Madoff & Co. – How The SEC Tackled Other Scams

The SEC is going after the small fry, now that’s it’s been caught with its pants down in the case of the biggest fry of them all.

A Philadelphia investment manager, Joseph Forte, has been charged with having swindled around $50 million from 80 investors in a mini Madoff scheme.

It’s not the only such case in the SEC’s files. The Commission just closed up a civil case against Renaissance Asset Fund, Inc.’s  Ronald J. Nadel, and Joseph M. Malone, which charged them with swindling over $16 million from more than 190 investors nationwide, most elderly and belonging to Jehovah’s Witnesses congregations.

“According to the complaint, from at least March 1999 through April 2004, the defendants raised funds for multiple purported projects, including a general fund, an outlet mall, an international currency exchange, and a Swiss bank. Some of the purported projects did not exist, and others were unsuccessful. The defendants misrepresented to investors that their investments would earn returns ranging from 10% to 25% in as little as four months. The defendants also sent quarterly account statements to investors setting forth the fictitious profits their investments had purportedly earned. Based on the representations in these account statements, many investors reinvested their principal and purported profits in other Renaissance projects.

The defendants operated Renaissance’s programs as a Ponzi scheme, paying earlier investors with funds raised from later investors. Nadel also used investor funds to pay for lavish expenses, including country club memberships, car leases, and retail purchases. The majority of investors in Renaissance never received the interest or return of their principal the defendants had promised. …”

Read more at Jehovah’s Witness.Net. Here’s the link to the original SEC complaint in 2006 and here’s the record of the SEC’s administrative proceeding (January, 2008) barring Nadel from selling securities for 5 years.

Comment:

I am posting material that creates a context for the Madoff business. Florida is one place to start because the state is notorious for attracting scamsters lured by its population of wealthy seniors. Reports like the ones I’ve posted show that while the SEC sat on its hands during the Madoff scam, it was doing its job when it came to the smaller fry. In other words, it isn’t the lack of laws or regulation that is the problem. It’s the selective enforcement of laws. And that’s a problem not of structure, as the liberals would have it, but of political culture and corruption.

Supporting that take, here’s another, older piece (1992), “An Oasis Rich in Shady Operators,” Diana Henriques, NY Times, October 4, 1992 which describes scams in the booming 1990s, supposedly the golden age of the markets.

“College Bound is not unique in Boca Raton. Indeed, in the past year, this expensive enclave has experienced the financial equivalent of a cancer cluster. Six local corporations, including College Bound, have fallen under S.E.C. investigation; a seventh has been shut down and its chairman arrested and accused of running a Ponzi scheme. Dozens of other companies based here are little more than corporate shells created by boiler-room brokers, or financially flimsy companies whose chief products seem to be their own stock and news releases boasting of their prospects.

Regulators policing the penny stock market refer to the area’s unsavory brokers as the Boca Bunch, and state investigators have dubbed the area “the Maggot Mile.” The United States Attorney’s satellite office next door in West Palm Beach, once a three-person operation, now keeps 14 attorneys busy. ‘Very Appealing Location’

“Once it was North Miami that had become notorious, then Fort Lauderdale,” said Caroline Heck, executive assistant United States Attorney in Miami. “Now, Boca is a very appealing location.”

Charles A. Harper, the regional administrator for the Miami office of the S.E.C., agrees. “We’ve definitely seen problems moving up the coast.”

And this excerpt below (also from the same Times piece) shows that money-laundering often accompanied the fraud:

“According to court records in Miami, the Bank of Credit and Commerce International, which has since emerged as one of the largest bank frauds in history, opened a branch here just to cater to Munther Ismael Bilbeisi, a Jordanian businessman and Boca Raton resident indicted in August 1991 on tax evasion charges stemming from a coffee-smuggling scheme financed by B.C.C.I. Mr. Bilbeisi left Boca a fugitive.

Cary Maultasch, who testified under a grant of immunity against Michael R. Milken in 1990, still lives here, as do other former Wall Street lions from the scandals of the 1980’s, including Martin A. Siegel, who pleaded guilty to insider trading charges involving Ivan F. Boesky.”

Drugs often played a role in many suspect firms, as this piece from Sept, 08, indicates:

“In 1987, Jerold Weinger was the CEO of a Wall Street brokerage firm crushed under an avalanche of coke.

One of the firm’s partners, six brokers and a receptionist were arrested in a massive U.S. Drug Enforcement Administration Wall Street sweep called Operation Closing Bell. A ninth employee was arrested in the firm’s Florida office. Partner Wayne Robbins ultimately pleaded guilty to drug charges, and seven of the eight others either pleaded or were found guilty of possession, distribution or conspiracy to distribute cocaine, according to the DEA’s New York office.

According to federal court documents filed in the Southern District of New York, brokers at Brooks, Weinger, Robbins & Leeds regularly traded stock tips for cocaine. In one instance, a broker gave cocaine to a principal of another company in exchange for $10,000 worth of stock in that company’s initial public offering. At one point during the sting, a broker was arrested on drug charges and fired from the firm. A day later, he was rehired “because he was a good, trusted source of cocaine.” ( Fool’s Gold: Desperate clients hand over thousands of dollars for a chance at a job,” Craig Malisow)

Dow Jones NewsWire On Sentier 2

Just to make sure this news report doesn’t vanish into the murky depths of Google, I’ve posted it below in toto.

http://news.morningstar.com/newsnet/ViewNews.aspx?article=/DJ/200812111307DOWJONESDJONLINE000860_univ.xml

(downloaded, 12:40 PM January 9, 2009)

Note that the report is dated 12-11-08. Madoff was arrested on Dec 11 (Thursday).

SocGen, Barclays Cleared Over Franco-Israeli Money Laundering12-11-08 1:07 PM ESTPARIS (AFP)–A Paris court Thursday cleared the banks Societe Generale SA ( 13080.FR) and Barclays PLC (BCS) of complicity in money-laundering between France and Israel, but convicted a top Pakistani bank and a U.K.-owned lender.

The court also sentenced a former French prosecutor to 20 months for corruption, and gave two executives from the National Bank of Pakistan (NBP.KA) two-year suspended jail terms following a mammoth trial. Judges heard how the four banks handled money from merchants in Paris’ Sentier garment district – the proceeds of tax evasion, embezzlement or stolen checks laundered through banks or money exchange offices in Israel.

The banks had all denied any wrongdoing in the case, dubbed “Sentier 2.”

A previous “Sentier” trial saw dozens of clothing merchants from the district convicted of defrauding banks, and investigators looked at whether the firms had made proper checks before handling the merchants’ payments.

One hundred and fifty-two people were on trial alongside Societe Generale, the French units of Barclays and of the National Bank of Pakistan, and Societe Marseillaise de Credit, owned by HSBC Holdings PLC (HSBA.LN).

Daniel Bouton, the chairman of Societe Generale – which was hit by a massive rogue trading scandal at the start of this year – was acquitted along with his bank and three other senior managers at the lender. They were accused of handling the equivalent of EUR32 million in ill-gotten funds.Investigators told the court that Societe Generale knew of the fraudulent origin of this money but the judge accepted defense arguments that there was no “intentional element” on the part of the bank.Bouton’s lawyer welcomed what he said was a “coherent” decision. Bouton had been charged with aggravated money laundering and faced 10 years in jail.Barclays-France and four of its former or current executives were also cleared of wrongdoing.The court fined the National Bank of Pakistan EUR200,000 and gave two-year suspended jail sentences to two of its bosses for failing to spot EUR1.8 million in illegal transfers.The pair were also fined EUR20,000 each. Two other executives from the NBP, one of the largest commercial banks in Pakistan, were acquitted.Societe Marseillaise de Credit was also convicted of failing to spot EUR1.8 million in illegal transfers and fined EUR100,000. One of its executives was given an eight-month suspended sentence.A former French prosecutor was convicted of for corruption and influence peddling and given a three-year jail sentence with 16 months of it suspended. He was fined EUR30,000.Click here to go to Dow Jones NewsPlus, a web front page of today’s most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=OBSC4tG5tv93CjIHwO9G9A%3D%3D. You can use this link on the day this article is published and the following day.