NYC Brokerage Firm, LA Money Manager Accused of Funneling Billions to Madoff
The government’s continuing prosecution of disgraced Wall Street money manager Bernard Madoff has claimed a few more victims.
New York City brokerage firm Cohmad Securities Corp. and three of its top executives have been charged by the Securities and Exchange Commission and accused of funneling billions of dollars from investors who were duped into the Ponzi scheme by dishonest marketing tactics and outright lies. The firm allegedly served as a key middleman between unknowing investors and Madoff.
Also charged separately was Beverly Hills investment advisor Stanley Chais, who is accused of representing himself as “an investing wizard” who managed about $1 billion in investor funds, but who was in fact a relatively unsophisticated investor who turned over all the proceeds to Madoff.
Chais also is accused of ignoring “red flags” that appeared in Madoff’s investment firm, which allowed the historic $65 billion investment scam to continue undetected.
Madoff is scheduled to be sentenced next month for what prosecutors have dubbed the largest Ponzi scheme in U.S. history. In a Ponzi scheme, no actual profits are earned but initial investors are paid purported profits from funds contributed to the scheme by later investors, similar to a pyramid scheme.
Madoff, who has claimed he acted alone in ripping off thousands of investors including some Hollywood celebrities and professional athletes over the span of nearly 20 years, could be sentenced to life in federal prison.
Lies, False Impressions Alleged
Cohmad and its top officers are accused of giving investors the impression that they were among only a select few who had earned the privilege to invest with Madoff, who had earned a reputation for earning big returns for clients, even in turbulent investment waters. That was far from the truth.
“Madoff cultivated an air of exclusivity by pretending that he was too successful to trouble himself with marketing to new investors,” said Robert Khuzami, director of the SEC’s enforcement division, according to a Reuters report. “In fact, he needed a constant inflow of funds to sustain his fraud, and used his secret control of Cohmad to obtain them.”
Cohmad and the executives also are filed false regulatory forms that hid the fact that most of the firm’s business consisted of feeding investors to Madoff, the SEC said.
Other Feeder Funds Charged
This is not the first “feeder funds” targeted by authorities and former investors trying to unravel the history scam.
In May, Spanish bank Banco Santander agreed to pay $235 million to settle threatened legal claims accusing the bank of funneling about $8 billion of its clients’ money into Madoff’s scheme.
A New York City investment broker was sued in April 2009 by two former clients who blamed him for losing their money in Madoff investments.
Also in April 2009, New York City hedge fund manager J. Ezra Merkin was charged with funneling $2.4 billion of investor funds to Madoff and not telling clients what he was doing with their money.
Others, including Madoff’s longtime accountant, face either criminal or civil charges for their alleged roles in the investment fraud.
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