NO SURPRISE: MADOFF CONNECTION WITH SEC and “Mortgage Backed Bonds”

Posted on March 9, 2011 by Neil Garfield

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO TITLE AND SECURITIZATION SEARCH, REPORT, ANALYSIS ON LUMINAQ

EDITOR’S NOTE: Well we already knew that his son was working in SEC enforcement so it should come as no surprise that the SEC attorney that was involved in payouts to victims was also involved with Madoff. In fact, it should be no surprise that hundreds of “channels” were involved on Wall Street because Madoff never made a trade. It was a PONZI scheme, but he was well connected and knew perfectly well that the GREAT SECURITIZATION SCAM in mortgage-backed bonds was also a scam.

So while the SEC and others generally like to grab people like this, and others like to blow the whistle and see the scheme fall apart, the SEC, being the recipient of a 29 page TEN YEAR OLD report prepared by one of the most knowledgeable analysts on Wall Street, did nothing. That report showed that what Madoff was saying was impossible from any angle and everyone on Wall Street knew for a fact that they had never seen or heard of a single trade from the Madoff “accounts.” Even the mega banks that had Madoff money parked in them knew they had not seen a trade and were talking and writing about it in emails and over cocktails at lunch. What Madoff didn’t realize was that powers bigger than him — and he had a lot of power — were using him as the scape goat to divert attention from their own scam. AND IT WORKED!

The plain truth is that if anyone blew the whistle on Madoff, then the entire mortgage scam would have come to a halt because Madoff would have traded his knowledge of the securitization scam for leniency or even immunity. He miscalculated, like all PONZI artists, because after 30 years he thought both his scheme and the securitization scheme would go on forever — a kind of mutually assured destruction tacit agreement existed between the mega banks and Madoff. Neither one ratted the other out even though both knew what was going on.

So now everyone is in a hurry to get the foreclosures done so we can put this nasty episode behind us, except it just won’t go away. The Banks, in control of government, are successfully arguing that if they are allowed to slowly convert this mess into another mess, the economy will be better off and that less people will be hurt. Using that logic, Madoff and all other PONZI operators should have been left alone. Ask anyone who got nicked by a PONZI scheme — they all secretly wished it could have gone a little longer so they would have gotten their money back — even though that meant that someone else’s money was “paying” them.

This is why PEOPLE need to act in the their central role as the boss of this sovereign country. It says so right in the constitution in clear unambiguous words. PEOPLE need to act, using their powers of removal, election, petitions, and referendums to take control of the government away from those who are using the current occupants of offices that pull the levers of power and put it into the hands of people who understand that if they pull the same crap, they too will fall under the axe of the real boss in this country — its voting citizens.

LLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLL

NY TIMES

S.E.C. Chairwoman Under Fire Over Ethics Issues

By LOUISE STORY and GRETCHEN MORGENSON

The Securities and Exchange Commission took a beating two years ago for failing to detect Bernard L. Madoff’s multibillion-dollar Ponzi scheme during the decades that he ran it.

Now, its chairwoman is coming under Congressional fire for hiring as the S.E.C.’s general counsel someone with a Madoff financial interest — David M. Becker, who participated in matters involving how the scheme’s victims would be compensated.

The revelations about Mr. Becker’s role have raised fresh questions about ethical standards and practices at the agency, where Mary L. Schapiro was brought in as chairwoman two years ago with a mandate to strengthen its enforcement unit. Ms. Schapiro will appear before Congress on Thursday to discuss the matter. Questions about Mr. Becker arose last month after Irving H. Picard, the trustee overseeing the Madoff case, sued him and two of his brothers to recover $1.5 million of the $2 million they had inherited in 2004 from a Madoff investment by their late mother. Mr. Becker’s financial ties to Madoff had not been publicly disclosed until that suit.

Mr. Becker said that he advised Ms. Schapiro and the chief ethics officer of his financial interest in a Madoff investment account, “either shortly before or after” joining the agency in February 2009.

Last Friday, H. David Kotz, the agency’s inspector general, announced that he would investigate the potential conflicts in Mr. Becker’s role as a Madoff recipient who was also the S.E.C.’s general counsel and senior policy director involved in decisions relating to the Ponzi scheme. Ms. Schapiro requested the review, a commission spokesman said.

Lawmakers have also asked Ms. Schapiro for details of her discussions with Mr. Becker about his Madoff account when she hired him in 2009. Ms. Schapiro missed a deadline on Monday for those responses. An S.E.C. spokesman said Ms. Schapiro declined to comment on Tuesday.

“One of the things the S.E.C. does is hold companies to a very high standard with regards to transparency and disclosure,” said Representative Randy Neugebauer, Republican of Texas, who is one of four Republican lawmakers asking Ms. Schapiro about her dealings with Mr. Becker and his disclosures. “We think it’s important that the same integrity exists within the S.E.C., ensuring that people working there do not have conflicts of interest and that here is a process to vet those issues and make sure they are taken care of in a way that gives confidence.”

Perhaps the most significant Madoff matter involving Mr. Becker is a proposed reversal of the agency’s recommendation on how to compensate victims of the scheme, according to two people briefed on the S.E.C.’s discussions who asked not to be identified because they were not authorized to discuss the matter. While the agency had agreed on a deal that would return to investors only the money they had put into their Madoff accounts, Mr. Becker argued that the commission should change its stance to allow victims to keep some of the gains their investments had generated, since the investment would have grown somewhat over time even in a low-interest account. The Becker family would benefit from this approach.

Mr. Becker did not return a call for comment.

In correspondence with lawmakers late last month, Mr. Becker also said that he alerted the ethics office about his family’s Madoff investment again that May after he received a letter from a number of law firms representing Madoff victims asking that the commission change its proposed compensation formula. Among the issues are whether Madoff investors who withdrew money before the fraud was exposed must return some of their proceeds — and if so, how much — to other investors.

“I recognized that it was conceivable that this issue could affect my financial interests because the issue could affect the trustee’s decision to bring clawback actions against persons like me,” Mr. Becker wrote in response to lawmakers. The ethics officer approved his participation, he said. That officer reported directly to Mr. Becker and spent only 25 minutes reviewing the matter, according to Congressional staff members briefed on the discussions who requested anonymity because they also were not authorized to discuss the matter publicly.

Congressional investigators want to know if Mr. Becker and Ms. Schapiro took all the necessary steps outlined in government ethics rules. Under the United States code, for example, Ms. Schapiro may have been required to make a written determination that Mr. Becker’s financial interest was not substantial enough to affect his job performance. A spokesman for the S.E.C. said that such a waiver would not be required unless Mr. Becker had been found to have a substantial financial conflict.

Congress also asked Ms. Schapiro whether she discussed Mr. Becker’s Madoff account with other staff members or commissioners and if she took up the matter with officials in the federal government’s Office of Government Ethics, or the commission’s ethics counsel.

“As the government official responsible for appointing Mr. Becker to his position in 2009, what steps did you take to manage the appearance of or actual conflict of interest presented by Mr. Becker’s financial interest in the Securities Investor Protection Corporation’ liquidation?” asked a March 1 letter signed by four Republican members of the House Financial Services Committee. They are Spencer Bacchus of Alabama, Jeb Hensarling of Texas, Scott Garrett of New Jersey and Mr. Neugebauer.

In any Ponzi scheme, there are victims who withdraw money before the fraud is exposed. There are many such Madoff investors and determining how much they may keep is being sorted out in two places. Some investors are fighting in court to be entitled to the amount of money on their final Madoff statements, though they have been unsuccessful so far. Another battle involves how much customers can be compensated by the Madoff trustee and the Securities Investor Protection Corporation, a government entity that helps recover money for customers of failed brokerage firms. The S.E.C. oversees SIPC; neither matter has been decided.

Mr. Becker’s late mother, Dorothy, invested $500,000 with Mr. Madoff’s company; when she died in 2004, her three sons transferred the money into a new account at the firm. The next year, the investment was worth $2.04 million and they withdrew it. Mr. Picard said that the family should be allowed to keep the original $500,000 investment but return $1.54 million — all of the gain — to compensate other victims.

If the S.E.C. gets its way, Mr. Becker and his brothers would be allowed to keep more than that to compensate them for the time the money was invested with Mr. Madoff. How much more is unknown because details of the commission’s proposal have not been disclosed.

Both SIPC and Mr. Picard, the trustee for the Madoff estate, have proposed that the customers who withdrew funds before the fraud was uncovered should be allowed to keep only as much money as they put in. Initially, the full commission agreed and approved that approach in early 2009, according to the two people briefed on the discussions.

Mr. Becker joined the commission in February that year. By spring, he began meeting with lawyers for Madoff customers seeking a different formula. They wanted to let longer-term investors keep more money than those who had money with Mr. Madoff for shorter periods. Mr. Becker apparently dismissed arguments that investors were entitled to the amounts Mr. Madoff had listed on their final statements.

In the summer of 2009, Mr. Becker did reverse the commission’s earlier decision, however. His legal staff came up with a new proposal to reflect the length of time the money was invested, and the commissioners approved it at the end of the year. Some at the agency who worked with SIPC expressed dissent about the change, according to the people briefed on the deliberations.

Stephen P. Harbeck, the chief executive of SIPC, confirmed that his investor protection unit and the S.E.C. had initially agreed that victims should be able to keep only the money they had originally put into the Madoff firm. “Then they refined their opinion,” he said on Monday, referring to the S.E.C. He said that he did not know who had pushed for the change.

The S.E.C.’s definition, Mr. Harbeck said, would benefit anyone who withdrew more money from their Madoff accounts than they had put in. Mr. Becker’s family would be among them.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , | 5 Comments »

Accounting for Damages: Madoff Ruling May Affect Homeowner Claims

Posted on March 4, 2010 by Neil Garfield
Editor’s Note: Looking further down the road, when the Ponzi aspect of the Mortgage Meltdown is fully revealed, it will become obvious that both yield spread premiums and the proceeds of credit default swaps, insurance and federal bailout are subject to claims by homeowners. The Trustee’s conclusion as affirmed by the Judge’s ruling in the Madoff case will undoubtedly come up as a resource or support for persuasive argument about how those proceeds should be allocated.
The Judge’s conclusion was obvious even if it was controversial. The Trustee appointed to do the accounting decided that the Madoff assets should be apportioned on the basis of the actual dollar loss instead of what was shown on the Madoff statements to investors. Since the entire scheme was fraudulent, the statements sent out to investors were a lie and it would be inappropriate to allow any distribution to any investor for more than what they had invested.
Similarly, the proceeds from payments on credit default swaps, yield spread premiums (both at the borrower and investor levels), insurance and bailout money will need to be allocated to each individual loan to credit the homeowner debtor against the original obligation as evidenced by the note.
This allocation will not be as simple as the Madoff case for several reasons. But the Madoff allocation underscores that you can’t get a court to award you “damages” if you suffered no actual monetary damage.It is the same thing as the standing argument. Virtually all foreclosures for the past several years have been brought by non-creditors who produced either fabricated or irrelevant paperwork.
So the parties who purchased credit default swaps using money (profit) obtained from the yield spread premium gained from lying to the investor and the homeowner about the true intrinsic yield value of the transaction should not be allowed any allocation unless the money for the CDS came from a source other than these Ponzi transactions.
Additional factors in the allocation might include subjective issues if a court determines that risk of loss should be apportioned amongst all participants instead of just between the investors and the participants in the securitization chain. And there is that nagging problem of two Federal claims, one from TILA and the other from the SEC regulations, which appear to create a claim on the same pool of  proceeds by both the homeowner debtor and investor creditor.
March 2, 2010

Madoff Judge Endorses Trustee’s Rule on Losses

A federal bankruptcy judge in Manhattan has approved the fiercely disputed method used by the court-appointed trustee to calculate victim losses in Bernard L. Madoff’s enormous Ponzi scheme.

In a decision filed on Monday, Federal Bankruptcy Judge Burton R. Lifland ruled that losses should be defined as the difference between the cash paid into a Madoff account and the amount withdrawn before the fraud collapsed in mid-December 2008.

Judge Lifland rejected emotional arguments by hundreds of defrauded investors seeking to have their claims based on the balances shown on their final account statements, sent out just weeks before Mr. Madoff was arrested. He pleaded guilty last March and is serving a 150-year prison term.

The ruling is a setback for investors like Adele Fox of Tamarac, Fla., an 87-year-old retired school secretary who was widowed in 1986. Mrs. Fox withdrew more than her original capital for living expenses, but still had nearly $3 million on her account statement when the fraud was discovered.

Under Judge Lifland’s ruling, she is not eligible for cash from the Securities Investors Protection Corporation, the industry-financed organization that provides limited protection for customers of failed Wall Street firms.

“My health has been a mess,” Mrs. Fox said on Monday. “I can manage, more or less, but if I have to go into a facility, what would I do? All my life savings, it all went into Madoff and it is all gone.”

She added, “I don’t want to seem like a pig — I just want this insurance that I think I’m entitled to.”

If losses were based on the final account statements, Mrs. Fox and almost every Madoff investor would be eligible for up to $500,000 from SIPC — not as insurance, Judge Lifland noted, but as a cash advance against their fair share of any recovered assets.

The total of those account balances — the wealth investors believed they had saved — was nearly $65 billion, by far the largest financial fraud loss in history.

But those statements “were bogus and reflected Madoff’s fantasy world of trading activity,” Judge Lifland wrote in his opinion.

As such, they cannot reflect legitimate “securities positions” on which claims can be based, he said.

Instead, Judge Lifland endorsed the approach of the Madoff trustee, Irving H. Picard. The differences between how much investors put into their accounts and the amount they took out are “the only verifiable amounts” reflected in the Madoff firm’s records, Judge Lifland said of that method.

That ruling gives hope to investors like Simon P. Jacobs, a businessman in New York who wrote the judge to support Mr. Picard’s approach. Mr. Jacobs said that he “would be thrilled to get 25 percent of my cash back — while these opponents have gotten 100 percent back, at least.”

Those who withdrew all their initial investment before the collapse “still feel they have lost money,” he said. “But in truth, they did not lose any money. When the dust settled, they had gotten all their money back” while investors like him did not, he said.

He added: “Critics say that Mr. Picard is not representing them — well, he’s representing me to the hilt.”

Mr. Picard has said that the out-of-pocket cash losses for people like Mr. Jacobs total slightly more than $20 billion — still a record amount, but a bit closer to the multibillion-dollar amount Mr. Picard hopes to collect in the Madoff liquidation process.

Investors who did not retrieve all or, in many cases, any of their initial capital from Mr. Madoff, argue that they should have first claim on whatever assets Mr. Picard collects — since it was their money that Mr. Madoff used to cover the withdrawals and fictional profits he paid to others.

And Judge Lifland agreed.

While many Ponzi schemes have been resolved in the courts through the “cash in, cash out” method, it is rare for a Ponzi scheme to occur inside a SIPC-protected brokerage firm. Judge Lifland acknowledged that “the complex and unique facts of Madoff’s massive Ponzi scheme” defied any simple analysis.

Indeed, he added, “the parties have advanced compelling arguments in support of both positions,” sometimes using the same court cases and statutory language to support their opposing claims.

But after “a thorough and comprehensive analysis of the plain meaning and legislative history of the statute, controlling Second Circuit precedent, and considerations of equity and practicality,” he endorsed the trustee’s approach.

“It would be simply absurd to credit the fraud and legitimize the phantom world created by Madoff” when determining victim losses, he said.

The ruling was promptly criticized by Helen Davis Chaitman, a lawyer for several hundred Madoff victims and a victim herself.

“Unless and until this decision is reversed, no American who invests in the stock market with the hope of retiring on his savings, has any protection against a dishonest broker,” Ms. Chaitman said in a statement released by a coalition of Madoff victims.

She added: “If we learned anything in the last two years, it was that Wall Street will manipulate the law to enrich itself at the expense of every honest, hard-working American taxpayer. Now we know that no American can rely on SIPC insurance.”

But Stephen P. Harbeck, the president of SIPC, said the court recognized that Mr. Picard’s approach “does the greatest good for the greatest number of people, consistent with the law.”

David J. Sheehan, a lawyer for Mr. Picard, said he and the trustee expected an appeal and “hope it will be dealt with in an expedited way.”

Its normal path would be through the United States District Court to the Second Circuit Court of Appeals, both in Manhattan. But if the appeal is allowed to bypass the district court, it could speed up the resolution of the dispute.

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , | 6 Comments »

%d bloggers like this: