Blog Post

Banks, Investment Advisors, and Accounting Firms Missed or Ignored Ponzi Scheme "Red Flags"

Posted by: Jeffrey B. Kaplan
December 13, 2008
Topic: Bernard L. Madoff Ponzi Scheme

Madoff Securities' Auditor Generated 'Red Flags'

(Bloomberg) -- Aksia LLC, an adviser to hedge fund investors, warned clients not to put their money with Bernard Madoff after learning of "red flags" at his company, including that its books were audited by a three-person accounting firm.

Bernard L. Madoff Investment Securities LLC used Friehling & Horowitz, an auditor operating out of a 13-by-18 foot location in an office park in New York City's northern suburbs. Madoff was charged by federal prosecutors yesterday with running what he said was a $50 billion Ponzi scheme. The auditor signed off on Madoff's annual financial statement through Oct. 31, 2006, according to a copy obtained by Bloomberg News.

New York-based Aksia urged clients last year not to invest with Madoff's firm after learning the identity of the New City, New York-based auditor, according to Jake Walthour, head of advisory services at Aksia. Friehling & Horowitz included one partner in his late 70s who lives in Florida, a secretary, and one active accountant, Aksia said.

"Our judgment was swift given the extensive list of red flags," Aksia wrote yesterday in a letter to clients.

. . .

Aksia's Jim Vos said he spent several months probing Madoff's firm on behalf of clients, only to recommend against investing in it.

. . .

"I'm shocked by how investors turned a blind eye to returns that were too good to be true, constant steady small positive monthly returns," Vos said. "When something is too good to be true, it probably is."

. . .

Among the other "red flags" cited by Aksia was the "high degree of secrecy" surrounding the trading of the feeder fund accounts, which provided capital to Madoff Securities, and its use of a trading strategy that appeared "remarkably simple," yet "could not be nearly replicated by our quant analyst."

Dimond Kaplan & Rothstein, P.A. Represents Madoff Investors

Miami, Florida-based law firm Dimond Kaplan & Rothstein, P.A. (http://www.dkrpa.com/) represents a number of Madoff investors, and is actively investigating avenues for the recovery of at least a portion of their investment losses. While it has been reported that virtually all monies invested with Madoff have been lost, Dimond Kaplan & Rothstein has learned of a number of solvent third parties that may be held accountable for certain losses suffered with Madoff. For example, upon information and belief, a number of accounting firms, "feeder" hedge funds, and even banks such as Japan-based Nomura, Geneva-based Banque Benedict Hentch, and Zurich-based private bank Neue Privat Bank are believed to have steered clients' money with Madoff.

Unlike the above-mentioned Aksia LLC, Nomura, Banque Benedict Hentch, Neue, and other third parties plainly failed to conduct proper due diligence, failed to recognize -- or ignored -- the types of seemingly obvious 'red flags' that Aksia LLC noticed about Madoff. As such, those third parties and others may be held responsible for certain Madoff investor losses. Dimond Kaplan & Rothstein, P.A. is a nationally recognized law firm with extensive experience representing investors throughout the country in investment fraud cases and specifically including victims of Ponzi schemes. Dimond Kaplan & Rothstein, P.A. partners Scott M. Dimond, Jeffrey B. Kaplan, and David A. Rothstein can be contacted at (305) 374-1920 for a free consultation.

Topics

Bernard L. Madoff Ponzi Scheme
DBSI Securities Fraud
FINRA Fines NEXT Financial Group
General Securities Fraud
Medical Capital Investment Fraud
North Carolina Fraud
Provident and Shale Royalties
Regions Bank - U.S. Pension Trust and U.S. College Trust
SEC Bars Investment Advisor Charles Ganz
UBS Sales of Lehman Brothers Principal Protected Notes

Recent Updates

August 20, 2010
Foresee Strategies Insurance Funds Losses

July 15, 2010
Investors Unlikely to Recover Significant Money from Medical Capital Receivership

June 25, 2010
SEC Stops $34 Million Jacksonville, Florida Ponzi Scheme

June 24, 2010
SEC Charges Palm Beach County Investment Adviser With Running a Ponzi Scheme and Stealing Client Funds

June 15, 2010
Assets Recovered by SEC Receiver for Medical Capital Fall Far Short of Investor Losses

Archives

December, 2008

Web Resources

FindLaw
Thomson West
U.S. Courts
Westlaw
United States Chamber of Commerce
FirstGov
Library of Congress
White House
Internal Revenue Service
Yahoo!Legal Blog Directory