Ol' Dennis has been doing some digging and has managed to find a copy of Harry Markopolos' November, 2005 presentation to the SEC regarding Bernard L Madoff Investment Securities. It's 19 pages long and filled with lots of mathematics related to arcane investment strategies (well, they're arcane to me, at least), so it won't qualify as light reading. There are, however, some points of interest...
Point the First:
This will come as a great disappointment to professional partisan/pseudo-journalist Josh Marshall, but on page 1 Markopolos states he had first alerted the SEC that Madoff was running a Ponzi scheme back in May of 1999. He goes on to state that his May, 1999 presentation was substantially the same as his November, 2005 presentation. The last time I checked, George W. Bush wasn't president in May, 1999. No doubt Marshall will be following up on why the Clinton SEC dropped the ball in 1999.
And if you believe that, I have a wonderful investment opportunity in a hedge fund you'll just love...
Point the Second:
On page 10 we get this:
Madoff doesn't allow outside performance audits. One London based hedge fund, fund of funds, representing Arab money, asked to send in a team of Big 4 accountants to conduct a performance audit during their planned due diligence. They were told "No, only Madoff's brother-in-law who owns his own accounting firm is allowed to audit performance for reasons of secrecy in order to keep Madoff's proprietary trading strategy so that nobody can copy it." Amazingly this fund of funds then agreed to invest $200 million of their clients' money anyway, because the low volatility of returns was so attractive!!
A couple of things to note here:
First, this demonstrates just how far Richard Murphy's head was buried in his ass when he accused the Big 4 firms of negligence in the Madoff Scandal.
Second it demonstrates that Richard Murphy doesn't understand how one performs due diligence and who is responsible for performing due diligence.
Third, it is apparent that many of Madoff's investors were either exceptionally greedy, exceptionally stupid, or both. If someone refuses to cooperate with the due diligence process, you run for the hills. Period. End of story. And, if someone's fucking brother-in-law is doing the company's audits, you run for the hills. Period. End of story.
Fourth, Madoff's accounting firm will be shown to be an integral and active part of the fraud. The sort of family connection between Madoff's company and Madoff's auditors normally renders the audit firm as unqualified because of a lack of independence. That Madoff's auditors would do the audits anyway (and then lie to the AICPA about it) means those boys were in for a dollar as well as a dime.
Point the Third:
As stated on page 12, evidently Bernard L Madoff Investment Securities liquidated all investments and went 100% cash as of the last day of each year:
BM (Bernard L Madoff Investment Securities) goes to 100% cash for every December 31st year-end according to one FOF invested with BM. This allows for "cleaner financial statements" according to this source.
If true, this is incredible. It means both the SEC and investors accepted the idea that an investor would completely liquidate his investment holdings (regardless of loss) at year-end to be able to present is assets (holdings) as 100% cash. That doesn't make for a "cleaner financial statement", folks. Once again, that's run-for-the-hills stuff: The only reason to liquidate and go to 100% cash is to hide something. Period. End of story.
Read the whole thing. It is amazing.
Note: Here's a WSJ article that provides a useful timeline for regulatory scrutiny of Madoff. It began in 1992.
There's been a lot of bleating in the conservative wankosphere about Greg Sargent of Talking Points Memo getting hired to blog by the WaPo. The right hasn't just noticed but acknowledges the left dominates the political internet. While most prefer to dismiss that fact as some adjunct plot by the liberal MSM and wallow in their game of victimization some clearer heads are thrashing about looking for a cause and cure.
I'd say it's because few if any rightwing bloggers do any actual research, reporting, or have any actual expertise in the things they choose to write about.
And long story a little shorter Dennis that's why you should write more about stories like this than wasting your time dissecting the likes of Amanda.
Posted by: markg8 | January 05, 2009 at 09:21 AM
BTW Marshall posted this report on December 17th.
http://www.talkingpointsmemo.com/archives/248666.php
Posted by: markg8 | January 05, 2009 at 09:38 AM
Cool post, Dennis. I've seen mention too, that people are realizing that they're losses aren't exactly of the magnitude first reported--that is, yes, they lost what they initially invested, but I think people were thinking that their investment's 'growth' was lost too, when in reality, it was never there, so couldn't be lost.
Posted by: Eric Blair | January 05, 2009 at 01:18 PM
no Dennis - keep on dissecting Amand'oh!
Posted by: KMcC | January 05, 2009 at 06:44 PM
Eric I hope you're joking. Of course investors lost everything they put in and didn't make those 10% returns every year. And those who did invest with Madoff but smelled something hinky going on and took their money out before he was exposed might loose their money too. The investigators in the hearings on CSPAN say there were 29 complaints about Madoff to the SEC. This is going to get ugly.
Posted by: markg8 | January 06, 2009 at 11:32 AM