Wednesday, 15 December 2010

American Kleptocracy at work, please do not disturb?


Self evidently, the person who is perhaps best-qualified to detect a closed-market swindle camouflaged as a 'fool-proof opportunity to make money,' is Bernie Madoff. Indeed, whilst awaiting sentencing, Madoff met with the SEC's Inspector General, H. David Kotz, who is apparently still conducting an investigation into how regulators failed to detect Madoff's obvious fraud. When interviewed, Madoff said he could easily have been caught in 2003, but 'bumbling investigators failed to ask the right questions... I was astonished. They never even looked at my stock records. If investigators had checked with the Depository Trust Company (a central securities depository), it would have been easy for them to see. If you're looking at a Ponzi scheme, it's the first thing you do.' (In simple terms, all that SEC officials had to do to uncover Bernie Madoff's fraud, was check to see if he had actually been buying and selling shares, but they didn't). In June, 2009, Bernie Madoff described the new SEC Chairman, Mary Schapiro, as a 'dear friend,' and he also said that the SEC Commissioner, Elisse Walter, was a 'terrific lady' whom he knew 'pretty well.' Since Madoff's arrest, the SEC has been widely-condemned for its lack of financial expertise and lack of due diligence, despite having received complaints about Madoff for almost a decade. H. David Kotz, found that since 1992, there were six incompetent investigations of Madoff by the SEC.

Recently, I was accused of being a 'bit of an alarmist' for describing the USA as a de facto kleptocracy. Interestingly, the person who made this statement is an elderly American attorney and life-long Republican. He qualified his opinion by saying that the fact that Bernie Madoff was sentenced to 150 years prison for fraud, proves that America remains a healthy democracy and that the SEC functions. However, this patriotic fellow conveniently ignored many other facts.

The US Securities and Exchange Commission did not catch Bernie Madoff. He made a confession of guilt, and handed himself in, when he could no longer maintain the lie that his investment company's hedge fund had always been expanding and had generated billions of dollars of profits for its clients. It is now a matter of public record that Bernie Madoff began to peddle his malignant fairy-tale decades ago, and that no US government regulator bothered to challenge its authenticity. Today, two years after Bernie Madoff was finally arrested by the FBI, no US government regulator has been held fully to account. That said, Christopher Cox, the former chairman of the SEC, has accepted his organization's incompetence in failing to stop Bernie Madoff's dangerous lie before it grew to multi-billions dollar proportions. As long ago as 1992, the SEC was directed to a fake 'feeder fund' which only invested its victims' money with Madoff, and which, according to the the SEC's own documents, promised 'curiously steady' returns. However, the SEC did not investigate when its officials clearly knew that something was highly-suspicious about Madoff's infallible 'money-making' powers. For decades, the SEC ignored numerous, and obvious, red flags and buried well-informed complaints about Madoff being a Ponzi copy-cat. Financial analyst andwhistleblower Harry Markopolos first complained to the SEC'sBoston office in May 1999, telling the SEC staff they should immediately investigate Madoff. Markopolos even supplied the SEC with a detailed explanation of why it was completely impossible to make the continuous profits Madoff claimed, using his mystifying 'Split-Strike Investment Strategy.' Markopolos, didn't receive a reply.

Before he left his SEC post, Christopher Cox solemnly promised that an investigation would ensue into 'all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by staff regarding the firm.' In 2009, the Project on Government Oversight (POGO), a US government watchdog group, sent a letter to Congress criticizing the SEC for failing to implement more than half of the recommendations made to it by its own Inspector General. According to POGO, during the period 2006-2009, the SEC had taken no action on 27 out of 52 recommended urgent reforms suggested in the Inspector General's reports, and it still had a 'pending' status on 197 of the 312 recommendations made in audit reports. Difficult as it is to believe, the SEC has never had a policy of disciplinary action for employees who receive 'improper gifts or other favours' (i.e. bribes) from 'financial companies' (i.e. corporate structures controlled by criminals).

Amongst a collection of similar scandals, it has recently been revealed that in June 2010, the SEC settled a lawsuit with former SEC enforcement lawyer Gary Aguirre, who was disciplined and sacked in September 2005 after attempting to subpoena Wall Street businessman, John J. Mack, in an insider trading case involving hedge fund, 'Pequot Capital Management.' At this time, the case was dropped, but just before the SEC's settlement with Aguirre was reached, the organization's senior officials suddenly had a change of heart and filed charges against 'Pequot.' However, it had taken the release of a Senate report to bring these events about.

David Brear (copyright 2010)

1 comment:

Anonymous said...

Kleptocracy [klep-TOK-ruh-see]: A government or state in which those in power exploit national resources and steal; rule by a thief or thieves. See also the United States of America where, as Goethe said, "None are more hopelessly enslaved than those who falsely believe they are free":