Madoff, The SEC, Tax "Compromise", And Predator Drones

Quick highlights to wrap up the day:

Jeffry Picower's estate has agreed to settle civil suits to the tune of $7.2 billion. What? He's not a household name? He was an investor in Bernie Madoff's trust fund, and he died back in October of 2009. The $7.2 billion represents the profits of his investment in the Madoff Ponzi Fund.

The SEC has issued subpoenas to a number of banks[1]. Why? It's the next step into their ongoing investigation of how they packaged mortgages for sale to investors. They're looking into the role of the "master servicers", which are the firms that select and maintain the pool of home loans that go into mortgage-backed securities. They also want to know how the performance of the underlying loans were monitored and whether or not the loans were properly transferred to the trusts. At least, that's what the anonymous source says, because it's not public. Why? Beats me[2].

President Obama signed the tax cut "compromise" bill into law today. Christmas is saved.

And we have apparently sent armed drones into Pakistan, where over 50 people have been killed. There's no word on whether or not we asked permission before violating Pakistani air space yet again[3], but we are being assured that only militants have been killed.

[1] Including Bank of America, JPMorgan Chase & Co, Goldman Sachs and Wells Fargo.

[2] It wouldn't be the first time the SEC hasn't bothered to really take action on information, though. I'm not saying that they're going to cover this up. Just that it wouldn't be the first time.

[3] Apparently we launch attack drones into Pakistan on a several times weekly basis.

News Flash: FBI Finally Notices Fraud, Launches PR Blitz

"Operation Broken Trust". It sounds like the sort of thing that we would have come up with as the name of a major offensive in the Indian Wars of the 19th Century, but it's the name of a series of "...criminal and civil enforcement actions that occurred from August 16 through December 1, 2010". The purpose?

To root out and expose massive investment fraud scams across the nation; and
To alert the public about many phony investment scams.

And why did they do it? Well, because

The FBI has observed a steady increase in investment frauds, in particular Ponzi and market manipulation schemes. Since January 2009, we’ve opened more than 200 Ponzi cases, many with $20 million-plus losses. Based on our current caseload, the top five Ponzi scheme hot spots in the country are Los Angeles, New York, Dallas, Salt Lake City, and San Francisco, but keep in mind that these scams can and do happen anywhere.

While I don't really need the FBI on my case, what with Homeland Security already watching my blog, let's be honest here. There was a whistleblower trying to deliver Bernie Madoff to the SEC back in 2000. The Inspector General of the SEC has repeatedly hammered the SEC for its failure to actually act on findings of Ponzi schemes and other frauds, even when its own investigators are the ones who brought the information to light.

So sure, the FBI now has 231 cases involving 120,000 victims and $8 billion in losses. Good for them. I'm sure that the SEC and our other regulatory agencies are really appreciating the FBI for providing the government with the appearance of giving a damn.

Maybe "Operation Broken Trust Two" will go after the SEC regulators, and the attorney generals, and everyone else that knew this was going on and stood back and willfully allowed it to happen.

But I'm not holding my breath for that.

UBS Accused of Aiding in Madoff's Fraud

UBS Accused of Aiding in Madoff's Fraud

Article published on November 29, 2010

UBS is facing a $2 billion lawsuit from the trustee charged with recouping money for Bernard Madoff’s victims, who claims the firm “lent an aura of legitimacy” to Madoff’s Ponzi scheme. So reports the Wall Street Journal.

Irving Picard filed 23 counts of financial fraud and misconduct against UBS and related entities in a New York bankruptcy court on Wednesday, claiming UBS actively participated in the scam. The firm denies any wrongdoing.

The suit was filed in redacted form because UBS has designated as “confidential” information related to its dealings with Madoff. Picard has accused UBS of “trying to shield this information from the public.”

Picard issued a statement saying he intends to file a court application to have the confidential designation removed “and the complaint made public as soon as possible,” Bloomberg reports.

Picard says the bank’s involvement gave legitimacy to several global feeder funds by acting as their sponsor, custodian and administrator. He says UBS sidestepped legal responsibility for the actions of those funds by employing undisclosed indemnity agreements.

Picard claims UBS had inklings that fraud was taking place but still installed Madoff as the sub-custodian of the feeder funds, giving him the power to value the funds, the Journal reports.

David Sheehan, Picard’s counsel, says Madoff's scheme would not have been as successful if UBS had not “agreed not only to look the other way, but also to pretend that they were truly ensuring the existence of assets and trades when in fact they were not and never did.”

UBS on Wednesday called the allegations "completely unfounded and without merit,"

Picard is looking to recover redemptions and fees, as well as damages and disgorgement from UBS, according to Bloomberg.

The lawsuit also names the bank’s UBS (Luxembourg) SA unit and feeder funds including LuxAlpha Sicav and Groupement Financier. LuxAlpha lost 95% of its approximately $1.4 billion in assets and was dissolved four months after Madoff’s arrest in December 2008. LuxAlpha liquidators are also suing UBS and Ernst & Young, the fund’s auditor, for the return of lost assets, Bloomberg reports.

Picard alleges Luxalpha, Groupement Financier and other European feeder funds withdrew more than $1.1 billion from the Madoff funds in the six years before Madoff’s arrest; $796 million was withdrawn in the final 90 days, the New York Times reports.

Meanwhile, bail was set last week at $5 million for Madoff’s former secretary, Annette Bongiorno, who is accused of helping conceal the fraud, the Associated Press reports.

Bongiorno was arrested in Florida earlier this month and is charged with conspiracy and securities fraud. She was released under house arrest after friends and relatives posted her bail, the New York Daily News reports.

Prosecutors claim Bongiorno helped Madoff defraud his wealthy clients for decades. It is also alleged she withdrew more than $14 million for herself.

Bongiorno denies any wrongdoing, the AP reports.

By Kathleen Laverty

To read the New York Times article cited in this story, click here.

To read the Associated Press article cited in this story, click here.

To read the Wall Street Journal article cited in this story, click here if you have a paid subscription.

To read the Bloomberg article cited in this story, click here.

To read the New York Daily News article cited in this story, click here.

(News summaries based on original reports in other publications are prepared by the FundFire staff and are not created, sponsored, approved or endorsed by the publications to which the original reports are attributed.)