Guest Author - Consuelo Herrera, CAMS, CFE
"This is an extreme example of uncontrolable greed which should be investigated by the proper authorities." This was the closing paragraph of an anonymous letter sent to the former Chairman of the Securities and Exchange Commission, SEC. Was this warning letter ignored?
Reading documents supporting the Bernard Madoff’s Ponzi Scheme is overwhelming. The indicators, the tips, and the information were all available to the SEC. What triggered their willful blindness?
Did you know that an initial anonymous letter was sent to the Chairman of the Securities and Exchange Commission (SEC)? This letter should have been followed upon receipt. Although the Exhibit has two dates: April 26, 2006 and a 12/06/06 follow-up, “This is sent in the event you did not receive the original.”, the stamp of Received by the Chairman’s Correspondence Unit reads” ES123868 (handwritten) and its date is March 31, 2008 at 12:24 P.M.
Read the text below the content of one of many exhibits gathered on the Investigation of Failure of the SEC to Uncover Bernard Madoff’s Ponzi Scheme:
The honorable Christopher Cox
Securities Exchange Commission 12/06/06
450 Fifth Street NW Dear Sir,
Washington, DC 20549
Your attention is directed to a scandal of major proportion which was executed by the investment firm Bernard L. Madoff. 885 Third Avenue, New York, NY.
Assets well in excess of $10 Billion owned by the late Norman F. Levy, an ultra-wealthy long time client of the Madoff firm have been "co-mingled" with funds controlled by the Madoff company with gains thereon being retained by Madoff.
This action may have been taken with the knowledge and consent of the late. Norman F; Levy in an effort to "take it. with him" by avoiding ·Federal and State estate taxes on these billions of dollars.
This is an example of uncontrollable greed which should be investigated by the proper authorities.
A concerned citizen
It may be of interest to you to know that Mr. Bernard Madoff keeps two (2) sets of records. The most interesting of which is on his computer which is always on his person.”
With the purpose of setting clear guidance in fraud prevention, the Institute of Internal Auditores, the American Institute of Certified Public Accountants, and the Association of Certified Fraud Examiners issued a practical guide intended to help prevent fraud and to take into consideration the risk of fraud that invariable each organization faces. This document states: “In addition to the board, personnel at all levels of the organization — including every level of management, staff, and internal auditors, as well as the organization’s external auditors — have responsibility for dealing with fraud risk. Particularly, they are expected to explain how the organization is responding to heightened regulations, as well as public and stakeholder scrutiny; what form of fraud risk management program the organization has in place; how it identifies fraud risks; what it is doing to better prevent fraud, or at least detect it sooner; and what process is in place to investigate fraud and take corrective action3. This guide is designed to help address these tough issues.”
Three “Ms” are present at the highest level of financial reporting fraud: Manipulation, Misrepresentation, and Misapplication. All of them were present at Madoff’s Ponzi Scheme.
Forensic accountants have been diligently working to put the pieces together of this puzzle that seems never unravel enough to let victims know the exact scope of what took place under Madoff’s direction. Madoff's acts and omissions intended to hide and distort the real condition of his company and deceive those who entrusted their wealth to him.
When financial statement fraud is present, forensic accountants excel identifying schemes and plots setup by financial criminals.