Toomre Capital Markets LLC

Real-Time Capital Markets -- Analytics, Visualization, Event Processing, and Intelligence

Avellino & Bienes

Graphviz encountered an error while rendering to format cmapx:
Error: /home/toomreco/drupal-6.22/sites/tcm/files/graphviz/ syntax error in line 10 near '['

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?

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!!!

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.

Madoff Accountants and Steven Mendelow

According to this profile prepared by Forbes, Steven B. Mendelow is a Director of Iconix Brand Group Incorporated, a New York, NY consumer goods company in the Textile – Apparel Footwear & Accessories. According to this profile,

Steven Mendelow has served on our Board of Directors since December 1999. He has been a principal with the accounting firm of Konigsberg Wolf & Co. and its predecessor, which is located in New York, New York, since 1972. Mr. Mendelow was a director of New Retail Concepts, Inc. from 1992 until its merger with us in 1998. He also serves as a director of several privately-held companies. He is a trustee of The Washington Institute for Near East Studies and actively involved with the Starlight Starbright Children's Foundation and the Foundation for Fighting Blindness. He received a Bachelor of Science degree in business administration from Bucknell University in 1964 where he was elected to Delta Mu Delta, the national Business Administration Honor Society.

Konigsberg Wolf & Co. is a mid-size accounting firm in Manhattan and the same firm that employs one Paul J. Konigsberg as its senior tax partner. Paul Konigsberg also happened to sign the 2007 and 2006 Federal Tax From 990s for The Madoff Family Foundation, the same 990s that indicate there was a rather inordinate amount of trading. Toomre Capital Markets LLC ("TCM") wonders just what account and trade information was provided to this accounting firm to prepare these tax returns.

The Konigsberg CPA website lists Steven B. Mendelow as its only Principal and not notably as one of the firm's Partners. Perhaps this is because Steven Mendelow is the same individual who was sanctioned with Frank Avellino and Michael Bienes by the SEC in late 1992 for selling unregistered notes to investors?

NYT: '92 Ponzi Case Missed Signals About Madoff

Nantucket home of Frank AvellinoIn the Saturday January 17th 2009 edition of The New York Times, Alex Berenson penned at article entitled '92 Ponzi Case Missed Signals About Madoff. Toomre Capital Markets LLC ("TCM") does not often "scoop" the old "Gray Lady." However, interested readers may wish to also read the TCM entry posted on Thursday January 15th at 2:43 pm entitled Frank Avellino, Michael Bienes and Bernie Madoff. (Particularly interested readers might also want to note that an IP address associated with The New York Times subsequently and repeatedly visited that TCM posting. It is surprising is not how much of the information is the same, is it not?)

For those not familiar with the 1992 part of the Madoff fraud scandal, Frank Avellino and Michael Bienes, now both quite wealthy, apparently effectively took over the accounting firm of Bernie Madoff's father-in-law, Alpern & Heller. Their firm Avellino & Bienes ("A&B") first began soliciting funds for Bernie Madoff in the early 1960s. By 1984, they had effectively ceased offering normal accounting services to focus almost exclusively on gathering investors that could funnel funds to Mr. Madoff. An anonymous tip in late 1992 about A&B offering guaranteed 20% on investor notes caused the SEC to investigate the allegations of an apparent Ponzi scheme. A settlement soon thereafter was reached when it was revealed that Bernie Madoff apparently had all of the investors' funds and he was able to return every single penny. The SEC settled the case by ordering A&B to close, to pay a fine and to return all investor funds.

Other source materials indicate that after the SEC settlement, Michael Bienes actively urged investors in the A&B notes to directly open accounts with Bernie Madoff's firm. There also have been some suggestions that Mr. Bienes continued to solicit investment funds for Bernie Madoff in the current decade. The NYT article reports "Mark Raymond, a lawyer for Mr. Bienes, said that his client had no knowledge of Mr. Madoff’s fraud and had lost tens of millions of dollars, most of his savings, in the fraud. Mr. Bienes worked mainly as a fund-raiser, while Mr. Avellino actively managed Avellino & Bienes, according to court documents and people who knew the men."

This New York Times article further advances the understanding the A&B element of Bernie Madoff's fraud scheme. Without attribution, the article definitively states that Mr. Avellino continued to send money to Mr. Madoff after the conclusion of the 1992-93 SEC inquiry. Apparently Gary Woodfield, a former federal prosecutor, who now represents Mr. Avellino, had no comment. So too was the case with a certain Francis B. Brogan, Mr. Avellino's long-time lawyer and a partner at Greenberg Traurig in Fort Lauderdale, Florida.

The article continues: "Mr. Avellino has been connected to Mr. Madoff for his entire career. After graduating from the City University of New York in 1958, Mr. Avellino began working as an accountant at a firm run by Saul Alpern, Mr. Madoff’s father-in-law. Mr. Madoff also briefly ran his securities business from the firm’s offices. As early as 1962, according to the S.E.C.’s complaint against him, Mr. Avellino began raising money for Mr. Madoff, who was running a small brokerage company. Mr. Bienes joined in 1965. In 1977, Mr. Avellino and Mr. Bienes formed an accounting firm in Midtown Manhattan. Mr. Avellino owned half the company; the remainder was owned by Mr. Bienes and his wife, Dianne. In 1980, the Bieneses moved to Fort Lauderdale, while Mr. Avellino remained in New York."

Later the article addresses the issue of lawyer of Ira Lee Sorkin, lawyer then in the 1992 SEC matter to both Mr. Avellino and Mr. Bienes and at present to Bernie Madoff. According to the NYT article, "In an interview, Mr. Sorkin said this week that he could not recall whether Mr. Madoff referred Mr. Avellino and Mr. Bienes to him. He has known Mr. Madoff since at least the early 1980s, he said, but did not represent Mr. Madoff at the time of the Avellino case."

Sosnik, Bell & Co. Successor to Avellino & Bienes???

Late on Friday afternoon January 16th 2009, John Carney at Clusterstock posted a most interesting entry entitled Madoff's Favorite Accountants "Inherited" Clients. This post concerns the rather obscure New Jersey accounting firm of Sosnik, Bell & Co. that somehow came to be retained by many of the victims of Bernie Madoff's fraud.

Back in December 2008, there was quite a bit of conjecture about how such a small, virtually unknown accounting firm could come to prepare their various investment accounting statements for so many Madoff victims. Now, in the above post, John Carney speculates that Sosnik Bell took over some of the accounting duties previously performed by the accounting firm of Avellino & Bienes, the accounting firm whose principals were busted by the SEC in 1993 for running an unregistered securities business that raised money about $440 million in principal notes that were subsequently invested with Madoff.

By happenchance a day earlier, Toomre Capital Markets LLC ("TCM") wrote the post entitled Frank Avellino, Michael Bienes and Bernie Madoff. This included details about the relationship between these former accountants, Frank Avellino and Michael Bienes, their former firm Avellino & Bienes ("A&B"), Bernie Madoff, Ruth Alpern Madoff, and Saul Alpern (Ruth's father and head of the firm when A&B was then known as Alpern & Heller).

TCM too had read the story back on Christmas Eve 2008 on entitled Life Savings Erased. That story explained

The Fort Lee accountants whose firm handled statements for hundreds of Madoff's clients also lost "several million" dollars in Madoff's alleged scam.

[Scott] Sosnik and [Larry] Bell, principals in the eight-person firm based near the George Washington Bridge, also lost their pensions with Madoff's firm, said Robert Anello, an attorney speaking for Sosnik and Bell. "These guys are screwed, royally," Anello said. "Mr. Madoff leaves many in his wake."

The accounting firm Sosnik Bell & Co. only received monthly statements from Bernard L. Madoff Investment Securities LLC, tallied reported profits and losses, and prepared tax summaries and schedules for clients' other accountants to use, Anello said.

"That's all this was — not to do any analysis of the trading or anything that even remotely got involved with the stock selection or the strategy," he said.

At the time scant attention was paid to a later paragraph in the story, "Anello said Sosnik and Bell took on many of its clients who invested with Madoff when they took over an accounting practice in 1993, and they gained more Madoff clients through word-of-mouth recommendations, Anello said." [TCM emphasis added]

Toomre Capital Markets LLC agrees with John Carney that this comment points to the strong likelihood that Sosnik Bell & Co. took over the investment accounting function of the old A&B firm. That latter firm reached a settlement with the SEC in late 1992 that demanded that A&B close up shop and that the settlement was implemented during the first portion of 2003. The timing of the Sosnik and Bell's taking on Madoff clients is far more than coincidental.

Stanley Chais, A Fund Feeder to Bernie Madoff

Stanley ChaisStanley Chais, 82, is a private investor who has been active in a wide range of Israeli and American Jewish charitable activities over the past 30 years. Apparently, over the past thirty years, Mr. Chais has combined his business activities with a wide range of philanthropic endeavors for the benefit of Jewish communities in the United States, the former Soviet Union (FSU) and Israel. He believes that “all Jews are responsible for each other", and therefore, he, who can afford it, should support areas that promote learning and culture.

Stanley Chais also is the head of a limited partnership or investment management firm, Brighton Co. of Beverly Hills, California, that apparently served as a "feeder fund' to Bernie Madoff's investment scheme. It had invested and hence lost about $250 million with Bernie Madoff. From The Los Angeles Times, one might learn that apparently Mr. Chais previously served on more than one charitable boards with Bernie Madoff. Stanley Chais and his firm also have been sued by one Michael Chaleff of Arlington, VA, a former Justice Department lawyer. Mr. Chaleff's lawyer, a certain Reed Kathrien, with the Oakland firm of Hagens Berman Sobol Shapiro, indicates that many of Brighton's investors were in the investment business and lost small fortunes "because they'd been in [the investment funds] for 10 or 20 or 30 years."

According to the suit, Mr. Chaleff was part of a 50-member investment group called CMG that lost $75 to $80 million it gave to Brighton Co. Mr. Chais apparently managed about 10 such groups of investors and substantially all of those collective funds were invested in Bernie Madoff's fraudulent scheme.

The class-action suit filed on Mr. Chaleff's behalf alleges that the Brighton firm was "aware of, or recklessly disregarded, the misuse and mismanagement of investment funds." Subsequent to Bernie Madoff's arrest, Stanley Chais indicated that he had not only personally invested with Madoff, but also had "facilitated" others who desired to do likewise. He also claimed that he and his family also were "swindled" and had lost "a huge amount of money."

A bit ominously for Mr. Chais, both the Securities and Exchange Commission and the California Department of Corporations reported that they could not find any records of Chais registering as an investment advisor or broker. Also of concern, Mr. Chais apparently took a piece of the partnership's profits as management fees, usually according to one investor about 3.8%, from a partnership that was a "kind of private, hush-hush fund" geared toward "private arbitrage accounts." That same investor indicated that he and his wife thought the partnership funds were invested in currencies, stocks and other securities. More ominously, Bernie Madoff's name and his investment firm never were mentioned.

Madoff Source of Investor Funds in 1992 Refund?

Over the past couple of days, Toomre Capital Markets LLC ("TCM") has spent some time focusing on the Bernie Madoff fraud scandal and particularly on how he could have perpetuated the fraud in such a great amount on so many investors over such a great period of time. Some of the resulting TCM posts have included:

TCM has been particularly interested in what lessons might be learned from this scandal, particularly regarding the areas of Enterprise Risk Management and due diligence. Let's summarize TCM's understanding to date about Bernie Madoff's early days:

Apparently Bernie Madoff started out in 1960 with $5,000 in funds that he had "saved" from a lifeguard and home sprinkler installation jobs. He was married to his high school sweetheart, Ruth Alpern Madoff. He may have worked earlier for his future father-in-law at the Manhattan accounting firm Alpern & Heller where Frank Avellino and Michael Bienes also then worked. His first investor was the philanthropist was Carl Shapiro. Apparently, though, Bernie Madoff never made a single trade for his investment business customers.

Starting in 1962, Frank Avellino and Michael Bienes solicited monies that were then "invested" with Bernie Madoff that generated steady returns for investors in the range of 13.5 per cent to twenty per cent. Their investment solicitation business was so successful that by 1984 Avellino and Bienes gave up their accounting business. By 1992, Avellino and Bienes had amassed more than 3,200 investors and approximately $450 million in investment principal.

Then, in late 1992 based upon a tip from an anonymous source about a possible Ponzi scheme, the SEC investigated Avellino & Bienes ("A&B"). The SEC was surprised to learn that the funds were invested with the then current Chairman of the NASDAQ, a certain Bernie Madoff. The books apparently were in order and according to reports at the time, "all of the money was there." Hence, the SEC only sanctioned Avellino and Bienes for running an unregistered investment advisor and ordered that the firm close after returning all of the funds to its investors. Apparently, Madoff, Avellino and Bienes also returned "every cent" to those early investors.

At that point in 1992, given that:

  1. Bernie Madoff had been running his fraud for about twenty years,
  2. Bernie Madoff apparently had been "generating" returns of at least 13.5% per year (or at least that is what he reported to A&B), and
  3. Bernie Madoff also apparently never did a trade (and hence never had any market exposure)

One question suddenly screams out: What were the sources of the funds that Madoff used to return both the interest earned and investment principal A&B's investors in 1992? In short, if Madoff was running a Ponzi scheme for A&B (as alleged in 1992), what other sources of funds were available to Madoff? Did he have as much other "invested" monies at that point? Or did he have some "rabbi" (like Carl Shapiro thought he was being in November 2008) from whom Bernie Madoff borrowed money?

(Apparently, subsequent to the SEC settlement, many of the A&B unregistered note investors rolled over their investments into accounts directly with Bernie Madoff's securities firm. One has to wonder though why none of these investors inquired about and/or confirmed whether that firm was indeed registered as an investment advisor.)

Frank Avellino, Michael Bienes and Bernie Madoff

<br />
Michael Bienes with wife Dianne. Back in 1992, the United States Securities and Exchange Commission ("SEC") reached a settlement with Avellino & Bienes ("A&B"), a tiny New York accounting firm that was run by Frank Avellino and Michael Bienes. According to legal documents from that case, these two started raising money from clients, friends and relatives in the early 1960s and handed over that cash over to Bernie Madoff to invest. (This was about the same time that Bob Jaffe's future father-in-law, Boston philanthropist Carl Shapiro, gave Bernie Madoff his first funds with which were used to start his investment business.) By 1984, apparently Avellino and Bienes had ceased their accounting practice to focus exclusively on finding additional investors for Madoff.

In 1989, two other accountants Steven Mendelow and Edward Glantz and later Glantz's son Richard also began raising funds for Bernie Madoff. By the time that the S.E.C. ordered these three firms to return all funds to their investors for selling unregistered shares, some $454 million had been raised from more than thirty-two hundred investors. Apparently, the S.E.C investigation had been sparked by a confidential tip that one of the money managers was promising annual returns of up to twenty percent.

The regulators subsequently examined Madoff's books and it appears that they were satisfied when every penny was returned to the former accountant's investors. Bernie Madoff and his investment operation never were sued by the regulator and consequently never was subject to any operational restrictions. The former accountants were collectively ordered to pay $875,000 and to cease from further violations of securities laws.

Rather interestingly, Avellino & Barnes were then represented by Ira "Ike" Sorkin, the lawyer who currently represents Bernie Madoff in his criminal proceedings. In another connection between Avellino and Madoff, Lee Richards, who has been appointed by the SEC as the receiver of all Bernard Madoff Investment Securities assets, also served as the court-appointed trustee over Avellino & Bienes during its legal dispute with the federal agency, according to Bloomberg News.

What originally caught the attention of Toomre Capital Markets LLC ("TCM") about Frank Avellino and Michael Bienes was their relationship to Bernie Madoff's eventual father-in-law, Saul Alpern. Mr. Alpern was the lead partner of a Manhattan accounting firm back in the 1950's and 1960's then called Alpern & Heller. His colleague was Sherman Heller. Two of the junior accountants at the firm were named Frank Avellino and Michael Bienes. Mr Heller apparently died in the mid-1960's at the age of 46 and then in the 1970's Avellino and Bienes took over that accounting business renaming it Avellino & Bienes. According to the blog mehtafiscal in their post The End of a Sure Things: Madoff's Long Bet, one early investor with A&B and Madoff claimed that "Madoff had worked at Alpern & Heller in the late 1950s, with Avellino and Bienes, and was friendly with them [this last statement could not be independently verified]."

TCM was previously unaware that Bernie Madoff had worked at an accounting firm. (Perhaps it was this accounting firm was the source of the original connection between Carl Shapiro and Bernie Madoff?) Carl Shapiro was Madoff's original investor and also one of his last when he supposedly contributed $250mm to Madoff in November 2008. Carl Shapiro also likely was the link that connected his son-in-law, Robert Jaffe, with Bernie Madoff and eventual employment at Cohmad Securities Corp.

Various charity filings with the SEC subsequent to 1992 suggest that both Frank Avellino and Michael Bienes continued to have at least some funds invested with Bernie Madoff. Whether they played a larger role after 1992 in Madoff's investment business remains to be disclosed. However, given that their personal relationships with Madoff that apparently were far deeper than the SEC disclosed back in 1992, one is left to wonder.

Two interesting pieces of news this month contribute to this state of wonder. On Monday January 12th, Mr. Bienes, "the fabulously wealthy Fort Lauderdale benefactor", abruptly resigned from the board of the prestigious Broward Center for the Performing Arts via a short one sentence letter of resignation. Why did he suddenly resign at this time? One might also wonder just how this formerly junior accountant became so wealthy. Did he really make his millions because "he got lucky on Wall Street"? Or perhaps some of his "wealth" came from his old buddy Bernie Madoff?

The other piece of intriguing news concerns his partner Frank Avellino. Mr. Avellino too has progressed far from his younger days as an accountant at Alpern & Heller. Today he apparently owns a $4 million home in Palm Beach, a residence in New York City and another $10 million summer residence on Nantucket. Also apparently, Mr. Avellino just recently put his Nantucket residence on the market. The timing of that move too is interesting and perhaps quite innocent, particularly in these difficult economic times.

However, when one learns that Mr. Avellino also has recently been accused of bilking his house-cleaner out of $124,000 life savings, one really begins to wonder. This article in Nantucket's Inquirer and Mirror has more details of the suit filed by one Nevena Ivanova against Mr. Avellino. Apparently a few years ago, Mr. Avellino accepted some funds from Ms. Ivanova for investment. Then recently he announced that all of her money had been lost. It is unclear how exactly Mr. Avellino was supposed to invest the householder's money. Perhaps he invested it with his good buddy Bernie? If so, how then did Mr. Avellino allegedly announce on December 1st that all of her funds had been lost? Did perhaps Mr. Avellino know something about Bernie Madoff's fraud some ten days before his arrest?

Inquiring minds really would like to know more about the recent relationships between Bernie Madoff, Frank Avellino and Michael Bienes. Hopefully, more information will be forthcoming shortly.