Heed Woody Allen's Warning!
Among the latest and more lurid developments on Wall Street was the guilty plea of Peter Madoff, 66, Bernard L. Madoff Investment Securities LLC ("BLMIS") from 1965 through sometime in December 2008. Beginning in 1969, he became the Chief Compliance Officer ("CCO") and Senior Managing Director of BLMIS. In his role as CCO, Peter Madoff created false and misleading BLMIS compliance documents, as well as false reports that were filed with the Securities and Exchange Commission that materially misstated the nature and scope of BLMIS's Investment Advisory business.
On June 29, 2012, Peter Madoff pleaded guilty to a two-count Superseding Information, which charged him with such wrongdoing as securities, tax, mail, and ERISA frauds; and falsifying records of an investment advisor. In furtherance of the various frauds, Peter Madoff and others made false statements about the integrity of BLMIS's purported compliance efforts and the true status of the firm's so-called investment advisory business.
Peter Madoff faces a statutory maximum sentence of 10 years in prison and, pursuant to his plea, agreed not to seek a lesser sentence. Moreover, he has agreed to forfeiture of more than $143.1 billion, including all of his real and personal property - that amount represents all of the investor funds paid into BLMIS from 1996 through December 2008. Additionally, the government separately entered into settlements with family members that call for the forfeiture of Peter Madoff's wife Marion's and his daughter Shana's assets, plus assets of other family members. Marion Madoff will retain about $771,733.
Not Really A Crime Crime
If you haven't heard about this story by now, you're probably not working on Wall Street or not an investor or not all that keen a follower of the ongoing crime wave that has bedeviled the United States securities industry for the past few years. Except, you know, in polite circles it's not really a crime wave - oh, no, don't be absurd; that's what those bad people in the drug cartels in Mexico do. There's crime and then there's crime and this financial stuff is crime, crime. If you must insist upon the C-word, then let's at least put it in its proper context: White Collarcrime.
Yeah, sure. As if that warped logic and despicable rationale hasn't prompted and encouraged far too many scamsters and fraudsters to elevate their Wall Street cons in recent years. If I take a gun and stick it in your ribs and demand your wallet, there's not much doubt that an armed robbery went down. If I steal your life's savings through the use of exotic financial instruments, well, you know, that's not armed robbery - nah, that's a misunderstanding or a miscommunication or you could call it fraud, if you must, but it's not really like getting held up in a darkened alley. You see the difference, right?
Truly, we have to stop that crap. We need to stop the euphemisms.
Many bank holding companies and brokerage firms often act more like racketeering influenced corrupt organizations than legitimate businesses. Threats and coercion are not simply the tools of the Russian Mob. Read some of the Department of Justice's recent allegations against supposedly respected financial organizations and it's hard to not wince at the charges of collusion, threats, lies, and deceit.
Sure, loan sharking is nasty and folks get their bones broken; but how much different is that when homeowners find their lives evicted onto the front lawn because of illegal mortgage lending practices? Read about the alleged rigging of the LIBOR rates and tell me how it's all that different from running a rigged casino.
There are times when Citigroup, JP Morgan, Goldman Sachs, Morgan Stanley, Wells Fargo, and Bank of America look and act like the legitimate businesses that they should be. However, there are also times when those too-big-to-fail seem to conduct themselves as if they are also above the law - as if they get to make up the rules as they go along. Of course, what good crime story doesn't have a paid snitch and what modern-day Wall Street lawmaking doesn't involve Senators and Representatives with their hands out?
An Investment Of Time
Far too much of the coverage of the Peter Madoff case has been left to cutesy headlines and sound bites. In this day of tweets and instant messaging, brevity has been exalted -- as if we no longer have the time to learn the facts or bother to read any detailed analysis. All of which harkens back to Woody Allen's joke: I took a speed-reading course and read War and Peace in twenty minutes. It involves Russia.
Serious industry participants and public investors must go behind the catchy headlines and learn about the details and guts of the Madoff scandal. Stop with the CliffsNotes. Take the time to read, first hand, the full-text criminal Information to which Peter Madoff has pleaded guilty.
It's not a few paragraphs in the newspaper or a video clip embedded on a website. It's 69 paragraphs spread over 37 pages. It is the calendar and road map of a family's self-destruction, the implosion of an investment advisory and brokerage firms, and a virtual indictment of the impotency and ineffectiveness of our nation's regulatory system.