Wednesday, March 11, 2009

The Madoff Connection

Above is a picture of Harry Markopolos testifying before a House committee investigating the Madoff scam. But before I get to his story, I first want to talk about another Madoff related story.

The Israeli bank connection

With all the members of the Jewish community that have been involved in the Madoff scandal, it is not surprising that there should be an Israeli connection. There have been rumors circulating around the internet that some of the money "lost" by Madoff has been transferred to Israel. Well here's what I have been able to verify. I thought it was significant enough that I should post it because I haven't seen this specific information anywhere else.

The trail started with a short financial piece titled, "Israeli Bank Ends Hedge Fund Joint-Venture"

One of Israel’s largest banks is ending its joint-venture with a hedge fund that lost millions in the Bernard Madoff scandal.

Bank Leumi has taken full control of Leumi Alternative Investment, which it set up with Spring Mountain Capital in July 2007, Globes reports. Spring Mountain, founded by former Merill Lynch executive John Steffens, lost about US$40 million, which it had invested in three Madoff feeder funds run by J. Ezra Merkin, the former GMAC Financial chairman.

Merkin also served as a consultant to LSAI, and his Gabriel Capital Management Corp. is a major Bank Leumi investor. Steffens ran LSAI, in which Leumi originally had a 75% stake. LSAI managed alternative investments for Leumi’s private clients.
Sounds innocent enough; another Madoff victim; another hedge fund that was a feeder for Madoff's fund. What's interesting in this article is that J. (Jacob) Ezra Merkin was a major investor in Bank Leumi, a major Israeli bank.

Merkin you may recall was a recruiter for Madoff among the New York Jewish elite. He was president of the Fifth Avenue Synagogue, on the wealthy Upper East Side of Manhattan. Collectively members of the synagogue are said to have lost about $2 billion, and Jacob (or should we call him Ezra?) was Madoff's bagman at that location.

Now I don't think you should feel too sorry for this class of victims. These were very rich people who thought they were getting into a very exclusive investment. They were getting returns of 10% per year. They probably thought that Bernie had some sort of sophisticated insider trading scheme going on that took advantage of the rest of us poor suckers. So I figure they got what they deserved.

Hedge funds are by definition shady organizations that don't reveal the details of their investments and keep their funds in offshore accounts. Personally I think they should be illegal, but oh what fun when the rich get caught up in a scam run by one of their own. The people that invested directly in hedge funds should not be compensated by the government for their losses. These are not like FDIC insured bank accounts. These are investments that are expected to show high rates of return, but also are known to have an associated higher risk.

So alright Merkin is associated with Bank Leumi and he also is associated with Madoff. But the association with Bank Leumi is more than just through a hedge fund. Merkin heads the Gabriel Capital Group, a $5 billion money-management firm which in 2006 purchased a controlling interest in Israel's Bank Leumi for about half a billion dollars.
In a festive ceremony held at Prime Minister Ariel Sharon's office Wednesday, representatives of the Cerberus-Gabriel hedge fund group presented the PM with a NIS 2.474 billion (about USD 500 million) check in exchange for 9.99 percent of Bank Leumi's controlling shares.

The investors have reserved the option to purchase another 10.01 percent of the shares held by the State within a year-and-a-half, and to reach a total holding of 20 percent of the bank's shares.
Ezra Merkin, who represented Cerberus-Gabriel at the event, said his company's investment is an indication of the trust foreign investors have in the local economy. Merkin stated that his firm intends to continue investing in Israel.
So does that represent a half billion dollars of funds laundered and transfered to an Israeli bank from the Madoff scam? It sure looks that way to me but what do I know? And anyway money is fungible. How do you prove that the money that ended up in an Israeli bank started out life as part of the Madoff scam?

The Russian mob connection

In case that's not enough to wet your appetite, I do have a few more interesting tidbits involving the Russian mob and Madoff. It seems that the term "Russian mob" is often used to refer to Jewish Russians involved in organized crime. In this case because of Madoff's extensive connections to the Jewish community it seems likely that this is the case.

The first article is with regards to Sonja Kohn, the founder of Bank Medici.
Mrs. Kohn has dropped out of sight, leaving the firm she founded, Bank Medici, in the hands of Austrian regulators, who took it over last week.

Embarrassment from investing heavily with Mr. Madoff could explain wanting to disappear from public view. But another theory widely repeated by those who know Mrs. Kohn is that she may be afraid of some particularly displeased investors: Russian oligarchs whose money made up a chunk of the $2.1 billion that Bank Medici invested with Mr. Madoff.

“With Russian oligarchs as clients,” said a Viennese banker who knew Mrs. Kohn and her husband socially, “she might have reason to be afraid.”
Leave it to the New York Times to describe mobsters as "oligarchs". The insinuation is clearly there. Why else should she be "afraid" of these particular "investors"?

Here's a related exchange that took place during the House of Representatives hearings on the Madoff scandal which featured the heroic whistle blower Harry Markopolos.
ACKERMAN: I'm talking about, when you talk about the Russian mob and organized crime, these are people who invested through European investors or European feeder funds?

MARKOPOLOS: Correct. And I didn't fear of them, and I didn't think they were going to come after me, I want to make this perfectly clear to all those Russian mobsters and Latin American drug cartels out there. . .

ACKERMAN: You're talking directly to them.

MARKOPOLOS: I was acting on your behalf trying to stop him from zeroing out your accounts. I'm the good guy here. Just like to make that clear.
"European feeder funds" sounds like a perfect description of Kohn's Bank Medici. Still there might be a closer connection to some of those Russian mobsters. And it happens to be in New York City where congressman Gary Ackerman is from. I'm referring to the Bank of New York or BoNY. In 1998 British authorities uncovered a huge money laundering operation that involved as much as $15 billion which was operated by the Russian mob.

The brains behind the operation was Semyon Yukovich Mogilevich who was considered to be the top mobster in Russian organized crime. Mogilevich is currently behind bars in Russia for tax evasion. He was arrested in 2008. And, oh by the way, he is Jewish and has spent time in Israel where he enjoys citizenship. Like so many of the Russian mob, he is originally from Ukraine.

But why do I bring all this up? Well the Bank of New York happens to be connected to Bernie Madoff as well. Even though Madoff told investigators he had nothing left, it turned out he had a personal account at BoNY with $301.4 million. He also had an account at JP Morgan Chase with about $233.5 million. That's over $500 million. Not bad for a guy who lost everything. Of course that money has now been handed over to the courts and presumably will be used to pay off Madoff's victims - after the lawyers take their cut.

So the BoNY thing is probably just a coincidence. But after it came up in my Google searches as I was investigating the possible connections between Madoff and the Russian mob, I just couldn't help but put it in this article. Mogilevich is certainly an interesting character - kind of like a modern day Meyer Lansky.

Some have compared Madoff to Lansky, but at least Madoff wasn't in the business of offing people. But then why was Markopolos so fearful for his life?
Markopolos, a former securities industry executive and fraud investigator, said the SEC's failure to bust Madoff left him fearful of retaliation.

Madoff was "one of the most powerful men on Wall Street, and in a position to easily end our careers or worse," Markopolos testified.


OSR said...

Perhaps Markopolos didn't really fear for his life, but thought would make for a more interesting story. There's a lot about his Financial Services testimony that doesn't add up.

Frank Hope said...


It's not just Markopolos. Mrs. Kohn is also afraid. And the source of this statement is no less than the venerable New York Times. NYT is no gossip rag, although it is indubitably one of the pillars of the (pathologically lying) MSM. And no one is going to accuse the NYT of being anti-semitic. So what gives there.

As for Markopolos, I watched his testimony. It's available online at the CSPAN website. (Try Googling.) He does have a flair for the dramatic, but then Truth is stranger than fiction. Or as Mark Twain said, "It's no wonder that truth is stranger than fiction. Fiction has to make sense." Which goes directly to your comment.

Many of the congresspeople that heard the testimony by Markopolos began to speculate out loud about the possibility of a movie. He is certainly an interesting character. But it does make sense that when you go up against someone as powerful and influential as Madoff was, that you would risk retaliation.

As Markopolos predicted, Madoff now faces a life sentence. What would he have to lose by silencing someone out to get him? Just take a look at the story of Jack Abramoff. He's accused of being involved in the murder of Konstantinos "Gus" Boulis.

It takes real courage to do what Markopolos did. There's also the case of Peter Scannell who had his head bashed in by a brick as a result of his whistle blower activities with regards to Putnam Investment and market timing of mutual funds.

Madoff had the money, power and connections to have Markopolos pay a severe price for his meddling. But finally, would you have had the courage to go after somebody like Madoff knowing that he had connections at the SEC and that word could easily leak back to him? At the very least you would have to question what you were getting into, and what kind of people you were dealing with. Madoff is a criminal and who knows to what lengths he would have gone to protect his criminal empire.

The only reason Madoff gave himself up now is to protect his sons and his wife. I'm not buying the story that his sons turned him in. That's just a cover to protect his sons from prosecution. The story that "doesn't add up" here is Madoff's concoction that he is the only guilty of a crime. The feds should go after him with Rico powers.

They should go after his family with asset forfeiture laws used in drug cases. In these cases the assets are seized by the government and it is up to the individual to prove that these were not obtained through illegal methods. Heck they should go after him and his family as enemy combatants, because it is the Wall St. banksters who are the real terrorist threat to America.

And when they are done with the Madoff family, they should go after Goldman Sachs. But of course that will never happen because the people at GS are the very same people that control the government. This is a case of criminal corruption American style. The problem with trying to root out corruption from the government is where do you start? When corruption goes all the way to the top as in the cases of Paulson and Bernanke, how do you begin to get it out of government?

Look at Obama. He got elected to clean up the economic mess Bush left and the first thing he does is appoint Tim Geithner to Treasury. But Geithner was a high level part of the gang that created the mess. As head of the New York Fed he was supposed to be regulating the Wall St. banks that created this mess. He failed utterly and miserably and in fact it is easy to conclude that he was part of the conspiracy and yet he was promoted to the highest office.

Recently Chas Freeman was appointed to a high office to clean up the corruption in gathering intelligence used to make strategic decisions by the US government. He was forced to resign by the Israel Lobby. This is another case of where do you start? When people like Dennis Ross are placed directly in the State Department to spy for Israel and to be a watchdog for the Israel Lobby, who is going to protect the interests of the American people?

One of the reasons that Madoff was able to get away with his scheme for so long was that the FBI had to pull off resources from white collar investigations to concentrate on terrorist investigations. The reason for this is the influence of the Israel Lobby which scared the American public into believing in a false terrorist threat in order to promote their agenda. So the two issues are closely linked.
"The fish rots from the head". Its up to the American people to realize that government must be cleaned up top to bottom. Look at the SEC as a microcosm of this. What the case of Harry Markopolos showed was that the SEC is corrupt from the top.

And so Obama brings in Mary Shapiro to run the SEC. But Shapiro was formerly the head of FINRA which Markopolos adamantly declared was even more in bed with the Wall St. banksters than the SEC. "The fish rots from the head".

Don't get me started...

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