Off With Their Heads

by PAUL HOLLRAH December 22, 2008

My younger sister has often complained to me that, during their working careers, she and her husband had difficulty making ends meet, financially. In response, I’ve tried to convince her that those who have a little money… or even a lot of money… have a far more difficult problem: i.e., holding onto what they have. 

No man has done more to prove my point than Bernard Madoff, the head of Bernard L. Madoff Investment Securities, LLC, a Wall Street investment advisor admired and trusted by some of America’s wealthiest individuals and foundations. No man has done more to destroy the faith of the American people in those who are entrusted with the responsibility for growing and managing the money they have set aside for their retirement years. 
Because of Madoff, millions of Americans are now laying awake at night questioning whether their stock portfolios, their mutual funds, and their annuities are safe and secure. In other words, have the bureaucrats in the Securities & Exchange Commission (SEC) done what they are charged with doing: regulating and policing the financial markets. In the case of Bernard Madoff they obviously did not, and it’s not because they weren’t warned.
In 2005, a Boston investment advisor and derivatives expert, Harry Markopolos submitted a nineteen-page report, anonymously, to the SEC saying it was “highly likely” that Madoff Securities was “the world's largest Ponzi Scheme.” Markopolos reminded the SEC that he had first brought the Madoff matter to the attention of their Boston field office in 1999, during the Clinton Administration, but no action was taken. In his report he recommended discretion, suggesting that he knew his research could ruin people's careers. He asked the SEC to be discreet about circulating the report, saying, “I am worried about the personal safety of myself and my family. Under no circumstances is this report or its contents to be shared with any other regulatory body without my express permission.” 

In his filing, Markopolos suggested two possible scenarios. Under Scenario #1, which he described a “unlikely,” he said, “I am submitting this case under Section 21A(e) of the 1934 Act in the event that the broker-dealer and (electronic communication network) depicted is actually providing the stated returns to investors, but is earning those returns by front-running customer order flow. Front running qualifies as insider trading since it relies upon material, non-public information, that is acted upon for the benefit of one party to the detriment of another party.”
Under Scenario #2, which Markopolos described as “highly likely,” he said, “Madoff Securities is the world’s largest Ponzi Scheme. In this case there is no SEC reward payment due the whistle-blower so basically I’m turning this case in because it’s the right thing to do.”
But, again, no action was taken against Madoff. Why? Is it because Madoff has friends in high places? We are already aware that the top recipient of cash from top executives in the sub-prime mortgage industry is Sen. Chris Dodd (D-CT), chairman of the Senate Banking Committee, that the second highest recipient of cash is none other than our President-elect, Barack Hussein Obama (D-IL), and that the largest recipient of cash in the House of Representatives is Cong. Barney Frank (D-MA), chairman of the House Financial Services Committee.
The Center for Responsive Politics has looked into the matter of the Madoff family’s political contributions between June 1993 and October 2008. Federal Election Commission records show that members of the Madoff family made some 250 political contributions to 45 candidates and committees totaling $391,350. The money went to 33 Democrats, 12 Republicans, and nine political committees… seven liberal and Democrat committees, one Republican committee, and one trade association PAC.
The largest individual recipients were Rep. Ed Markey (D-MA), $34,000; Sen. Chuck Schumer (D-NY), $31,000; Sen. Ron Wyden (D-OR), $25,000; Sen. Hillary Rodham Clinton, $23,500; Rep. Richard Gephardt (D-MO), $12,000; Sen. Frank Lautenberg (D-NJ),  $6,600; and Sen. John Kerry (D-MA), $4,500. The Democrat Senatorial Campaign Committee, which Schumer currently chairs, received $104,050.
Among Republicans, the lion’s share of Madoff family contributions went, oddly enough, to Rep. Jack Fields (R-TX), $13,000. Sen. John McCain received $2,000. 
The records seem to suggest that Mrs. Ruth Madoff, the wife of Bernard Madoff, exhibits a bit of an “independent” streak, politically. On June 28, 2006 she made a $5,000 contribution to the New Republican Majority Fund, but by far her most interesting contribution was a $1,000 gift on June 27, 1996 to the Fund for a Responsible Future. Would it be too unkind to suggest that the fund must have fallen short of its goal?
So how did Madoff Investment Securities, “the world’s largest Ponzi Scheme,” escape detection for over a decade in both Democrat and Republican administrations? Did senior Democrats in Congress take steps to shield Madoff from SEC oversight? The SEC must be made to appear before Congress with all pertinent internal and external correspondence, including letters and meeting notes relating to Madoff’s communications with members of Congress. Those within the agency who had every opportunity to intervene, but didn’t, must be publicly exposed. 
As Harry Markopolos suggested in his 2005 exposé, hedge funds are often leveraged on a 4:1 ratio. If that is the case, and Madoff has been responsible for a $50 billion swindle, the impact across world financial markets could be $200 billion, or more. We simply cannot allow regulatory agency failures, whether through corruption or incompetence, to go unpunished. Off with their heads! Contributing Editor Paul Hollrah is a Senior Fellow at the Lincoln Heritage Institute.

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