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January 16, 2009

Madoff Red Flags?

Posted: 02:32 PM ET

Slowly but surely more information is coming out in the Bernard Madoff case. One of the big questions remains: With this being one of the largest alleged Ponzi schemes in history, is it really possible that Madoff acted alone? Or were others involved in the scam?

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Industry insiders have told me they question whether regulators were either not sophisticated and experienced enough to uncover a massive fraud, or whether there was someone on the inside purposely looking the other way.

This week, Congressman Paul Kanjorski (D-PA), the chairman of the House Financial Services Subcommittee who is investigating the Madoff case, released a statement that suggests more red flags than originally thought were missed by federal regulators in this case.

He points to the 2007 audit report of Bernard L. Madoff Investment Securities. He says it contains obvious warning signs that should have alerted the Securities and Exchange Commission.

Kanjorski says the audit report did not include basic information such as an income statement, an accounting of how money was managed, or even a statement of cash flows. Click here to read Congressman Kanjorski’s statement to S.E.C. Chairman Christopher Cox.

Essentially, it was a report with a bunch of boxes checked, without information attached. (Or maybe the information was attached, but it has somehow gone missing.)

Kanjorski also raises questions into the S.E.C's inspection policies as they relate to internal controls for broker-dealers and their auditors. Kanjorski says a "competent" auditor would have likely spotted the alleged scam much earlier.

So, once again, the big question: Was it a lack of “competency” or did qualified people simply choose to trust Madoff and look the other way?

Take a look at the audit report yourself – it’s only eight pages. Does anything stand out to you? Do you agree with Kanjorski that the report should have raised red flags within the S.E.C. about Madoff’s operations? Click here to read the 2007 audit report of Bernard L. Madoff Investment Securities.

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Chernor Jalloh   January 19th, 2009 8:50 am ET

I hundred percen agree with Kanjorski theory in one of the worst scandals in the 21st century.Thanks to Mr Madoff's family to have alerted the federal authority on this issue.He might not have been acting alone,surely there are alot of conspiracies in the whole matter because some of the most important documents were missing and tracing them will be very difficult.People have lost their entire life savings through anunimaginable fraud.Banks from many countries have been made to pay a heavy price and lost confidence to their customers.It will perhaps take a long time before such confidence is restored again given that money which is hard to earn has been blown in the air.

The federal authority should do everything possible to recover the missing documents and bring those resposible to justice.Madoff may have some of the documents and if he is pressurisied enough he can give a hint as to where they are and who is involed because he is not acting alone.
Jimmy   January 23rd, 2009 6:31 pm ET

I do not make/have this kind of money and I am not
in the financial industry so I have never seen these
kinds of paperwork before, but it appears to me from the
congressman's report that the authorities did not do their
jobs properly. I would even suggest their tax returns be scrutinized
(if that is legal).
This worries me more than the Madoff case itself since there
could be other problems that have not surfaced yet and they
may not be about people trying to make a lot of money in a
very short time without actually doing anything productive. Anyone
who was scammed by Madoff had the wrong idea/attitude towards
economics anyhow, just as Madoff did. (of course he committed
a crime so it's not the same ... but the attitude is there)
i would be more worried about what may be happening to the
financial industry and the system as a whole than the Madoff case itself, in some sense.
I hope this case opens up an investigation so that the "corrupted"
system can be fixed.
John   June 9th, 2009 8:34 am ET

The Madoff case is despicable. Yes the SEC should have flagged this guy. Now that he is guilty and in jail the federal government should seize all of his property and asset's. Including his houses which were transferred to some one else. If his wife and children cannot prove they had income to buy other assets take those away. Once people who perpetrate the schemes see what happens to Madoff and his family they will think twice. Take everyting, sell everything and get some money back for us.
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