Discussion:Madoff Lives up to name

That was the climax. In this fair use quote from CNBC concerning Mr. Madoff's clients, note how the police (Sheriff, what have you) always serve the function of issuing in the denouement in the capitalist system. That's why they're kept around, after all.

Quoth: "About a dozen angry investors gathered on Friday in the lobby of the Lipstick Building in midtown Manhattan, where the market-making firm and advisory fund are both headquartered, demanding to know the fate of their money.

One woman who declined to give her name said that when she called the firm's offices on Thursday she was told it was "business as usual."

Another investor groused, "Business as usual? Of course it's business as usual. We're getting screwed left and right."

Police later evicted the small group from the building."

Classic. Arthur Miller couldn't have done better.

He's up for maybe 20 years.

The oddity here is Madoff really didn't fit the description of something being too good to be true, since until the crash of 2008, his returns were not out of this world.

Of course, the problem is one of 'not do diligence.'

Of course, I am enlarging on the idea somewhat.

Charles Dickens was a master at having the constabulary step in at just such times, to great comic tragic effect. What is going on now is a perfect illustration of what the police power of the state is really for in capitalist countries. If you don't have property, or you no longer own it (foreclosure evictions), you become a tin can in waiting for the boot of a duly sworn officer of the law.

Of course, we have our heros. Take the Sheriff in Ill. as an example.

http://www.accountantsworld.com/desktopdefault.aspx?page=newsstory&category=newsstory&StoryId=h1218573.2ap

As it turns out, the auditor has been telling the AICPA for 15 years that he doesn't do audits. (For those who aren't aware of the auditing rules, all auditors are required to be peer reviewed every three years.) Of course, the AICPA is all over him now.

Fortunately none of my clients were invested with him so I don't have to research it. What a can of worms!

Since these facts and circumstances first broke during 2008, I doubt that amended returns would be allowed, but I have not researched this matter specifically, since I have no reason to, other than for the pure entertainment value it has.

This particular ponzi pyramid looks little different than the NYSE and NASDAQ stock markets or than the USA real estate market recently (especially NV, FL, AZ & CA). Stock market prices were way over net book value plus 10 times annual dividends, and real estate prices were way over what anyone could afford to pay off in their lifetimes. Those have also crashed, together with Madoff's pyramid fund as well.

I agree that the biggest clue in Madoff's case was the lack of a reputable CPA firm auditing the fund. But then, Arthur Andersen auditing Enron did not help those investors either at that time.

It is hard to feel sympathy for the ultra-rich who invest their money based on greed and who are then punished for their failure to do their research. Easy come, easy go.

In economic terms, Madoff benefitted the general economy by spending the money of his ultra-rich clients for them.

The biggest clue in the case of the stock markets is and was their failure or inability to pay much if anything in the way of dividends, thus the valuation was purely speculative.

The biggest clue for real estate was and continues to be that virtually no one at these current levels of house prices will ever be able to pay off these mortgages.

Ponzi pyramids come and go. Thus there is really no new thing under the sun.

If I were on Madoff's jury, I would not vote for imprisonment. Only that he give back whatever he has left. Being poor himself is an appropriate judgment rather than prison time. Or else would you also imprison the stock market traders and the real estate agents as well?

Madoff's clients were blissful (as in ignorance is bliss) while they thought their riches were getting richer. Same thing as with the stock market and the real estate market. Sadly, no fantasy lasts forever.

Strip away the speculative build up in real estate, and you are left in most cases with a rat shack not worth the cost of demolition. And if not a rat shack, then with a home too nice to afford, that no one could possibly pay off in 1 lifetime.

Strip away the speculative build up in stocks, and your dividend pay-out rate does not even equal a savings account at a local retail bank for the same amount of funds.

There are simply no legitimate assets involved.

That's why, if I were on the jury, I would not convict Madoff. I see no significant difference between his actions and those of the stock traders or of the real estate agents.

The only way you can justify convicting him is by embracing the now refuted notion that something tangible underlies stocks and realty and so therefore Madoff is a bad guy because he did not invest his clients' monies in those.

By creating his own ponzi pyramid, Madoff was simply cutting out the middle men on the stock trading floor and in the realty agencies, ponzi pyramids just like his own.

People are angry because their money is gone, but they should have known there is no FDIC insurance on their greedy investments with Madoff anyway.

Not Guilty, Your Honor.

What was the Kenny Rogers song? You gotta know when to hold 'em?

Leagality is spelled out in the law while ethis are sometimes referred to as 'intent' Madoff should have had his bail revoked for trying to distribute his personal assets. Investors should have done more research. None one this compares to the biggest PONZI scheme. The SSA. Here is a government agency that collects $$$, disburses $$$$, and then another government source borrows against those funds, been going on for years,

TexCPA 20:54, 14 January 2009 (CST)

SSA is an unfunded pension plan which works just exactly like a ponzi pyramid as well, you are quite correct Texcpa. I am not too worried about SSA though, because in the future all that the U.S. Govt. will need to do is open the floodgates to immigrants from south and east Asia to continue to fund this ponzi. Not to worry.

I do worry about the ponzis of realty though, because eventually that balloon must crash completely. There is no way it can continue to be funded. The present burst is just one of several major corrections that still need to take place. There is no more uncontrolled financing coming out of Fannie May & Freddie Mac. There are no more debt default swaps coming out of Wall Street either, because Wall Street has spent all their money and it is all gone, surplus and capital as well, all gone.

I don't blame Madoff, precisely because he only stole from the rich. The rich can afford to lose their money. In fact, the world would be a better place, in economic terms, if the rich all became poor. Then the rich would need to go to work, and that would raise their productivity. A fat rich person with tons of cash in the bank does not produce anything on this planet. Not food, nor clothing, nor shelter, nor transportation, nor equipment, nothing. That is precisely why I don't blame Madoff. He was actually performing a service, by spending the rich's money for them.

You could just as easily call for the fund managers' heads for not diversifying.

Madoff only accepted minimum investments of $4 million.

Anyone with "only" $4 million should not invest all of their $4 million into any one thing.

10% gold, 20% Treasuries, 20% government bonds, for the conservative half.

The other 50% would be OK for "gambling."

Those who were gambling with 100% with Madoff were simply greedy.

You "make money" with money by cautious investment. For example, by buying shares of stock in corporations that have growth potential AND that are PAYING DIVIDENDS. Or by making mortgages for owners who have enough income to PAY OFF THE MORTGAGE. If you think about it, that eliminates most of the available current stocks and mortgages these days, because they are mostly all ponzi's themselves.

These fund managers to whom you were referring were not cautious investors. They were simply greedy fools. They violated the rule of diversification the minute they saw something that looked too good to be true.

I know, hindsight is always 20-20. But a little vision never hurts either.

I recall the eerie silence I was met with after making that statement to them, "why do we need that" ?

Well (I responded) because you are entrusting your endowment to a Stockbroker here whom you all like, a very friendly personality fully involved with the organization - who will likely have full rein to "invest" in funds of funds, (and make a fee) who will then in turn "invest" in another fund of funds (and make a fee) and so on.

The investment decision is to identify a reported "fund" with high returns (yields) in the blind hope it will again return what it has reported in the past. In my view, a very risky gamble.

What we are now seeing in the Madoff scam and the Nadel scam (Sarasota, Florida) is that "investment funds" report false results, and those false results are readily accepted and published for the innocent to rely thereon.

As Warren Buffet is fond of saying, "now that the tide is moving out - we are seeing who has been swimming naked".

You would not make a good juror then, for this upcoming trial, since emotions will cloud your judgment.

I on the other hand see nothing wrong with separating rich foolish people who have more than $4 million from their money and recirculating the money back into the economy.

From a gestalt view, Madoff actually did more good than he did harm. But to fathom that view, you would need to appreciate the microeconomic philosophy that wealth and poverty are both inequities of a flawed system.

In a perfect system, everyone works, and no one is rich nor poor.

I also have to laugh when one member of a particular group trusts another one by virtue of the fact alone that they are putting their trust into another member of the the same tribe. Since when does being a member of the tribe make you safe??

Diversify, get an independent audit opinion, and t-h-i-n-k.

Or else, as P.T. Barnum said, fools and their money will soon be parted.

Please, let's just leave it as a difference of opinions.

However, I am also mystified by the fact that people can spend so much effort in making their money, and put so little thought in how it's invested.

Yes, a lot of these people who put thier money with Madoff were unrealistic, and many were probably greedy. If you know anything about investment returns, that alone would give you pause in going along with Madoff's reported numbers.

But, I've seen it over and over again. A very good friend of mine (now deceased, RIP) was a bank examiner for the Federal Home Loan Bank. This was some years ago, and he was older than me. Anyway, I always got a chuckle out of him because he would fall for every scheme that came along (Publishers Clearinghouse, etc. etc., taking fake diamonds in exchange for a personal loan to a "friend"). Not a suspicious bone in his body. Of course, if you remember the S&L implosion, I don't think he was the only naive guy the FHLB had on it's staff...

At that time I was an college student intern at Ernst & Ernst; the manager of their office somewhere in North Jersey became a hero in the firm because he had a chance to pick up this company as a client, but felt DeAngelis was too shaky a character.

Reading these posts gives me an idea: my little town has lots of retirees as does the surrounding area. I suppose I could get a small truck and some rolls of roofing material plus some roofing cement and go around offering to do roofs cheap, for cash. I know nothing about putting down a roof except that roofing cement makes a mess of your clothes, but after I get the deposit, I'll tell them I have to head to Home Depot to get more supplies. Adios muchachos.

When I'm caught, I'll use the Gestalt Defense [sounds like a variation of the Himmler manuever...you know him, Heinrich, President of the International Police Organization in 1938] and claim I was liberating these old geezer funds that would only be left to ungrateful children who would piss the money away anyway. Surefire defense.

http://www.kyw1060.com/pages/3759382.php

Unfortunately the other scam you point out is also not new. I have read about several others over the past couple of years. There was another big one down south that took advantage of dead people . . . they were selling parts without authorization.

J. David was a local hero in San Diego for a long time. I was a tax manager at a Big 8 firm at the time, and the tax partner in charge was just itching to get his hands on some of the J. David business. I took a look at a couple of his prospectuses and said I wouldn't touch it with a ten-foot pole. And of course it all turned out to be a fraud.

What is also happening here in NJ, which has god-awful real estate taxes anyway, is that many counties and towns are doing assessments for the first time in 10-25 years or more, so that even with values down, real estate assessments are tripling, quadrupling for many long time residents. I am sure this happens in other states too; from the returns I do, I've been flabbergasted by rates in suburban Philadelphia, or how about 29K for a colonial in Pelham NY?

Thank goodness the SEC doesn't manange the food supply. I thought I was going to get through this Depression selling peanuts on Peachtree St., but I can't seem to give them away. Wait a minute, you don't think... not the FDA too?

D&T, I can't believe a state would not make regular assessments of properties, at least on a rotating basis. Wow. I'm pretty sure the assessed values change every year on Oahu. I just saw one that increased 24% even though the market has come down significantly.

Next up was the SEC. Now, I became a political junkie during the Watergate hearings in the 70's, and in my opinion, this was the most pathetic testimony I have ever heard before a Congressional committee.

Essentially, Mr. Markopolous dropped a case in their lap and they ignored it. There is no way this could have been an accident or marked down to mere negligence on the part of the SEC. During the hearing, the SEC stonewalled the whole thing. What it boils down to is that if you are an investor, there is no government oversight of the financial industry that you can count on. It was just unbelievable.

Hope you folks get a chance to sit through and watch this entire hearing if you ever get a chance. I don't know if CSPAN has it up on the net yet, I watched the re-run on TV.

That's the scary part, isn't it Crow? Here we have an agency with 3500 or so employees, and not one took the time to investigate this? Or perhaps they did, and then like the Wall Street reporter were told to bury it. (Caveat -- I am making an assumption about the reporter, but it's not much of a stretch based on what I've read.) Mr. Markopolous also informed Eliot Spitzer about Madoff, and he apparently didn't do anything about it either. That really surprises me. Spitzer also lost money to Madoff, however.

I'm sure they will make a movie about Markopolos one day, and his uncovering of the Madoff matter, but I'm not sure one film could do this justice. Particularly the strong inferences made at the hearing of our addicition to the drug and other criminally derived monies to lubricate the financial system, and that it seeems to be common knowledge among all the Wall Street players, but as yet unknown to the general public.

By the way, from what I can tell from the testimony, the SEC does not employ CFE's.

You probably already know that Markopolos is a CFE. With all these crooks, I think you have yourself a growth industry.

That is, the Madoff's out there, can not select a small firm of their own liking.

Now they must go the PCAOB - website and select one on the "approved list".

This is very different the first time "private firms" are under the oversight of the Public Companies Board.

You can easily get the PCAOB list of CPAs for your state - from the website - Hawaii may have very few - and those who do qualify charge $300 plus hourly - and now will be in even greater demand - 11,000 (Broker-Dealers / small firms) are now affected by this ruling.

TexCPA 20:57, 9 February 2009 (CST)

Given the list of bank failures, scandals, etc; it would seem that the image of AICPA has been tarnished … although I have not heard of them being hauled before Congress. Other than the steps mention about, what is the AICPA doing to improve things?

There is a mention above of the failure of the SEC, but as a stockholder, I never considered the SEC was my first line of defense again fraud and undue risk … I always through it was the CPA’s doing the audits. I still think we could do a lot to cleanup tax cheats and embezzlement by putting the principal responsibility of the CPA to the public … unless we want an army of bureaucrats instead. There are a lot more CPA’a than the number of people at the SEC. I am afraid the army of bureaucrats may be the direction we are going … then there be no need for CPA’s. Think about government audits instead of CPA’s :(

There have now been at least two suicides as a result of Madoff's scheme. There have been plenty of retirees who've had to go back to work. There will be more schemes. In my opinion, it's up to us to educate our clients about this type of thing, so they can learn how to protect themselves.

"Its mission is to provide members with the resources, information and leadership that enable them to provide valuable services in the highest professional manner to benefit the public, employers and clients." AICPA Underlining mine.

Way back in the last century (I mean the 20th not the 19th) when I took auditing ... I remember the professor saying the roots of the CPA were Scottish accountants hired by English business owners to audit their American managers to be sure the American managers were not cheating them.

I guess my point is that there is a big grap now in confidence whether it is in the financial statements or taxes being paid honestly ( I am not so concerned about the EIC cheats , every Dachles is 100 moms.) Other than creating a huge bureaucracy, who could step in the gap other than CPA’s? I know others have said they do not want to be the government’s auditor … let them be a private accountant … there is no shame in being a CMA. (This is too much fun ... need a bike ride!)

I have always believed that auditors of publicly traded companies should be audited by CPAs who are hired, evaluated and paid not by the company, but by the government (probably the SEC). And then, of course, the SEC would have to have the resources to properly monitor the accountants. A pipe dream, no doubt.

http://online.wsj.com/article/SB123491638561904323.html

It's really interesting to note that some of the investors were referred to one particular accounting firm for their investment statements and tax summaries.

These are guys I try to help, they are not all Madoff's

TexCPA 14:30, 19 February 2009 (CST)

http://a.abcnews.go.com/images/Blotter/Friehling%20David%20Complaint.pdf

You can read the filing here.

My take, is the accusations are for Professional Negligence - so when does laziness or slopplyness become a crime?

Apparently, when the losses of the clients/customers of your Audit Client become enormous.

Chilling stuff for CPAs who render Audit Reports.

The indictment seems to characterize the misconduct - akin to theft - inasmuch as the language used describes a Monthly Payment to Fhreling of $14,000 - as if he was paid to look the other way.

What perplexes me - is the CPA-Fhreiling, had his retirment account with "Bernie" and he lost $500,000, as well.

Let me ask this, when does Professional Negligence become a crime?

Usually, most crimes of theft require a clear and present element of "Intent" to steal, or take or convert.

Where is that?

As far as the intent, they'll need to show that at trial.

I am still hung up on the Counts 1 and 2 - as a general "catch-all" Charge - whatever "Securities Fraud" and "Investment Adviser Fraud" constitutes.

It appears to my eye - as if the charging Agent is making a case that CPA-Friehling was an enabler - and without his false reports Madoff would not have been able to carry out his scheme.

I would suspect the fact that Friehling lost $500,000 in his retirement account will be raised as an affirmative defense to the critical element of Intent.

Did he indend to do what he did?

Or, was he Negligent in carry out his Audit duties.

I'm not seeking to defend his actions - and the worst is lying about his qualifications to even engage in this kind of work without the benefit of Peer Reviews or registration with the PCOAB.

There are obviously more facts to this case that are not documented in the complaint. It sounds like the issue of securities and investment adviser fraud are included because somewhere along the way, he did something to act as an adviser.

As far as the $500k goes, perhaps it's just a red herring. Afterall, that's only 1% of the amount allegedly bilked from investors.

Although he is only 49 years old, He might never see light again.

What about the lack of independence by having his money with Madoff.

Shoot them BOTH!!!!

In order for this to last so long, the accountant had to be the the brain this operation. Independence was beyond impairment - it was completely ignored.

It is because of this, I find the accountant more responsible and culpable (Legalese for guilty) than Madoff. For this, the accoutant's sentence should be twice as harsh as Madoff's.

The execution should take place at the corner of Wall street and Broadway.

http://www.msnbc.msn.com/id/31702178/ns/business-washington_post

And did anyone read about this one guy who made a lot of money through Madoff? I can't find the link right now but it appeared on line last week.