Like 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."