my guest on NQR’s Sense on Cents with Larry Doyle on August 16th), and her husband Dominic comment on the Inspector General’s report and simultaneously call out FINRA last evening during an interview on Fox Business News.

Ronnie Sue and Dominic effectively connect the dots while highlighting the following:

1. Current head of the SEC Mary Schapiro formerly headed FINRA

2. Harry Markopolos defined FINRA as being “in bed” with the industry when he provided Congressional testimony this past February detailing his decade-long pursuit to expose the Madoff Ponzi scam.

3. FINRA had an internal investment portfolio (Sense on Cents would add that the portfolio was invested in hedge funds, fund of funds, and also had hundreds of millions in Auction-Rate Securities).

4. Amerivet Securities has recently filed a complaint against FINRA. The complaint indicates it has information and reason to believe that FINRA’s investment portfolio invested in Madoff.

Sense on Cents would add that the Amerivet complaint looks to have FINRA provide a full and thorough review of the following:

>> interactions with the major Wall Street banks

>> its compensation practices

>> its liquidation of its auction-rate securities position in 2007

>> all investment activities

Sense on Cents would further add that the Madoff family had extensive relationships with the NASD, Nasdaq (Bernie helped establish this exchange) and FINRA.

Let’s listen to Ronnie Sue and Dominic Ambrosino:

Is the Madoff investigation over? Any rational individual can understand there are many more regulatory questions needing answers. Where do those questions lead us? Inside FINRA and specifically to its investment portfolio. Why shouldn’t a Wall Street self-regulatory organization mandated to protect investors be obligated, and if need be compelled, to provide total transparency of all its business dealings?

I can only hope major media outlets and Washington pick up this story and understand the need to fully investigate FINRA.

I ask you again . . . is the Madoff investigation over? Not by a long shot!

What do you think?


Related Sense on Cents Commentary:
“Amerivet Complaint Against FINRA Alleges Madoff Investment” (August 25, 2009)
NoQuarter Radio’s Sense on Cents with Larry Doyle Interviews Head of Bernard Madoff Victims Coalition (August 16, 2009)
“FINRA Is Supposed to Police the Market” (April 29, 2009)
“Riveting Testimony from a Great American, Harry Markopolos” (February 4, 2009)

  • fiscalliberal

    I think it is fair to say this all goes back to Chris Cox who had the ideology that government was bad and as head of the SEC he financially starved the regulating segment, causing people to exit the organization. I thought is was telling that as the regulater for Lehman, in the resolution process he was not even invited in by Bernankee, Paulson and Geitner (all Republicans). His staff was invited, and they begged Paulson to alert Cox, but Paulson ignored them.

    Chris Cox along with Alan Greenspan took a oath of office to follow the laws of the nation and neither lived up to their oaths. Greenspan could have minimized the subprime fraud as could have Chris Cox enforced the laws of the land. He and the SEC board allowed the bank leverage rates to go up which in the end brought the system down.In short neither of these people served their financial constituency very well.

    The fourth quarter will be critical on many fronts as next year will be electon politics. I will be watching Credit Default Swaps. With CDS they have to some how force the issuers to have adequate reserves to cover defaults.

    Most important we need find a way to let poor performers fail.

  • AMEN Larry and AMEN fiscalliberal that we have to allow bad companies to fail. As you said Larry, the IG report yesterday disclosed absolutely nothing new. It basically said that the SEC failed to discover the Madoff Ponzi scheme. REALLY? Thanks for the news flash David! There is so much more to the Madoff case, to the ARS case, and to the investigation of both the SEC and FINRA (including Mary Schapiro) in their failures in Madoff and ARS. If the SEC was a private company, they would have already been sued for gross negligence over the Madoff case. Chris Cox, Mary Schapiro, and many other SEC officials need to be indicted and put on trial for gross negligence, at a minimum. Then the government needs to clean house at the SEC and FINRA and start over. Mary Schapiro will never be capable of doing that given her background.

  • John Dudley

    It is ludicrous to simply lay the long smoldering Madoff affair at the feet of “incompetents.”

    People high up in the SEC deliberately and consciously derailed any investigation of Madoff. Some group was benefiting mightily off of Madoff’s fraud and had the power to scuttle any investigation. Markopolus’ warnings were ignored for years by not only the SEC but by the major financial media outlets. This was no simple accident that can be attributed to mere bungling. This could only have occurred because there was deliberate inference at the highest levels of both the SEC and the media.

  • Randy Bowman

    I’m afraid I have to side with Dudley on this one. While employees of government regulatory bodies are often inept, there’s always a handful somewhere along the chain with enough brains to spot and investigate unusual performance results. Add to that the fact that old Harry was already pounding on their door repeatedly and had done some of the initial sleuthing for them and the only sensible conclusion is that investigation of the offenders was derailed because it somehow might have reflected badly on either FINRA, the SEC or both.

    Also, if somehow we are ever fortunate enough to get the requested “full disclosure” of documents, I would actually be quite shocked if they have not already been appropriately sanitized and doctored to paper over any wrong-doing on behalf of FINRA and any obvious involvement by key members of the SEC.

    We should all continue to push for the real story, but would any of us truly be surprised to be told yet another fairy tale instead?

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