Friday, March 13, 2009

Madoff private investment business walled off from Madoff Investment Securities, now estimated at $177 billion.

Madoff private investment business walled off from Madoff Investment Securities, now estimated at $177 billion...

Jailed Ponzi scammer Bernard Madoff carefully segregated and walled off his private investment business from the normal trading activities of Madoff Investment Securities at 885 Third Avenue in Manhattan. Madoff Investment Securities' on the 19th floor was a legitimate trading activity monitored electronically by the Securities and Exchange Commission (SEC) and internal compliance officers of the firm.

The SEC, as with all securities firms it inspects and monitors, conducted one announced audit of Madoff Investment Securities a year and one random, "surprise" audit. Since the 19th floor trading operation at Madoff complied with all regulations and requirements, no red flags were ever raised to the SEC. There is also some speculation among ex-Madoff employees that even if the SEC auditors got wind of Bernard Madoff's private investment operation, the auditors were paid so little that they may have easily been bribed with job offers or money not to report their findings.

On the 18th floor of Madoff Investment Securities, the firm's compliance division kept all the important files for SEC inspection. Bernard Madoff's niece, Shana, a lawyer, reportedly told one internal compliance employee who asked about what her uncle was running from his 19th floor office, that he was making "investments for a few people."

Bernard Madoff also, curiously, did not have a computer in his office nor did he use e-mail. Madoff Investment Securities was required to electronically store all internal and external e-mails for SEC inspection. In addition, most of the employees on the 17th floor, where much of Madoff's private investment activities took place, did not use e-mails. According to Madoff insiders, these included Frank DiPasquale, Madoff's late-fortyish Chief Financial Officer, and DiPasquale's administrative assistant. When asked why Madoff and his private hedge fund group did not use e-mails, the response was to avoid burdening computer storage with excessive e-mails. One insider felt that the avoidance of e-mails by Madoff and DiPasquale's group was to limit the monitoring of their communications by the SEC.

The lack of e-mail records for Madoff's private investment scheme may be hampering federal investigators in their probe of the disposition of Madoff's money, now estimated at $177 billion.

WMR has also learned from Madoff insiders that two close Bernard Madoff friends, the late Norman Levy, who Madoff viewed as a mentor, and Noel Levine, maintained offices on the 17th floor but their small business operations were not "officially" part of Madoff's firm.

Although Bernard Madoff's eventual replacement was never discussed openly, many Madoff employees believed the mantle would be passed to his brother Peter, the vice president. Although Bernard Madoff regularly left on vacations to Montauk, Long Island, where he had a home, and to his estate in France, Peter rarely left. Peter Madoff worked from 9 am to 5 pm every day, according to one source, and that Peter Madoff and DiPasquale were among the few Madoff officials who had access to Bernard Madoff's private investment operation.

When asked who among Madoff's family members knew about the private investment operation, a former employee replied, "They all had to know." Bernard Madoff was also quoted as revealing to one employee that he invested money for a "negligible" number of people. However, the financial statements received by some Madoff private investors clearly showed there were problems with his operation and the investors in question included some of the sharpest financial experts on Wall Street who never raised any red flags, according to a Madoff source.

The only visible political fundraising that Bernard Madoff ever conducted was a fundraiser for Senator Charles Schumer (D-NY) at Madoff's 885 Third Avenue headquarters. The amount of money raised for Schumer was within Federal Election Commission limits but one source was not aware of what other financial arrangements existed between Bernard Madoff and the New York Senator, member of the Senate Banking Subcommittee on Financial Institutions that had oversight authority for securities firms like Madoff's.

More details have also been revealed to WMR about the nature of Madoff's London operation. The office was headed up by Steven Raven and consisted of between 8 and 12 people in a small one room office. One of the few interfaces between Madoff's New York office and the London office was on compliance issues such as disaster recovery operations and contingency plans. However, generally, the Madoff compliance division was kept "out of the loop" on other London operations.

We have also discovered details about Madoff Energy, a spin-off of Madoff Investment Securities run by Bernard Madoff's son Andrew. Madoff Energy bought up unproductive oil wells, all of which were in Texas, refurbished them and either sold them off or retained them. There were plans for Madoff Energy to expand and move off to Madoff's Third Avenue headquarters but those plans were aborted after Bernard Madoff's arrest on December 11, 2008.

Just prior to Madoff's December 2008 arrest, the firm consisted of about 137 employees. An overwhelming majority of them were unaware of Madoff's private operation and complied with all SEC requirements in a totally legal manner. However, many who are now seeking other employment after losing their jobs with Madoff are being confronted with hostility by other firms and job recruiters. One former Madoff employee, who is now unemployed, called a recruiter who responded, "You worked for a criminal organization . . . if you want a job go work for the mob."

WMR has also received word from a reliable source that Bernard Madoff was, in fact, linked to shady intelligence agency slush funds and took his orders from intelligence officials. WMR previously reported that Madoff's Ponzi scheme was linked to the CIA, the Mossad, and the Russian-Israeli mob and that much of his Ponzi scheme funds were diverted to Israeli banks....

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