SEC Employees in Madoff’s Case

  • Uncategorized

MADOFF CASE 4

SECEmployees in Madoff’s Case

SECEmployees in Madoff’s Case

Summary

RenTec, founded in 1982 by James Simons, a trained mathematician, wasone of the largest hedge fund companies, which used computer programsto run their activities. It was categorized as quantitative or blackbox funds. Ren Tec had a sister company that operated outside SanFrancisco under the leadership of Simon’s son Nat. The two weremaking huge returns that enchanted the attention of the securityexchange commission (SEC). Notably, Ren was not operating on a fundto finance basis like any other hedge fund but on a total returnswap. Meritage was noted to be performing well under this operation,thereby producing remarkably high returns and profits. At Meritage,only the chosen few were allowed to invest. Bernard Madoff selectedthe fund`s manager.

ThomasThanasules, an employee of security exchange commission, had hisconcerns about the company. He noted a red flag through the Ren Tecemails he had received. Ren Tec did not get any statements of theiraccounts nor were they in touch with the fund manager. They dependedon the information remitted by HCH and other sources. Thus, they werenot aware of how the company made the returns. There was anindication of cherry-picking of trades, and this was a red flagbecause it meant that the most profitable trades were allocated tofavored investors only. For Thomas, this email raised eyebrowsbecause he did not understand why Renaissance was in the darkregarding the operations carried out in the hedge fund. The inabilityof Paul Broder, the risk manager at Ren Tec, to identify any tradingvolume and counterpart ticked off Thomas Thanasules who presented thee-mails to his supervisor chief Diane Rodriguez.

Thehead of SEC’s broker-dealer examination program Robert Sollazoassigned the Madoff case to John Nee the man in charge of thecompliance division as an assistant director eight months later. Neesought the expertise of two young examiners: Peter Lamore and WilliamOstrow. Later in April 11, 2005, Lamore and Ostrow paid a visit toMadoff Securities and gathered all the necessary documents andaccount statements within two days. They interviewed Madoff and notedthere was no need for them to be there because there was noindication that he was advising or running any hedge fund. The twoexperts spent nearly two months at the Madoff office but neverchecked how the back office tasks were conducted within thatorganization. In their possession, the two SEC employees had articlesthat contradicted the fact that the company claimed it did not run ahedge fund. Lamore and Ostrow questioned Madoff about the model heused to conduct the trades. All the information was later givenvoluntarily and at this juncture is when it was noted that tradingoperations had been disclosed to the SEC to one Mr. Lori Richards whoworked at OCIE. It was confirmed that OCIE had investigated Madoff.In June, Nee requested the two young experts not to visit theMadoff’s feeder fund despite the fact that Ostrow was moredetermined to carry the investigations further. They concluded theirreport in September stating minor violations. Harry Markopolos cameforward with allegations of a Ponzi scheme, and the investigationsbegan again. This time, it was assigned to Meaghan Cheung chiefenforcement division at the branch and Simona Suh who was the staffattorney.

Theenforcement lawyer and team at SEC, Cheung and Suh interviewed thefund manager and did not see any reason for an enforcement action.David Kotz, the inspector general at SEC, picked up the case in 2008after it was noted that the security exchange commission had failedto notice the fraud carried out by Madoff even after thewhistleblower Markopoulos had contacted the council with accusationsof the Ponzi scheme.

SECEmployees

ThomasThanasules – An employee who had received suspicious emails fromRen Tec and forwarded them to his supervisor for investigations.

RobertSollazo- head of SEC`s broker-dealer examination program. He wasassigned the case for further investigations. He was also the one whorecruited Peter Lamore and William Ostrow

JohnNee –the assistant director at compliance division who was part ofthe team carrying out the investigations.

DianeRodriguez –the supervisor in charge of Thomas Thanasules who alsoreceived the emails that Thomas had received from Ren Tec.

PeterLamore – An employee of SEC who was an expert in hedge fund andtrading options. He was the expert who carried investigations at theMadoff offices and interviewed him on his operations. He also notedthe discrepancies in Madoff’s testimonies.

WilliamOstrow – An employee at SEC for more than five years and had moreexperience in the field.

LoriRichards – An expert who worked at SEC`s Office of ComplianceInspections and Examinations (OCIE). He had the details of theoperations of Madoff’s company in the form of a file.

MeaghanCheung – the chief enforcement at SEC who interviewed Madoff andpicked up the case after investigations were launched again.

SimonaSuh – the staff attorney.