Madoff Associate And Lawyer Come To Boston As Fraud Probe(s) Continue

As the “Madoff Wars”, fought by investigators, attorneys and accountants, rage, score one for lawyers of the Commonwealth. They finally got Robert Jaffe, a crucial witness to Madoff’s operation, to the Hub where he finally spoke to regulators. The result? Boston regulators are ramping up a probe into Bernard Madoff’s alleged $50 billion Ponzi scheme.

As any loyal reader to this daily blog knows, we have been “checking in” with the Madoff Nightmare since the beginning. In our last episode, January 27ths Boston Secretary Of State Tells Madoff Associate To Visit; Attorney Says “Nope”., the Commonwealth and the court were telling him to come up from Florida to talk. Through counsel, his response had been in the negative.
Apparently, he has changed his mind. Yesterday, he met with state investigators. It is not clear whether Jaffe, who went to court last month in a failed bid to block the state’s subpoena, told regulators anything of value, however.

Jaffe, a vice president at Madoff’s Cohmad Securities unit, introduced many alleged Massachusetts scam victims to Madoff. However, the 64-year-old has denied any knowledge of the reputed Ponzi scheme. Rather, Jaffe – the son-in-law of Hub philanthropist Carl Shapiro, who allegedly lost some $300 million in the scam – has said that he and his family are among Madoff’s victims.

“The responsiveness of Mr. Jaffe to (our) subpoena is presently being evaluated,” said State Secretary Galvin, whose office regulates Massachusetts securities sales. However, Galvin did say that his probe has expanded to include other “feeder firms” – companies that lined up Madoff investors.

“Although many Massachusetts investors found their way to Madoff through Cohmad, we’re not exclusively focusing on (that firm),” Galvin said. He said regulators are seeking information from three other feeders: Austin Capital Management, Fairfield Greenwich Group and a subsidiary of Springfield-based MassMutual.

Although federal officials in New York are leading the Madoff investigation, Galvin has launched his own probe in a bid to help Massachusetts investors recoup their money.
As you may recall, many charities, hospitals, schools and individuals, throughout the Commonwealth (as well as the world) have suffered greatly by the Madoff Massachusetts fraud experience.. which basically translates into a Massachusetts theft experience.

Meanwhile, as predicted, others are sharing the hot seat with Madoff. Take, for example, Nantucket summer resident Frank Avellino, a longtime cohort of Madoff’s. He has been accused by his former Cliff Road neighbors of investing and losing more than $1 million of their money in Madoff’s colossal Ponzi scheme that has ruined thousands of investors worldwide.

Neighbors who sold their Cliff Road home to Avellino in 1992 and considered him a friend, have filed suit against Avellino in Nantucket Superior Court, seeking to recover their money that was lost when Madoff’s $1 billion scheme collapsed last December and he was turned in to federal authorities by his sons. They are not alone their accusations. Since Madoff was arrested, Avellino has slowly emerged as one of the chief middlemen who steered clients and vast amounts of cash to Madoff, fueling his growing Ponzi scheme.

Meanwhile, in New York, the hot seat is also being shared by government regulators.
A whistleblower who repeatedly warned the Securities and Exchange Commission that Bernard Madoff was perpetrating a massive investment fraud testified yesterday that the regulatory agency that oversees financial markets is inept, “financially illiterate” and far too cozy with the financial titans it is supposed to be regulating.

“The SEC is also captive to the industry it regulates and it is afraid of bringing big cases against the largest most powerful firms,” said Harry Markopolos, an independent financial fraud investigator. “Cleary the SEC was afraid of Mr. Madoff.”
Markopolos, began contacting the SEC at the beginning of the decade to warn that Madoff was a fraud. He sent detailed memos, listing dozens of red flags, laying out a road map of instructions for SEC investigators to follow, even listing contacts and phone numbers of Wall Street experts whom he said would confirm his findings. But, Markopolos’ whistle-blowing effort got nowhere.

“I gift wrapped and delivered the largest Ponzi scheme in history to them and somehow they couldn’t be bothered to conduct a thorough and proper investigation because they were too busy on matters of higher priority,” Markopolos told the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.

And the next occupant for that hot seat?

Markopolos said he intends to turn in a “mini-Madoff” who has engaged in a $1-billion financial fraud today when he meets with the SEC’s Inspector General David Kotz.

Kotz, who is studying the SEC’s failure to respond to Markopolos’ warnings about Madoff, confirmed to CNN that he is scheduled to meet with Markopolos.

Attorney Sam’s Take:

As you may recall, the Bay State has some claim to Madoff’s scheme. After all, the “Ponzi Scheme” was a Massachusetts white collar crime before Madoff ever arrived on the scene. It was originated here by a Mr. Charles Ponzi. Of course, not that it’s something to be particularly proud of…

…but I digress.

In a few months, a movie is coming out called “The Watchmen”. It is based on a graphic novel of the same title. One of the quotes from the story is “Who watches the watchmen?”

They might start using that slogan as the Madoff Nightmare investigations continue to unfold. Among other targets for the “blame game”, are the government agencies who are charged with the responsibility to prevent a “Madoff Nightmare” from happening.

It would appear that they failed to do so.

Such investigations can lead to two positive results. First of all, perhaps things can be set in place so that such a thing will not happen again. The other? More prosecutions can result. Aside from the likely civil cases, there is such a thing as Criminal Negligence. I have a feeling that we are likely to hear more about that in days to come.

Meanwhile, don’t get too excited that Mr. Jaffe has been forced to testify in this case. The court may have forced him to come up north, but it cannot force him to testify against himself. The United States Constitution gives us all a right, under the famous Fifth Amendment, not to incriminate ourselves.

As a result, if any questions asked could get him into trouble, Jaffe was probably advised by his lawyer to refuse to answer in reliance upon his Fifth Amendment privilege. There are, by the way, exceptions to this. For example, if the government were to grant Jaffe immunity from prosecution, he would no longer be in danger and could be forced to answer those nasty heretofore avoidable questions.

The laws regarding asserting a Fifth Amendment privilege are actually more complex than you might think. Therefore, once again, if you find yourself in Mr. Jaffe’s position, follow his lead in one other respect. Consult an experienced lawyer to advise and defend you.

As a final note, you may start looking toward indictments coming down from the federal government. Because Madoff’s crimes have effected virtually every state in the union (and beyond), his crimes can be prosecuted as federal crimes. This means that all potential targets of prosecution in the Madoff Nightmare have exposure not only in state court…but also in federal court as well.

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