Tag Archive | "Bernard L. Madoff"

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Bernard Madoff, the Mafia, and Naked Short Selling


Bernard L. Madoff was once the chairman of the NASDAQ stock exchange. He was one of the most important market makers on Wall Street. And he managed what was, by some estimates, the largest hedge fund on the planet.

Yes, Bernard Madoff was an impressive man. That much was clear even before we learned that his $50 billion Ponzi scheme may have been orchestrated in cahoots with the most powerful, sophisticated, and indiscriminately murderous organized crime syndicate the world has ever known.

Charles Gasparino (citing “speculation” from investigators) reported last week on CNBC that the Russian Mafia might have been partners in Madoff’s larcenous fund business. Or perhaps the Mob had an even greater interest in Madoff’s market making operation, as some of our sources have told us in recent weeks.

Either way, there is a certain cachet.

But it wasn’t just pierogies and pistol-packing wiseguys in purple suits. Mr. Madoff was also a dedicated public servant, volunteering countless hours at the Securities and Exchange Commission.

Indeed, Madoff seems to have helped write some of the SEC’s rules. For example, Madoff had a good deal of input an SEC rule that exempted market makers (i.e. Madoff) from various regulations governing short sellers (i.e. Madoff’s friends).

Madoff’s rule ensured that market makers (Madoff) could, among other things, engage in so-called “naked short selling.” To sell “naked” is to sell stock that one does not actually possess. That is “phantom stock,” according to the SEC Chairman and many others.

Sometimes, short sellers (who profit when shares lose value) offload massive amounts of phantom stock to drive down prices, destroy pubic companies, or even crash the market. That is why there used to be restrictions.

Madoff also obtained an exemption allowing market makers to sell short on a down tick, which made it easier for unscrupulous hedge funds to drive down stock prices.

At any rate, I don’t think Madoff had an office at the SEC. He certainly was not employed there. But the SEC was glad to have Madoff write a rule exempting Madoff from the rules. The SEC was so thankful that it named one of its rules after the great man himself.

The rule allowing market markers to sell on the downtick was called, “The Madoff Exception.”

After Madoff helped writet the rule, market makers (e.g., Madoff) proceeded to “rent” their exemptions to hedge funds (i.e. friends-of-Madoff).

It remained against the law for hedge funds to sell phantom stock to manipulate the markets. It was also against the law for market makers to help hedge funds orchestrate such schemes. But under the Madoff regulatory regime, unscrupulous short sellers (i.e. friends-of-Madoff) could engage in this illegal activity so long as they did so with the illegal connivance of a law-breaking market maker (i.e. Madoff).

A few months ago, this naked short selling was implicated–by numerous academics, the U.S. Chamber of Chamber of Commerce, the Secretary of the Treasury, the CEOs of Wall Street’s biggest banks, respected law firms, John McCain, Hillary Clinton, and numerous congressmen – in the near total collapse of the American financial system.

The SEC has not prosecuted anybody for this. After all, there is an “exception.”

It is unclear whether the SEC will continue to name this “exception” after a man who might have absconded with 50 billion dollars (a sum that exceeds the gross domestic product of Pakistan) in league with the Russian Mob, an organization that is said to be in the market for a nuclear bomb – in addition to narcotics, sex slaves and, yes, phantom stock.

In any case, the major news organizations seem to have lost interest.

* * * * * * * *

Mark Mitchell is a reporter for DeepCapture.com. He previously worked as an editorial page writer for The Wall Street Journal in Europe, chief business correspondent for Time magazine in Asia, and as an assistant managing editor responsible for the Columbia Journalism Review’s online critique of business journalism. He holds an MBA from the Kellogg Graduate School of Management at Northwestern University.

If this article concerns you, and you wish to help, then:

1) email it to a dozen friends;

2) go here for additional suggestions: “So You Say You Want a Revolution?

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A Ponzi Scheme that is Bigger than Bernard Madoff’s


Bernard L. Madoff’s fraud is “stunning,” says the SEC. It is a crime of “epic proportions.” But, says the SEC, we have nothing to worry about. The SEC caught the bad guy. It “moved swiftly” to protect the integrity of the financial markets.

Nonsense.

The only thing “stunning” is that the SEC continues to condone and even fraternize with the organized mob of hedge fund miscreants who have destroyed hundreds of companies, wiped out the jobs of countless ordinary folks, and brought our financial system to the brink of ruin.

The Madoff case may one day prove to be “epic,” but right now it can best be described as “pathetic” – or just plain “weird.”

Apparently, the SEC began receiving tips from Madoff’s enemies (rival brokerages, private investigators working for rival hedge funds, etc.) several years ago. The commission made inquiries, but took no action.

Then, earlier this week, Madoff purportedly had some kind of nervous breakdown, announcing to his sons that he was a criminal.

If we can believe the news reports, the sons then called the FBI, which dispatched an agent to Madoff’s apartment.

Madoff, dressed in a baby blue bathrobe and slippers, opened the door, and said, “I know why you are here.”

With that, the agent arrested Madoff, and within a few hours the FBI and the SEC had whipped out cases accusing Madoff of wrong-doing, but providing few details.

Indeed, it is clear from reading these cases that the FBI and the SEC know nothing about Madoff’s market making and hedge fund firm except that two employees (Madoff’s two sons) have made the vague claim that Madoff told them, vaguely, that his hedge fund was “a giant Ponzi scheme.”

Madoff’s lawyer says his client has admitted to no such crime.

Children do not usually turn in their fathers to the FBI unless they bear other grudges. And it is standard operating procedure for shady high-finance predators to sniff out and prey on feuding relatives who are in business together.

This in no way suggests that Madoff is clean, but it raises the possibility that even dirtier people orchestrated the demise of Madoff and his hedge fund in order to absorb his more lucrative (and crooked?) market making operation.

An alternative explanation comes from Bill Cara, one of the nation’s more perceptive business writers. He concludes that Madoff “is just the beginning. I don’t know, of course, more than you, but…I think he has in fact indicted himself to cause prosecutors to investigate the entire corrupt system.”

Whatever the real story, it is clear that market makers are accessories to a scheme that is much, much bigger than Madoff.

The key players in this scheme are 20 or so mega-billionaire hedge fund managers, who operate with a supporting cast that includes not just market makers, but also smaller hedge funds, rogue prime brokerages, corrupt lawyers, dishonest journalists, bogus one-man credit rating agencies, dubious index trackers, bribed “experts,” skalawag statisticians, compromised professors, private investigators, crooked financial researchers, captured government regulators, hustlers, felons, thugs and mafiosi.

The mega-billionaires masterminded their scheme in the 1980s, and ever since, they and their progeny have been working together – raiding and destroying public companies for profit. In the rubble of these attacks (there are hundreds of examples) one can almost always find evidence of unrestrained naked short selling (people selling things that they do not possess – phantom stock, phantom bonds, phantom mortgage backed securities, phantom CDOs, all manner of phantom derivatives).

This is the organized exploitation of our national clearing and settlement system – a system that fails utterly to ensure that traders actually deliver that which they have sold. If the SEC and FBI are looking for a “Ponzi scheme” of “epic proportions” – this is it.

Mr. Madoff surely knows something about this scheme. Market makers (Madoff’s operation was among the better known) are exempt from rules prohibiting naked short selling. They can sell stock that they have not yet borrowed or purchased, so long as they are legitimately “making a market” (i.e. maintaining liquidity) — and only if they intend to settle the trade soon after. In practice, however, billionaire hedge fund managers have rented market makers’ exemptions to manipulate markets with phantom securities – a blatant crime that is rarely prosecuted.

While Mr. Madoff is talking to the SEC and the FBI, I am going to begin telling you more about the scheme that is bigger than Bernie. Soon, I will name those 20 mega-billionaires, their supporting cast — and the man who is their guru. The evidence is pouring in – there is much to reveal.

But for now, let me leave you with a quotation from the Financial Industry Regulatory Authority’s “Notice 93-77.” Published in 1993, it reads:

Shortly after the market crash of 1987, “then Treasury Secretary Nicholas F. Brady referred to the clearance and settlement system as the weakest link in the nation’s financial system…Gerald Corrigan, President of the Federal Reserve Bank of New York noted: ‘The greatest threat to the stability of the financial system as a whole was the danger of a major default in one of these clearing and settlement systems…”

“The connection between a crisis in the clearance and settlement system and the financial industry was highlighted by the bankruptcy in 1990 of Drexel Burnham Lambert Group…As described in the [SEC’s] testimony before the Senate Banking Committee, near gridlock developed in the mortgage-backed securities market and in the corporate debt and equity markets where Drexel was an active participant.”

Now that our financial system has come to a screeching halt, read those words for clues as to how much worse things can get – and whom we need to stop to prevent that from happening.

* * * * * * * *

Mark Mitchell is a reporter for DeepCapture.com. He previously worked at the Wall Street Journal editorial page in Europe, Time magazine Asia, the Far Eastern Economic Review, and the Columbia Journalism Review. Email: mitch0033@gmail.com

If this article concerns you, and you wish to help, then:

1) email it to a dozen friends;

2) go here for additional suggestions: “So You Say You Want a Revolution?

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A Ponzi Scheme that is Bigger than Bernard Madoff's


Bernard L. Madoff’s fraud is “stunning,” says the SEC. It is a crime of “epic proportions.” But, says the SEC, we have nothing to worry about. The SEC caught the bad guy. It “moved swiftly” to protect the integrity of the financial markets.

Nonsense.

The only thing “stunning” is that the SEC continues to condone and even fraternize with the organized mob of hedge fund miscreants who have destroyed hundreds of companies, wiped out the jobs of countless ordinary folks, and brought our financial system to the brink of ruin.

The Madoff case may one day prove to be “epic,” but right now it can best be described as “pathetic” – or just plain “weird.”

Apparently, the SEC began receiving tips from Madoff’s enemies (rival brokerages, private investigators working for rival hedge funds, etc.) several years ago. The commission made inquiries, but took no action.

Then, earlier this week, Madoff purportedly had some kind of nervous breakdown, announcing to his sons that he was a criminal.

If we can believe the news reports, the sons then called the FBI, which dispatched an agent to Madoff’s apartment.

Madoff, dressed in a baby blue bathrobe and slippers, opened the door, and said, “I know why you are here.”

With that, the agent arrested Madoff, and within a few hours the FBI and the SEC had whipped out cases accusing Madoff of wrong-doing, but providing few details.

Indeed, it is clear from reading these cases that the FBI and the SEC know nothing about Madoff’s market making and hedge fund firm except that two employees (Madoff’s two sons) have made the vague claim that Madoff told them, vaguely, that his hedge fund was “a giant Ponzi scheme.”

Madoff’s lawyer says his client has admitted to no such crime.

Children do not usually turn in their fathers to the FBI unless they bear other grudges. And it is standard operating procedure for shady high-finance predators to sniff out and prey on feuding relatives who are in business together.

This in no way suggests that Madoff is clean, but it raises the possibility that even dirtier people orchestrated the demise of Madoff and his hedge fund in order to absorb his more lucrative (and crooked?) market making operation.

An alternative explanation comes from Bill Cara, one of the nation’s more perceptive business writers. He concludes that Madoff “is just the beginning. I don’t know, of course, more than you, but…I think he has in fact indicted himself to cause prosecutors to investigate the entire corrupt system.”

Whatever the real story, it is clear that market makers are accessories to a scheme that is much, much bigger than Madoff.

The key players in this scheme are 20 or so mega-billionaire hedge fund managers, who operate with a supporting cast that includes not just market makers, but also smaller hedge funds, rogue prime brokerages, corrupt lawyers, dishonest journalists, bogus one-man credit rating agencies, dubious index trackers, bribed “experts,” skalawag statisticians, compromised professors, private investigators, crooked financial researchers, captured government regulators, hustlers, felons, thugs and mafiosi.

The mega-billionaires masterminded their scheme in the 1980s, and ever since, they and their progeny have been working together – raiding and destroying public companies for profit. In the rubble of these attacks (there are hundreds of examples) one can almost always find evidence of unrestrained naked short selling (people selling things that they do not possess – phantom stock, phantom bonds, phantom mortgage backed securities, phantom CDOs, all manner of phantom derivatives).

This is the organized exploitation of our national clearing and settlement system – a system that fails utterly to ensure that traders actually deliver that which they have sold. If the SEC and FBI are looking for a “Ponzi scheme” of “epic proportions” – this is it.

Mr. Madoff surely knows something about this scheme. Market makers (Madoff’s operation was among the better known) are exempt from rules prohibiting naked short selling. They can sell stock that they have not yet borrowed or purchased, so long as they are legitimately “making a market” (i.e. maintaining liquidity) — and only if they intend to settle the trade soon after. In practice, however, billionaire hedge fund managers have rented market makers’ exemptions to manipulate markets with phantom securities – a blatant crime that is rarely prosecuted.

While Mr. Madoff is talking to the SEC and the FBI, I am going to begin telling you more about the scheme that is bigger than Bernie. Soon, I will name those 20 mega-billionaires, their supporting cast — and the man who is their guru. The evidence is pouring in – there is much to reveal.

But for now, let me leave you with a quotation from the Financial Industry Regulatory Authority’s “Notice 93-77.” Published in 1993, it reads:

Shortly after the market crash of 1987, “then Treasury Secretary Nicholas F. Brady referred to the clearance and settlement system as the weakest link in the nation’s financial system…Gerald Corrigan, President of the Federal Reserve Bank of New York noted: ‘The greatest threat to the stability of the financial system as a whole was the danger of a major default in one of these clearing and settlement systems…”

“The connection between a crisis in the clearance and settlement system and the financial industry was highlighted by the bankruptcy in 1990 of Drexel Burnham Lambert Group…As described in the [SEC’s] testimony before the Senate Banking Committee, near gridlock developed in the mortgage-backed securities market and in the corporate debt and equity markets where Drexel was an active participant.”

Now that our financial system has come to a screeching halt, read those words for clues as to how much worse things can get – and whom we need to stop to prevent that from happening.

* * * * * * * *

Mark Mitchell is a reporter for DeepCapture.com. He previously worked at the Wall Street Journal editorial page in Europe, Time magazine Asia, the Far Eastern Economic Review, and the Columbia Journalism Review. Email: mitch0033@gmail.com

If this article concerns you, and you wish to help, then:

1) email it to a dozen friends;

2) go here for additional suggestions: “So You Say You Want a Revolution?

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