How about that Irving Picard?
The lawyer trying to recover cash for Bernie Madoff’s victims had the nerve to sue Jamie Dimon’s JPMorgan Chase for $6.4 billion, saying the bank was at the “very center” of Madoff’s fraud and knew—or should have known—what was going on (it’s worth revisiting a New York Times/Il Sole 24 Ore report from early 2009 on JPM yanking its money from Madoff just months before the Ponzi unraveled).
Now Picard is going after the SEC’s top lawyer, David M. Becker, to recover $1.5 million in “ill-gotten” gains his late mother made with Madoff. That’s according to a nice New York Daily News scoop this morning.
Becker denies knowing anything about his mother’s Madoff money, but it’s another black eye for the SEC, which did its best to look the other way despite repeated warnings that Madoff was operating Ponzi scheme. Those warnings came from the whistleblower Harry Markopolos, and it’s well worth revisiting this New York Times Q&A with him from last year:
(Deborah Solomon) You met last year with Mary Schapiro, the current head of the S.E.C. How did that go?
(Markopolos:) I would say she was coldly polite. Her general counsel, David Becker, did most of the talking. He and I did not get along at all. He was getting ready to come across the coffee table and strangle me.
Now let’s emphasize that Becker wasn’t at the SEC from 2002 until 2009. But he was there—as the top lawyer—2000 to 2002, when Markopolos first warned the agency that Madoff was running a Ponzi. That’s also when reporter Michael Ocrant wrote a piece headlined “Madoff Tops Charts, Skeptics Ask How” and Erin E. Arvedlund of Barron’s wrote a story that raised serious questions about Madoff’s operation and how it got its returns. There’s no indication that Becker squelched an investigation or even knew about the Madoff warnings. But it’s worth a look.
The Daily News gets a bit aggressive with this quote, but it gets the point across:
Bradley Simon, a former federal prosecutor who has watched the Madoff case unfold, said situations such as Becker’s look bad for the SEC.“If families of high-ranking SEC officials were heavily invested in Madoff it may help explain why the SEC was less than vigilant in scrutinizing his activities,” Simon said. “We know they were asleep at the switch. This may help explain why.”
A further note on the tangled-web angle: Another general counsel, JPMorgan’s Stephen Cutler, was quoted last week in The Wall Street Journal defending his company against Picard’s allegations. As Audit Trustee Dean Starkman pointed out last week, Cutler from 2001 to 2005 was the enforcement chief of the SEC.
Apparently the SEC largely ignored Markopolous because they chalked his criticism up to being a competitor of (and/or) jealous of his results. After all, all these big, respected firms had "done extensive due diligence" on Madoff (ahem FFG ahem), why would they believe anything this one guy was saying?
If someone with a background in Finance had seen the report Markopolous prepared for the SEC they would have freaked out ASAP and it would have been taken care of way back then, alas, the SEC is a bunch of JD's with no Finance experience, so the higher-ups might have ignored it anyway...
In the report to which I'm alluding, Harry showed in plain language obvious red flags, i.e. that the market in which Madoff was trading was actually smaller than Madoff's assets.
#1 Posted by The Analyst, CJR on Wed 23 Feb 2011 at 05:16 PM
If the (Clinton-era) SEC investigators had acted on the detailed report Markopolous dumped in their laps - the Madoff thing would have ended years ago.
This story here isn't that a crook found a loophole and danced around regulation - the story here is a failure of regulation. The regulations were in place and the evidence was there - the problem is that the government can't run a damned thing right.
#2 Posted by padikiller, CJR on Wed 23 Feb 2011 at 09:44 PM
Cutler joined JPMorgan in 2006. JPMorgan start using feeder funds using Madoff in 2006. The former SEC Enforcement Director was well aware of Madoff as far back as 2001. SEC emails linked confirm.
http://www.sec.gov/news/studies/2009/oig-509/exhibit-0526.pdf
#3 Posted by truthteller, CJR on Thu 24 Feb 2011 at 09:10 AM
Padi, it's a neat trick to say regulation doesn't work when you've had deregulators in charge. For regulation to work, you have to have regulators who want to enforce the rules. They don't enforce themselves.
Clinton was as much a deregulator as anybody over the past thirty-five years (see killing Glass Steagall, passing Commodity Futures Modernization Act, Robert Rubin, etc.). His regulators look tough in retrospect only compared to the abdication of Bush 43's folks.
#4 Posted by Ryan Chittum, CJR on Thu 24 Feb 2011 at 03:41 PM
@Ryan,
Why is everyone afraid to make mention of Christopher Cox? He was the head of SEC during all of this, and yet all you journos completely give him a pass by never mentioning his name. He was the Bush appointee who abdicated his responsibility and his job. Why doesn't anyone hold him to account? The record is clear on how anti-regulation he was. Why not mention him by name?
#5 Posted by James, CJR on Thu 24 Feb 2011 at 04:43 PM
Christopher Cox was hardly the head of the SEC "during all of this" Madoff scandal.
Madoff was off the reservation for the entirety of the Clinton administration -indeed the first report to the SEC was made in May, 2000 - while Clinton was in office...
Nice try, but no cigar, James...
Better luck next fabrication.
#6 Posted by padikiller, CJR on Thu 24 Feb 2011 at 07:12 PM
There's been plenty of mention of Cox in the past here, because he was a predictably, incredibly inept leader, but the Madoff affair does extend back into the mid 1990's.
http://www.cjr.org/the_audit/wapo_circles_back_on_coxs_sec.php
Including a story on Cox and Madoff:
http://www.cjr.org/the_audit/journal_on_top_with_madoffsec.php
More in a sec:
#7 Posted by Thimbles, CJR on Thu 24 Feb 2011 at 10:52 PM
HOW DID I SCREW UP MY FORMATING THAT BAD?!
Sorry, the links were supposed to be under the "mention of COx in the past here" and I'm not supposed to have de-caf in my stomach. Alias all is not right with the universe.
That being said:
Chait predicted Cox's tenure best back in 2005:
http://www.commondreams.org/views05/0617-25.htm
And Ryan put it best in 2010:
http://www.cjr.org/the_audit/sorry_porn_didnt_cause_tk_regu.php
"Put aside the fact that the exact same could be asked of Indiviglio’s old colleagues on Wall Street and understand that there’s been this big, well-funded, thirty-plus-year anti-government campaign that delegitimized the very premise of regulation (not to mention government).
It’s no accident that George W. Bush, say, put a guy from the International Arabian Horse Association in charge of the critically important FEMA. Or that he put a lobbyist for the banking industry in charge of banking regulation at the OCC. Then there’s the timber lobbyist Bush picked to head the Forest Service. And remember that ex-oil CEO he picked to head his secret energy task force and to be his vice president. Does anyone think Christopher Cox—he of the epic “The last six months have made it abundantly clear that voluntary regulation does not work”—was lighting a fire under anybody’s hind end? And on and on.
And this was something of a bipartisan affair. Clinton, while hardly pushing the anti-government agenda like Bush, played a major role in gutting financial regulation (and staffed the government with the usual party hacks and cronies, rebuffing Cassandras like James L. Bothwell and Brooksley Born and leaving derivatives to the Wild West (sans marshal), ending Glass-Steagall, and renominating Ayn Rand acolyte Alan Greenspan as Fed chairman.
If you’re in power and you think government can’t possibly work and you actively seek to undermine its efficacy, you can’t feign surprise at your self-fulfilling prophecy."
#8 Posted by Thimbles, CJR on Thu 24 Feb 2011 at 11:05 PM
Okay. I take it all back. Cox was mentioned once in 2009 and once in 2010. /snark
I'm not just talking about @Ryan. Journos have a bad habit of talking about "regulators" and that kind of generic term, which isn't helpful for the reader. Plus, it lets the culprits off the hook, to go on to get cushy jobs and make millions with Goldman Sachs or Fox News, with no hit to their specific reputations. Writing a story about these horrific terms of office ought to include exactly who these people are, so that they have the reputation they deserve. Christopher Cox ought to be hiding under a rock somewhere for his malevolent chairmanship of the SEC.
To wit:
Following his tenure at the SEC and a 24-year career in elected and appointed office that included service in the legislative, executive, and judicial branches of the U.S. government, Cox returned to his home in southern California and the practice of law, which had been his pre-Washington profession. He joined the Boston-based international law firm of Bingham McCutchen LLP as a partner in the firm's Corporate, M&A and Securities practice, resident in its Orange County, California office. He also became a principal in Bingham Consulting Group, the firm's affiliated consulting business.
From his Wikipedia bio. See what I mean?
#9 Posted by James, CJR on Thu 24 Feb 2011 at 11:23 PM
He also mentions a corruption thing:
http://www.cjr.org/the_audit/post.php
But there's a question of why such deep corruption has been allowed to fester. It's because you have two parties serving the interests of one side:
http://motherjones.com/politics/2011/02/income-inequality-labor-union-decline
"If politicians care almost exclusively about the concerns of the rich, it makes sense that over the past decades they've enacted policies that have ended up benefiting the rich. And if you're not rich yourself, this is a problem. First and foremost, it's an economic problem because it's siphoned vast sums of money from the pockets of most Americans into those of the ultrawealthy. At the same time, relentless concentration of wealth and power among the rich is deeply corrosive in a democracy, and this makes it a profoundly political problem as well."
"So as unions increasingly withered beginning in the '70s, the Democratic Party turned to the only other source of money and influence available in large-enough quantities to replace big labor: the business community. The rise of neoliberalism in the '80s, given concrete form by the Democratic Leadership Council, was fundamentally an effort to make the party more friendly to business. After all, what choice did Democrats have? Without substantial support from labor or business, no modern party can thrive."
And there's no competing interest to counter balance that, not in politics or the press:
"ABOUT A YEAR ago, the Pew Research Center looked looked at the sources reporters used for stories on the economy. The White House and members of Congress were often quoted, of course. Business leaders. Academics. Ordinary citizens. If you're under 40, you may not notice anything amiss. Who else is missing, then? Well: "Representatives of organized labor unions," Pew found, "were sources in a mere 2% of all the economy stories studied.""
This creates deep corruption since everybody's interests are aligned behind one group. People are willing to overlook the sins of institutional management if they're in the service of one group. Madoff went to jail largely because it became public knowledge that he harmed the interests of the one group.
As Taibbi pointed out in his "Where's the criminals?" article:
"As for President Obama, what is there to be said? Goldman Sachs was his number-one private campaign contributor. He put a Citigroup executive in charge of his economic transition team, and he just named an executive of JP Morgan Chase, the proud owner of $7.7 million in Chase stock, his new chief of staff. "The betrayal that this represents by Obama to everybody is just — we're not ready to believe it," says Budde, a classmate of the president from their Columbia days. "He's really fucking us over like that? Really? That's really a JP Morgan guy, really?"
Which is not to say that the Obama era has meant an end to law enforcement. On the contrary: In the past few years, the administration has allocated massive amounts of federal resources to catching wrongdoers — of a certain type. Last year, the government deported 393,000 people, at a cost of $5 billion. Since 2007, felony immigration prosecutions along the Mexican border have surged 77 percent; nonfelony prosecutions by 259 percent. In Ohio last month, a single mother was caught lying about where she lived to put her kids into a better school district; the judge in the case tried to sentence her to 10 days in jail for fraud, declaring that letting her go free would "demean the seriousness" of the offenses.
So there you have it. Illegal immigrants: 393,000. Lying moms: one. Bankers: zero. The math makes sense only because the politics are so obvious. You want to win elections, you bang on the jailable class. Yo
#10 Posted by Thimbles, CJR on Thu 24 Feb 2011 at 11:28 PM
The people HAVE seized their representation back...
The representatives of the losing side in two states have decided to flee the democratic process instead of allowing the majority to rule.
We have a President (along with his Attorney General lap dog) who decides which federal laws and federal court orders he wishes to enforce based on his own personal judicial interpretation of the law.
The same President denigrates his own country on the world stage and genuflects to foreign leaders.
This crazy ride will end when the will of the majority overtakes the anti-democratic liberal silliness.
#11 Posted by padikiller, CJR on Fri 25 Feb 2011 at 11:02 PM