His own lawyer calls him a “deeply flawed individual” and I nominate that for the understatement of the recession.

Madoff’s fraud is an almost unbelievable scam, spanning a reported $170 billion dollars through his company, decades of time, abuse of untold friendships, and destruction of tens, hundreds, maybe thousands of peoples’ lives.  This is not a scam limited to the primary vicitims, no, this scam has destroyed many families for generations to come because soo many invested everything they had.

But Madoff says he’s “sorry.”  Due to the type of damages these cases do to families, retirees, and anyone touched by the scam, I am not sure “sorry” does it.  I think spending the rest of his life confined in a spartan cell with plenty of time to think about all the horror he inflicted and to feel all the anguish and loss of his victims, but maybe that gives him too much credit because I don’t think he has any ability to respond as a human.  How coudl he?  He launched this scam decades ago and instead of unwinding it if not giving himself up, he only pushed harder to scam greater and greater amounts of money from more and more people.

Did he have no thoughts for what he was doing and no understanding that it would all wind up a massive train wreck?

Did he even try to invest the money?  It sounds like the answer to that is “no.”  Instead used the loot, because that’s what it was, to benefit himself and his family.  He didn’t even try to invest the money – everything was a scam from his published returns (shame on the SEC, too)  to his monthly account statements where he did not even take the time to make sure that his statements were even remotely accurate.

Madoff is less than human most would agree.  But is it only that he is perfectly human?

Can a human be soo epically flawed and still function in society as he did for decades?  I suppose so.

Maybe money is the root of all evil after all.

R. Allen Stanford was taken into custody on his Ponzi scheme allegations related to his international banking empire.  Because the judge agreed that Stanford poses a flight risk the judge ordered him to remain in custody.

The government’s indictment charged Stanford and other executives at his firm with scamming 30,000 investors invested $1.2 billion in assets and in about 7 years grew it to about $8.5 billion.

Investigators say that even as Stanford claimed healthy returns for those investors, he was secretly diverting more than $1.6 billion in personal loans to himself.

Many of Madoff’s victims sent impassioned letters asking the judge to give Madoff as much time in prison as possible.  Some of them have even asked for a chance to speak at the June 29 sentencing hearing.

The letters are wrenching because many of Madoff’s victims are elderly and retired who have lost everything to Madoff’s greed.

For more, including a link to these moving letters, click here.

Earlier this week,  Wells Fargo (along with the Bank of America, regarding Auction Rate Securities) reached agreements to settle securities fraud charges with state and federal regulators. Wells Fargo’s settlement involves its Boston-based mutual fund Evergreen Investment Management.  Wells Fargo will pay $40 million dollars in the agreement with the Securities and Exchange Commission and the Massachusetts Securities Division.  According to the regulators, Evergreen lied to investors about the value of securities it sold and disclosed this information to a select group of people.  Although the behavior occurred while Evergreen was owned by the Wachovia Group, Wells Fargo has to bear the cost.

The value of the Evergreen Ultra Short Opportunities Fund, a group of mortgage-related securities that Evergreen controlled, was inflated 17% between February 2007 and June 2008, the SEC reports.  The SEC states that its valuation committee learned of this when portfolio managers knew about problems regarding mortgage-backed securities but knowingly failed to disclose the mortgage-backed issues.  Mutual funds must treat its clients equally, and hence, when Evergreen repriced the holdings in the fund, they informed only a few investors who were able to significantly reduced their losses.

This is a classic example of preferential treatment that is ever present in our market today.  As the financial crisis looms, it is hard to see when such offenses will become less frequent, to say the least.

For more information, click here.

Now more ‘feeder fund’ investors are suing Madoff along with others.  These two feeder funds are looking to recoup approximately $3.5 billion in alleged losses.  Kingate Global Fund Ltd. and Kingate Euro Fund Ltd. filed their lawsuit in US District Court in Manhattan this week.

The lawsuit alleges that “[r]eportedly, over $3 billion was invested in Kingate Global and Kingate Euro, and virtually all of those moneys were funneled to Madoff.”  A few months ago these two Kingate funds were sued by the trustee of Madoff’s investment company.  The trusteee, Irving Picard sued to recover $255 million withdrawn from Madoff’s firm between October and November 2008.  Picard’s lawsuit named fund manager Kingate Management Ltd.; Grosso’s FIM Advisers LLP, which acted as a consultant to the funds; and others as defendants.

The feeder fund lawsuit is an attempt to deflect the allegations made by the Madoff investment firm trustee Irving Picard that these two funds illegally profited from their association with Madoff.

The feeder funds will try to defend by saying they were victims too.

Time will tell, but if these money managers are half as astute as they (used to) like the public to believe I am not sure they will make a strong case.

The Securities and Exchange Commission charged an investment adviser in Armonk, N.Y  for stealing more than $6 million in investor funds for himself.  He exploited clients that were mentally ill and handicapped, the SEC reports.

Matthew D. Weitzman used clients money for his own personal use by selling securities through clients’ accounts and transferring their money to a personal bank account.  Clients received false account statements, often showing false account balances and inflated securities.  Weitzman also engaged in broker-dealer foul play as letters would be fabricated by Weitzman on behalf of his clients to complete money transfers.

Weitzman also took money from his clients’ Individual Retirement Accounts (IRAs) in order to maintain a minimum amount of cash to engage in the unauthorized transfers.  Weitzman chose clients from AFW Asset Management, the company that he co-founded based in Purchase, N.Y, to exploit.  He targeted clients that were less likely to check their account statements, like $430,000 total transfers from a client that was terminally ill.  He took $85,000 from said client in two unauthorized transfers from the widow of the client.

Weitzman has been accused violating many industry rules click for more detail here.

Today, the SEC charged Peter C. Son and Jin K. Chung guilty of conducting an 80 million dollar Ponzi Scheme that involved nearly 500 investors.  The scheme targeted Korean-American investors with the false promises of giant returns from forex (foreign currency) trading.

The investment scheme was a classic example of the Ponzi scheme. The funds that were supposed to be invested in foreign currency exchange were used to pay “returns” to select investors. Investor money was also used for the Son’s personal expenditures, including mortgage payments on a multi-million dollar house. The money also provided Son’s wife a salary she did not work for.

SNC Asset Management, Inc. (SNCA) and SNC Investments, Inc. (SNCI), were the two companies that Son and Chung coordinated to get the attention of investors. Manipulated profits and fabricated annual returns attracted many investors. The forex trading profits were fabricated and investors had monthly account statements with fake returns.

As the Ponzi scheme collapsed, Son and Chung drained the money out of these two companies and transfered investor funds into accounts overseas. The SEC is taking court orders to prevent these men and their companies from violating laws in the future and is also taking steps to provide emergency relief for investors. The Commodity Futures Trading Commission has announced civil fraud charges against Son, Chung, SNCA, and SNCI.

For more on the story, click here.

Following Merrill Lynch, Citigroup,  UBS, and Wachovia it is now BofA, Deutsche Bank and RBC’s turn to settle their potentially huge Auction Rate Securities settlements with the SEC as they did on June 3rd.  The SEC claims that more than $50 billion in liquidity are being made available to customers of those organizations who have invested in auction rate securities.  The SEC is taking action due to the false promises made by these three financial groups regarding the viability of Auction Rate Securities as a form of investment.  These groups quickly stopped supporting the market in early 2008, which left these securities completely illiquid.  These settlements, supposedly made in the interest of wronged investors, “will restore approximately $4.5 billion in liquidity to Bank of America customers, $800 million in liquidity to RBC customers, and $1.3 billion in liquidity to Deutsche Bank customers.” In order to avoid getting caught up in significant broker-dealer fraud problems with the SEC, these entities have agreed to:

• Each firm will offer to purchase ARS at par from individuals, charities, and small or medium businesses that purchased those ARS from the firm, even if those customers moved their accounts.
• Each firm will use its best efforts to provide liquidity solutions for institutional and other customers and will not take advantage of liquidity solutions for its own inventory before making those solutions available to these customers.
• Each firm will pay eligible customers who sold their ARS below par the difference between par and the sale price of the ARS.

The SEC is clearly trying to do its job by increasing accountability especially in these difficult financial times.  But as the economic outlook looks brighter for the coming years, the propensity of fraud is only going to increase.

It is an unfortunate set of circumstances that permitted these ARS ‘markets’ to exist for such a long time when at any point the broker/dealers that sustained the markets could back away causing exactly what happened.  If perhaps the SEC had had the true authority and legislative/executive mandate in years past they could have intervened to create a more ordered dismantling of the

Quotations/information on this event was obtained from the SEC’s website, linked here.

Well said by the SEC’s enforcement director when he said it was a ‘tale of two companies.’ Apparently Angelo Mozilo was sending e-mail messages describing Countrywide loan products as “toxic” and “poison” at the same time as he was, guess what? Wait for it. Right, he was telling the public that Countrywide was underwriting mainly prime-quality mortgage and using strong underwriting protocols.

Countrywide did not reveal to shareholders that in fact it was, according to the SEC, “an increasingly reckless lender assuming greater and greater risk.”

But at least Mozilo did not make too much profit. Oh, wait, yes he did! He made a nice tidy little sum of $140 million in profits by selling stock in the company. At least that’s what the S.E.C. says, but what do they know?  And other top Countrywide execs involved in the company at the relevant time are named in the allegations too.

I again ask the question – did any of these very well compensated executives do any of it legitimately? More evidence here that the answer is, emphatically, no.

Tim Geithner, America’s treasury secretary, promises a complex regulatory overhaul by mid-June and Europe is not wasting any time either.

The European Commission announced the formation of two institutions, the European Systemic Risk Council (ESRC) and the European System of Financial Supervisors (ESFS).  These organizations, it is hoped, will rectify the trans-national banking problem that occurs only in Europe.  The problem is that European banks are allowed to operate across any border, but the home country is saddled with the responsibility of supervising the banks in whatever country the bank operates.  Thus, it takes only one country to disrupt the economic equilibrium in the European Union, as this financial crisis has revealed.

Some think that the ESRC and ESFS may not be as effective as hoped.  There are those who argue that fundamental issues such as funding and governance was not adequately addressed in the establishment of these organizations.  The argument goes further to hold that the European Commission is being too hasty in the formation of these noble organizations.  They may be correct because it is hard for any organization to make much of a contribution if it is not funded and/or goverened.  And funding and governance are always areas ripe for debilitating debates and arguments among the countries comprising the EU.

In America, the big banks will grudgingly accept further regulation if greater stability is provided.  However, in the nation’s capital, regulators and Congress leaders squabble over ideology.  Sheila Bair of the FDIC and John Dugan of the Comptroller of Currency are at odds at what the FDIC should be allowed to do.  Bair favors the FDIC’s role as a liquidator of non-banks as well as banks, an idea which Dugan strongly opposes.  There is no clear plan for what would be a systemic regulator in the U.S economy either.  The existing regulators, involved with government agencies in desperate need of modernization, are understandably very concerned and very vigilante about any immediate changes to their status quo.  In short, the perfect storm of partisan politics and the lobbyists of the existing regulators, will most likely make 2009 a year that sees fewer regulatory changes.

So, while there seems to be a demand for regulation on a grander scale for the banks/financial companies the regulators are already tearing apart that idea.  I think that some form of consolidated regulation on a (hopefully) temporary basis could be just what the world needs.  Whether the world gets it is another question altogether.

To view more info/ipinion on this issue, click here.