Even a casual perusal of the 25-page executive summary of the September SEC report on the investigation is akin to watching an impending train wreck. In particular, the SEC inaction despite numerous, specific complaints about two major red flags was very telling. First, Madoff’s returns had little correlation to comparable securities indexes, and were supposedly generated through the use of complex, secretive, nearly impossible methods. An unnamed hedge fund manager was concerned about Madoff’s investments, and told the SEC in 2003 that “Madoff’s strategy had no correlation to the overall equity market in over 10 years”. Second, his employment of a solo, partial auditor, David G. Friehling, flagrantly violated FASB SFAC 2 in regard to GAAP standards of neutrality, and associated verifiability and representative faithfulness. Reporting that would customarily be transparent and straightforward was instead opaque, scant, and in many cases inaccessible at Madoff’s funds. Prominent Madoff critic Harry Markopoulos noted in a letter to the SEC in 2000 that Madoff did not permit outside audits. Arguably, Friehling’s activities also violated the intent of the “internal control over financial reporting” provisions of Sarbanes-Oxley 404. Additionally, the report details numerous complaints from individuals concerned that Madoff was conducting his fund as a Ponzi scheme.

Madoff was very generous in the past with his charitable giving- and also purported management of money for non-profits, especially those with Jewish affiliations. He abused that trust to feed his false funds, and caused considerable damage to non-profit assets, along with individual investors within that community. Additionally, as other articles on this site allude to, there is considerable evidence that government officials and their associated agencies had financial interests in Madoff’s funds.

Even Bernard Madoff believes in that which he failed to do, as he stated in a recent jailhouse interview as detailed in the Wall Street Journal on October 31st. “It’s very easy if you want.” said Madoff to SEC Inspector General H. David Kotz. “You must do a third-party check. It’s an absolute must. It’s accounting 101.”

But even if the SEC did check- why did they not act?

No new info other than the fact that a pending lawsuit brought by Amerivet Securities of Moreno Valley CA requests that FINRA open its books.

This case will take time to be adjudicated, but hopefully it does bring real transparency to the Wall Street SRO, FINRA.

Rest assured, I will be monitoring.