Toomre Capital Markets LLC

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Lars Toomre's blog

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Toomre Capital Markets LLC Quoted in NYT Article on Madoff and His Accountants

Bernie Madoff Enter Federal Court Building on March 12, 2009On Thursday March 12th 2009, Bernie Madoff pled guilty to all eleven counts associated with his vast and long-running Ponzi scheme. He did so without a plea agreement and hence did not disclose any information about who else might have been involved in the scheme. Hence, many questions remain about the small group of accounting firms that were connected with Bernie Madoff's activities in one form or another.

Ahead of the plea hearing, The New York Times published an article written by Leslie Wayne and William K. Rashbaum entitled Investigation Into Madoff Fraud Turns to a Small Circle of Accountants. This article discloses that a number of investigative agencies are making inquiries into Friehling & Horowitz, Sosnick Bell, Konigsberg Wolf & Company and Avellion & Bienes. Apparently Paul Konigsberg and Steven Mendelow, both affiliated with Konigsberg Wolf, have been subpoenaed for more information about their relationships and involvement with Bernie Madoff's fraud scheme.

In this article, Lars Toomre and Toomre Capital Markets LLC ("TCM") were quoted. The specific quote was: “Who takes their accountant on a ski trip?” said Lars Toomre, head of Toomre Capital Markets, a Greenwich, Conn., financial risk analysis firm that maintains a Web site on the Madoff scandal. “Konigsberg is always around Madoff.” (For those visitors to this website looking for more information, feel free to click one of the many links that will take you to further information.)

As TCM has written previously on this website, it is extremely unlikely that Bernie Madoff committed this massive fraud over more than twenty years without the help of others. We are likely to read in the coming weeks and months that Madoff's accountants either willingly assisted Madoff or turned a blind eye to his supposedly amazingly consistent returns. What is really amazing is that all of the accountants associated with Madoff have claimed through their lawyers that they lost "millions" in the Madoff fraud.

Has anyone paused to ask how modest accountants of rather middle-class means somehow accumulated millions of dollars through their professional services work? Toomre Capital Markets LLC is not familiar with many accountants or CPAs who became multi-millionaires through their professional work. Are you? What were the sources of the "millions" of dollars that they supposedly subsequently lost in the Madoff investment pool?

Madoff Aide Allegedly Orders Creation of Fake Trading Tickets

About three weeks ago, Toomre Capital Markets LLC ("TCM") wrote about Annette Bongiorno, Bernie Madoff's former long-time secretary, in the post Annette Bongiorno, Madoff Aide Falls Under Suspicion. On Monday March 9th 2009, Ms. Bongiorno is back in the news on the front page of the Markets section of The Wall Street Journal.

In the article entitled Madoff Aide Allegedly Got Fake 'Tickets' of Trading, WSJ reporter Amil Efrati reveals that Ms. Bongiorno allegedly directed two assistants to create the bogus trading "tickets." These tickets documented the purported trades, which in turn resulted in gains that were in line with Mr. Madoff's steady annual returns.

"The two assistants to Ms. Bongiorno, Semone Anderson and Winnie Jackson, did clerical work and helped generate stock-trade confirmations for client accounts, which purported to show gains that were later applied to client accounts. The confirmations are now believed to have been fictitious, according to a court-appointed trustee who is liquidating the Madoff firm. Ms. Bongiorno, 60 years old, was once Mr. Madoff's personal secretary and later oversaw some of the firm's oldest accounts. The two assistants were interviewed by the U.S. attorney's office for the Southern District of New York through what are called proffer agreements, in which prosecutors agree not to use their statements against them as long as they tell the truth, according to people familiar with the matter."

Given that Ms. Bongiorno apparently also actively raised funds for the Madoff fraud from her neighbors in Queens New York, this new information highly suggests to Toomre Capital Markets LLC that Ms. Bongiorno will likely be facing some criminal penalties of her own. Surely, if she was ordering the creation of bogus trade tickets, she must have known for some period that Bernie Madoff's investment operation was a scam. If she further profited from fees received from managing so-called "RuAnn" feeder accounts for friends from her old neighborhood, federal prosecutors are likely to come down on her hard. Of course, though, she might have some juicy information about the possible participation of say Ruth Madoff, Peter Madoff and/or either of the sons, Andy or Mark Madoff that just might mitigate her criminal penalties.

This WSJ article also reveals that Federal prosecutors have recently turned their attention to a separate group that handled many of the institutional investment accounts mired in the Madoff fraud. "That group was headed by Frank DiPascali Jr., 52, who hasn't yet been asked to speak with prosecutors, according to a person familiar with the matter. Mr. DiPascali's lawyer declined to comment on his client's behalf. Mr. DiPascali referred to himself as the "director of options trading" at the firm and Mr. Madoff told investors he executed trades, despite the fact that a court-appointed trustee found that no trading occurred for at least the past 13 years. Prosecutors have asked at least three employees who worked under Mr. DiPascali about his role in the firm, according to a person familiar with the matter. The employees, Eric Lipkin, JoAnn Crupi and Robert Cardile, who is Mr. DiPascali's brother-in-law, also had proffer agreements with prosecutors."

Bernie Madoff Made No Trades For At Least A Dozen Years

On Friday February 21st 2009, Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC on behalf of Securities Investor Protection Corp. ("SIPC"), held his first meeting with investors who were defrauded by Bernie Madoff. At that meeting, Mr. Picard said "We have found no evidence to indicate that securities were purchased for customers' accounts'' for "perhaps as much as 13 years.'' It was "cash in and cash out,'' he said. In short, the detailed monthly statements sent to investors were pure fiction.

This disclosure is important to the defrauded investors since it makes it more likely that each investor will be able to recover up to $500,000 from SIPC rather than $100,000 that would be available if there were actual securities held in the Madoff accounts. "We are operating out of a crime scene,'' Picard said at the meeting. He added that his office has received 2,350 customer claims as of noon yesterday. Those claims exceeded about $US1 billion, Picard told reporters after the meeting. "That's my recollection, plus or minus,'' Picard said, adding, "I can't tell you today how many of the 2,400 claims will be allowed.''

Mr. Picard told the assembled investors that his office has located Madoff firm books and records at its Manhattan offices, the basement of its Third Avenue building, at a warehouse and at a "backup site.'' "At the warehouse, we recently inventoried approximately 7,000 boxes and that's in addition to the file cabinets worth of materials we found at the premises and that we've been able to review under the watchful eye of the FBI,'' Picard said. "We're getting a feel for how this operation worked.''

Mr. Picard also reported that he found no separation between the company's broker-dealer division and its investment advisory unit. "We have found nothing to suggest there was any difference, any separateness,'' Picard said at a meeting today with Madoff clients in US Bankruptcy Court in Manhattan. "It was all one.'' Picard said he reduced overhead for the Madoff firm by about $300,000 a week. When he came in, it had about 175 or 180 employees, he told the clients. Now he has only 60, including 45 at the market-making operation, which he said are necessary. The trustee told the investors that he wants to sell the firm's market-making unit in "a matter of weeks.'' "That appears to have some value,'' he said. "We're in the process of getting some bids.''

What Has Happened to Michael Bienes?

Frank Avellino and Michael Bienes nearly fifty years ago started working at the accounting firm run by Ruth Madoff's father, Saul Alpern. Sometime around that time, they and Saul Alpern began referring clients, friends and associates to Bernie Madoff's fledging securities firm. Along the way, they formed a successor firm to the Alpern firm and then began to primarily focus on fund raising in their guaranteed notes that were in turn invested with Bernie Madoff through their firm Avellino & Bienes.

In late 1992, the Securities and Exchange Commission sued these two accountants and two others, Steven Mendelow and Edward Glantz (and his son Richard), together with their respective firms for selling unregistered notes. As a result, they disbanded their investment vehicles and supposedly returned all funds to their investors. Apparently, though, a significant number of investors then turned over their returned assets directly to Bernie Madoff where accounts at Bernard Madoff Investment Securities were opened in their names.

According to investors who have come forward after the Madoff scheme was exposed, Frank Avellino, Michael Bienes, Steven Mendelow and Richard Glantz never completely ceased raising additional funds for Bernie Madoff. While the vehicles and mechanisms they used subsequent to the SEC lawsuits are less well documented, each apparently continued to direct investors to Madoff.

Shortly after the Madoff arrest was disclosed, Michael Bienes suddenly resigned from the Board of Directors of the prestigious Broward Center for the Performing Arts in a short one sentence letter. As Bob Norman of the Broward-Palm Beach New Times writes, "Since the scheme collapsed, he and wife Dianne have dropped out of Fort Lauderdale life and, sources say, emptied their Bay Colony estate of their possessions."

Annette Bongiorno, Madoff Aide Falls Under Suspicion

The Tuesday February 27th 2009 edition of The Telegraph (London) contains an article entitled Madoff Aide Falls Under Suspicion written by James Quinn. This article concerns one Annette Bongiorno, who served as a long-time employee to Bernie Madoff and who apparently was active in recruiting friends and associates from her former Howard Beach neighborhood in the borough Queens as investors in the Madoff investment scheme.

Apparently Annette (Argese) Bongiorno lived next door to Frank DiPascali, Bernie's chief assistant and self-proclaimed chief financial officer of Madoff's investment operation. She started working for Bernard Madoff Investment Securities sometime during the 1980s when there were no more than three dozen employees and the firm was located downtown near Wall Street. During those early years, Mrs. Bongiorno was Bernie Madoff's personal secretary as well as performing various clerical duties, particularly for long-time investors with Bernie.

In more recent years, Mrs. Bongiorno apparently moved to a house worth $2.6m in Manhasset, Long Island. Her husband Rudy is a retired electrician. One might reasonably wonder how a former secretary and city electrician might be able to afford such a relatively expensive property. Perhaps it was due to the compensation from running what were known as "RuAnn" accounts? What management fees and/or commissions were paid to this couple for the funds that their friends and associates invested with Madoff? Were those fees ever disclosed to anyone?

Toomre Capital Markets February 2009 Update

Particularly in recent weeks, Toomre Capital Markets LLC ("TCM") has been extremely busy helping a client implement a custom financial application that is quite complex and truly a modern distributed system. The data, tools, work rules and analytics embedded within this new application are certainly cutting-edge and should help this client further extend their leadership in their particular sector of the financial markets. What is more, this new system should allow this client to truly take their business to the next level on a real-time basis with true Enterprise Risk Management.

TCM primarily assisted this client with some custom analytic code written in the MATLAB technical programming language that takes advantage of that specialized language's strengths with arrays and mathematical calculations as well as a quite powerful set of graphical user interface ("GUI") tools. Like the original Collateralized Mortgage Obligation ("CMO") code that Lars and Aldon wrote at Lehman Brothers more than twenty years ago, this new analytic code allows for the real-time pricing and sensitivity analysis of a relatively new type of cash flow that ultimately will be securitized should the securitization markets revive. The input variations to the analytic model are almost infinite and allow for the effective pricing of many variations of life insurance policies.

One of the noted strengths of the Toomre Capital Markets LLC team is helping our clients connect the hidden dots of financial information, risk management and structured finance modeling. We are especially good at uncovering and honing in on that crucial information or aspect of a financial model that is a key to value / risk determination. If the reader's organization needs some assistance in this area, with their financial models or specifically with detailed MATLAB financial modeling, please feel to contact us so that we might discuss your issues further. As the above client notes, TCM is particularly adept of dealing with those complex financial problems with lots of "hair balls."

Markopolos Testimony And Bernie Madoff Customer List

Toomre Capital Markets LLC ("TCM") has been consumed during the few weeks doing the "real" work of our consulting company — that is serving the needs of our paying clients. As a result, with client projects occupying so much of our working day, we have had little spare time to focus further on the Bernie Madoff fraud scandal. Hence, TCM's postings on this subject have been lighter than usual and the moderated comments have not been addressed as quickly as usual.

Please bear with us as the work crunch continues a bit longer. However, even at this early hour of the morning of Thursday February 5th 2009, TCM would like to highlight two pretty remarkable events that have occurred in the past day with regard to the Bernie Madoff affair. The first concerns the quite amazing and frank testimony of Harry Markopolos in both his written testimony and his oral remarks and answers. How could anyone not admire a man long on the tail of the Bernie Madoff? And how could one not come away with a heady admiration of the way that he thoroughly dissected the regulatory failures that allowed the Madoff affair to thrive for so long?

Mr. Markopolos' written testimony is a must read!!! And in his oral testimony, he stated that there are maybe another dozen Madoff "feeder funds" lying in the weeds not yet willing to disclose their near complete losses? Who might those European funds might be? Toomre Capital Markets LLC intends to return to Mr. Markopolos' testimony in the next few days when there is a bit more free time. In the meantime, definitely read what the mainstream media has to say about the unheard Madoff whistle-blower and his Congressional testimony.

The second item that TCM would like to briefly highlight is the document that AlixPartners LLP, a Dallas company hired as the claims agent by the trustee overseeing the liquidation of Bernard L. Madoff Investment Securities. That document was filed in New York federal court on February 4th and contains approximately 13,000 people and/or entities that have thus far been identified as either having had an active account with Bernie Madoff at the time of his arrest or had previously done so. This list of information is truly fascinating!!!

Supposedly Three Million Bernie Madoff Victims

Toomre Capital Markets LLC ("TCM") was very surprised to read the February 3rd 2009 headline on the TimesOnline website entitled Madoff Victims Could Reach 3m, Say Lawyers. Acccording to the article,

Javier Cremades, president of Cremades Calvo-Sotelo, the Spanish law firm, said: “Our calculations are that at least three million people were affected by the Madoff affair, three million people who could be directly or indirectly affected by the case.

The estimate is based on information collected from over 30 firms around the world who are representing the victims of the alleged pyramid fraud conducted by Mr Madoff.

Mr. Cremades, whose firm has filed a US lawsuit in the name of 600 victims who claim they lost €120 million (£108.5 million) in total, said the overall amount involved could turn out to be higher than the $50 billion which has been estimated so far.

Call TCM skeptical of such exaggerated and sensational claims. Assuming that the total size of the Bernie Madoff Ponzi-like fraud is the $50 Billion that Madoff apparently confessed to his sons and the FBI agents on the day of his arrest, dividing three million people into $50 billion suggests that each victim lost close to $17,000.

From all press reports, Madoff and his "feeder funds" had minimum account sizes multiple times larger than this amount. For instance, in the lawsuit Mr. Cremades above is involved with, the 600 investors allegedly lost something in excess of $150 million or something like $250,000 per investor. Taking the statistics further, Mr. Cremades claims of such a large victim pool suggests just for his own clients, each has approximately 14 indirect associated victims.

TCM supposes that families in Spain could be far larger than the averages in the United States. However, it is difficult to imagine that each family accounts for more than four of those indirect "victims". Where do the additional "indirect" victims come from?

One of the largest individual investors who were defrauded by Bernie Madoff was Carl Shapiro and his wife Ruth. He was a major philanthropist who contributed to a number of charities, particularly in the Boston area. One of his beneficiaries was Brandeis University, which has seen its support from key philanthropists cut sharply and is likely facing operating shortfalls in coming years. This has resulted in the university trustees making the very difficult decision to put up a prized art collection up for sale. As a result, are Mr. Cremades and his legal associates including the approximately 5,500 students and perhaps another 5,000 faculty, administrators and staff as part of the Madoff indirect victim pool?

Taking the logic of this inclusion of indirect victims, surely one or more of the philanthropists who were scammed by Bernie Madoff contributed funds to the United Way or the American Red Cross. Why not then include the millions of Americans who will be affected because those charitable organizations have less funds to carry out their various missions? If one were to do so, newspapers could scream in their headlines that tens of millions scammed by Madoff. Of course, if they were to do so, some like TCM might question the underlying assumptions and statistics.

Maxam Capital Management Sues Auditor Over Madoff Losses

On Friday January 30th 2009, Maxam Capital Management LLC, yet another "feeder fund" to Bernie Madoff, sued its own auditors for not detecting the alleged fraud at Bernard Madoff Investment Securities. Apparently the Maxam Absolute Return Fund LP placed all of its $280 million in holdings with Madoff. That fund has now sued McGladrey & Pullen LLP and Goldstein Golub Kessler LLP for professional negligence on Jan. 30 in Connecticut state court. The case is Maxam Absolute Return Fund LP v. McGladrey & Pullen LLP, Connecticut Superior Court (Bridgeport).

According to the complaint, while the auditors issued opinions that Maxam’s financial statements conformed with general accounting principles, they “negligently relied solely on documents created by Madoff and sought no independent confirmation that trades had been executed or that assets existed.” The complaint continues “Assets were grossly overstated based on fraudulent trading tickets and fraudulent account statements provided by” Madoff.

From Bloomberg News, "Goldstein Golub, based in New York, did the Maxam fund’s 2006 audit, according to the complaint. McGladrey & Pullen, based in Bloomington, Minnesota, did its 2007 audit after Goldstein Golub partners joined that firm. McGladrey & Pullen General Counsel Richard Miller didn’t immediately return a call for comment. Two phone numbers for Goldstein Golub in New York ring through to RSM McGladrey Inc., a professional-services firm that “operates in an alternative practice structure with McGladrey & Pullen,” according to its Web site. Goldstein Golub no longer conducts audits, according to the complaint."

Darien, Connecticut-based Maxam Capital Management LLC was started in 2006 by Sandra Manzke after she left Tremont Capital which she founded in 1985. Tremont Capital suffered major losses due to the money that it had placed with Madoff. Ms. Manzke apparently started in investing almost exclusively with Madoff after she started her new firm. There are conflicting reports about how Maxam marketed itself and whether it highlighted itself as women and/or minority owned in order to attract investor funds as a start-up.

Michael D. Sullivan, Yet Another "Feeder Fund" To Bernie Madoff

Michael D. Sullivan is a local accountant in Fort Lauderdale, Florida. According to this article in the January 31st 2009 edition of The Sun Sentinel, he is the founder and managing partner of S & P Investment Group which collected "tens of millions of dollars from friends, colleagues and fellow church members and invested it with Bernie Madoff." Several of his more than 150 investors indicated that they were referred to Mr. Sullivan by local accountants Frank Avellino and Michael Bienes or met him through his and Mr. Avellino's membership at Christ Church in Fort Lauderdale.

According to this article, S & P Investment Group was formed with partner Greg Powell in 1991 and closed it down two years later. In 1992, Mr. Sullivan began to send investor funds to be managed by Madoff. Mr. Sullivan, Mr. Powel and accountant Steven F. Jacob opened SPJ Investments in 1999, contributing $100 million into the venture at start up, according to records filed with the Florida Secretary of State. There are no records on file for the entities S & P Associates, P & S Associates, or Guardian Angel Trust, all of which were apparently partnerships in which individual investor funds were bundled up and then passed onto Bernie Madoff.

Later the article suggests that many of his investors came from Avellino & Bienes ("A&B"). Apparently for six years in the 1990's, the three men and their companies occupied the same floor at 6550 Federal Highway in Fort Lauderdale. Thus, Toomre Capital Markets LLC ("TCM") suspects that Michael Sullivan and his partnerships were the vehicle that Michael Bienes in particular used to help investors who had invested in the unregistered A&B notes keep their money with Madoff after the SEC enforcement action at the end of 1992.

Bernie Madoff's 2004 Zermatt Ski Trip

Nina Mehta is a New York-based reporter who writes about trading, the markets, and market structure for her employer Traders Magazine. In her "spare" time she periodically posts to her personal blog called Mehtafiscal. On Thursday January 29th 2009 Nina wrote a long post entitled Loyalty on the Slopes: Madoff Goes Skiing in 2004. This well-written article focuses on a 2004 ski trip to Zermatt Switzerland during which Bernie Madoff (and his wife Ruth Madoff) and Peter Madoff (and his wife Marion Madoff) hosted approximately thirteen friends and/or business associates. Most of those present had ties to Bernie's fraudulent investment advisory business.

Toomre Capital Markets LLC ("TCM") encourages readers interested in the Madoff fraud scandal to read Ms. Mehta's excellent work. In that piece the reader will learn more about Maurice ("Sonny") Cohn, Paul J. Konigsberg (and his wife Judy Konigsberg), Alvin J. Delaire Jr. (and his wife Carole Delaire), Marja Engler, her son Steven Engler and his wife Laura Engler as well as Elana Flax and her husband Dr. Herschel Flax of Great Neck, New York. As Ms. Mehta points out, it is unclear whether the final couple on that trip, Jean-Pierre Michaux and Patricia Michaux, had any ties to Bernie Madoff's investment business.

Saul Alpern Was Early Feeder to Bernie Madoff

On Thursday January 29th 2009, Bloomberg News ran a story entitled Madoff’s Tactics Date to 1960s When Father-in-Law Was Recruiter. This article suggests that his father-in-law, Saul Alpern, was actively involved in steering clients, friends and their families to Bernie Madoff from the earliest days of the founding of the son-in-laws brokerage firm in 1960.

According to one Cynthia Arenson, the owner at one time of the Sunny Oaks Hotel in New York State's Catskill Mountains region, apparently promised investors double-digit returns from the earliest days. “His son-in-law just opened a firm, and he was doing very well,” said Ms. Arenson, 68, who lost at least $1.25 million with Madoff. “Wouldn’t you encourage your friends to invest with him? Sometimes they got 18 percent, sometimes they got 19 percent.”

Ms. Arenson was a classmate and childhood friend to Ruth Madoff. Like many of Ruth Madoff's friends and classmates at Far Rockaway High School, she too encouraged friends and members of her family to invest money with the Bernie Madoff "bank" or near-guaranteed money machine. The lure of returns between fifteen and twenty percent were apparently too much from getting others to invest in a "good thing".

Marisa Noel and Matthew Brown May Sell Their Manhattan Townhouse Too!!

Marisa Noel Brown and her townhouse at 12 East 78th StreetLast Sunday Toomre Capital Markets LLC ("TCM") wrote about the possible sale of Charles (or perhaps Richard) Murphy's Manhattan townhouse in the post Former Fairfield Greenwich Executive To Sell Manhattan Townhouse. On Wednesday January 28th 2009, the New York City community website Cityfile reports that another of the principals associated with The Fairfield Greenwich Group is considering selling his recently purchased Manhattan townhouse.

Matthew C. Brown is married to the youngest of the Walter Noel daughters, Marisa Noel Brown. It is not clear whether Matt Brown still remains employed by his father-in-law's firm. Fairfield Greenwich Group has a very unclear future as many of their investors demand to get any and all remaining funds back. Hence, future management and performance fees will be quite diminished, if not non-existent. Then, there are the "small" issues of the lawsuits filed against Fairfield Greenwich and a number of its present and former partners. Surely there also will be others, including no doubt one from the trustee of the Bernard Madoff Investment Securities estate, demanding a "claw-back" payment for non-existent profits that were distributed by Bernie Madoff. Mr. Brown is a individually named defendant in the lawsuit Pacific West Health Medical Center Inc. Employees Retirement Trust et al vs Greenwich Group et al.

The couple purchased the Manhattan townhouse at 12 East 78th Street on January 31st, 2008 for the price of $13.5 million according to real estate records. Apparently Marisa Noel Brown and her husband took out a $9 million mortgage to complete the purchase. Assuming that this couple took out a traditional 30-year mortgage with a six percent interest rate, they will be required to make mortgage payments of about $540,000 per year. With limited income from the family business coming in and the likely pay-back of at least some previously paid compensation, one does wonder how long the various principals associated with the Bernie Madoff scandal will be hanging on to their various "trophies" — especially since the money to purchase such possessions likely resulted from more than four decades of fraudulent activity. TCM suspects that a number of such Manhattan properties will be put up for sale in the weeks and months to come.

Visualization of Madoff Securities "Feeder Funds"

Based upon the recent sharp increase in website visitors and both the public and private feedback, Toomre Capital Markets LLC ("TCM") appears to have become one of the better resources for information regarding the Bernard L. Madoff Investment Securities, LLC fraud scandal. TCM's two principals, Lars Toomre and Aldon Hynes, are geeks at heart and tend to be better with numbers and technology than names and social relationships. Of course, though, the Madoff fraud abounds with so many investors, organizations, charities, lawyers and other entities that have names and relationships that cumulatively quickly become overwhelming.

Hence, Lars and Aldon thought that this website's readership might appreciate some visualization to assist in gaining a better understanding of some of the many principals and relationships that are a part of the Madoff fraud scandal. Most of the labels on the visualization below link back to other content on this website. This first graph (of what may become several) depicts what we acknowledge is incomplete information about the major "feeder funds" that contributed investor dollars to the Bernie Madoff's investment operation:

Visualization of Madoff Securities "Feeder Funds":

TCM would appreciate receiving comments in the section below about information that should be incorporated into the above graph. We will endeavor to update both this post and to produce additional social network graphs about other portions of the complex Madoff fraud social network map. Reader comments and thoughts are not only welcome, but also highly encouraged.

Ruth Madoff: Rube or Accomplice to Bernie?

Bernie Ruth MadoffLike many others, Toomre Capital Markets LLC ("TCM") has been keenly focused on the Bernie Madoff scandal these past few weeks. We have found it simply incredulous that Bernie claims to have pulled off his enormous fraud alone against so many people for such a long period. As a firm practicing in the field of Enterprise Risk Management, TCM has been particularly interested in what lessons can be learned from this scandal and, more importantly, what should be done to prevent a repeat of such personal loss to so many investors in the future.

Since Bernie Madoff confessed to defrauding investors out of close to $50 billion in funds, many have been asking what role, if any, other members of the extended Madoff family played in the fraud. There also have been considerable focus directed at what role the approximately dozen "feeder funds" might have played. Attention particularly has focused on Bernie's brother, Peter Madoff, and his two sons, Mark and Andrew, as well as his wife of more than forty years, Ruth Alpern Madoff. Many would like answers on the key issues of what did the principals know, when did they know that information and what then did they do about it.

On Tuesday January 27th 2009, Lucinda Franks contributed an exclusive story to The Daily Beast website entitled Exclusive: Ruth Madoff's Role Revealed. The summary of the story reads: "In a Daily Beast exclusive, Lucinda Franks says key investigators now believe Ruth Madoff played a larger role than previously assumed in her husband’s Ponzi scheme, and that the fraud began far earlier than other reports have indicated. Plus, she reports, 20 million Madoff documents have been unearthed in a Queens warehouse."

This former New York Times and Pulitzer Prize-winning journalists reveals several interesting new pieces of information about the Bernie Madoff fraud scandal. The first is that funds from the investment advisory business were in fact comingled with Madoff's personal funds and with a market-making fund in which Madoff as a broker-dealer executed orders for customers. Apparently Ruth Madoff, following in the footsteps of her accountant father Saul Alpern, oversaw the accounting records of all three of these accounts. The comingling of money from customer funds is a violation of regulatory rules that require all customer funds to be segregated from those of the broker-dealer. Apparently it was this comingling of funds that enabled the Bernie Madoff scandal to continue for so long.

Says one highly placed person involved in the inquiries: “If Ruth Madoff had an office there for 37 years and kept the books of this account, wouldn’t she have had some inkling that something was wrong? She’s there all the time and her husband just blows it by her? They are a really tight couple, did he really keep this secret from her every day of their marriage?” Ira Lee Sorkin, the lawyer for both Madoffs, apparently had no comment.

The second key piece of new information is the revelation from a person close to the case that Madoff has admitted to law enforcement officials that the Ponzi scheme began more than forty years ago — much earlier than most have speculated. Needless to say, there are many irate investors from this enormous and extremely long-running fraud. "Madoff himself has told authorities that he acted alone, and while no hard evidence has emerged to refute that, many members of his extended family are targets of irate victims whose savings has evaporated. Some of those family members have gone to authorities and are talking to them about letters they have received that threaten their lives."