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Ira Lee Sorkin

Ruth Madoff In Crosshairs

Toomre Capital Markets LLC ("TCM") has long suspected that Ruth Madoff was an active co-conspirator with her husband Bernie Madoff in his massive Ponzi scheme. (A reader, for instance, might want to review the TCM post Ruth Madoff: Rube or Accomplice to Bernie? ) Now Federal investigators seem to agree as they are "working around the clock" to freeze the assets of Ruth Alpern Madoff.

On Sunday March 15th 2009, The New York Post published the article Ruth In Crosshair$. This article suggests that federal authorities are working feverishly to prepare a filing asking a Federal judge to formally freeze all of Ruth Madoff's more than $93 million in assets as soon as possible. "The US attorneys will be in court in the next week or so to tell a judge that they believe Mrs. Madoff's assets are derived from ill-gotten gains and that they should be frozen for a certain period of time while the investigation is ongoing," an SEC source said.

The judge will then decide whether there is sufficient reason to believe her assets were legitimately earned or whether they were the proceeds of her husband's $65 billion Ponzi scheme. "You do not need the case to be nailed down, you just need to be able to convince the judge that there is a strong probability that the funds in question came from crime," the source said.

The article continues with additional information about a possible forthcoming criminal indictment. "Law-enforcement sources also told The Post that the asset freeze would be just the first step in a one-two punch against her as prosecutors work furiously to build a criminal case." In the past week, Mrs. Madoff has had needed to part legal counsel with Ira Sorkin who now principally is representing the legal interests of her husband. Ruth Madoff's new criminal defense lawyer, Peter Chavkin, apparently declined to comment on these developments.

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."

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."

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.