SEC Examines More Ponzi Schemes After Madoff

Jan. 2 (Bloomberg) — U.S. regulators working to untangle Bernard Madoff’s alleged $50 billion Ponzi scheme are probing other money managers suspected of using similar tactics, two people with knowledge of the inquiries said.

Related article:
Whistleblower document warned SEC in Nov. 2005 about Madoff’s Ponzi scheme

The U.S. Securities and Exchange Commission is pursuing at least one case in which investors may have been cheated out of as much as $1 billion, according to a person, who declined to name the manager and asked not to be identified because the probe isn’t public.

Regulators may discover additional Ponzi arrangements as declining stock markets prompt investors to withdraw their cash and they question how their money is being managed. This week, the SEC said it halted what the agency described as a $23 million scam targeting Haitian-Americans, and said the Florida- based operators as recently as last month sought more investors.

The new cases “signal it’s become an enforcement priority,” said University of Rochester President Joel Seligman, who wrote a history book on the SEC. After Madoff’s alleged fraud “you’ve got to check hard and see if there is more like it in the marketplace.”

Investigators haven’t found evidence the suspected frauds are of the same magnitude as in the Madoff case, which would be the biggest of its kind in history, the people said. In a Ponzi scheme, early investors are typically paid with money from later participants.

Madoff Catalog

Madoff, 70, was charged Dec. 11 at federal court in Manhattan with securities fraud after allegedly telling his sons his New York-based investment advisory business had been “one big lie” and that he was “finished.” The SEC, which sued him, is seeking to unravel the extent of the losses and recoup money for investors.

A catalog of Madoff’s assets provided by his attorneys to the SEC on Dec. 31 hasn’t revealed any major sources of additional cash, a person familiar with the matter said. Madoff said before his arrest that he had as much as $300 million remaining, according to the agency’s complaint.

SEC spokesman John Heine and Ira Sorkin, an attorney for Madoff, declined to comment.

Madoff’s clients included banks, hedge funds, charities, universities and individual wealthy investors. They had about $37 billion with his firm, according to a Bloomberg News tally of disclosures and press reports.

The House Financial Services Committee at a Jan. 5 meeting will examine regulatory efforts to catch investment scams and scrutinize how Madoff’s alleged conduct avoided detection for years. SEC Chairman Christopher Cox said Dec. 16 that the agency failed to act on “credible, specific” allegations about Madoff dating back at least to 1999.

Markopolos Ill

Harry Markopolos, the former investment-firm employee who said regulators failed to act on his 1999 suspicions about Madoff, won’t appear at the meeting as announced by the committee because of an illness, according to the office of U.S. Representative Barney Frank, the Massachusetts Democrat who leads the panel.

David Kotz, the Securities and Exchange Commission’s inspector general, and Stephen Harbeck, president of the Securities Investor Protection Corp., are set to appear.

The case is Securities and Exchange Commission v. Madoff, 08-cv-10791, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Scheer in New York at dscheer@bloomberg.net.

Last Updated: January 2, 2009 17:09 EST
By David Scheer

Source: Bloomberg

Leave a Comment