Posts Tagged ‘Bernard Madoff’

In Entrepreneurs We Trust

February 11, 2009

Trust may be the most scarce commodity around right now.

Wall Street can’t be trusted much these days, thanks to the financial crisis and a guy named Madoff. A lot of corporate executives haven’t done much to inspire trust. People have never much trusted their politicians. And even seemingly harmless athletes are finding ways to lose the trust of the public.

So who can you trust these days? Friends and family, of course. But beyond that close circle I would say that in the public sphere entrepreneurs still deserve to be trusted. Entrepreneurs represent the very best of America: They work very hard, they often develop products and services that improve our lives, and they create jobs that help our communities and the nation at large.

So as we continue to try to dig ourselves out of this deep hole, let’s try to keep finding ways to help entrepreneurs and small businessmen and businesswomen. Entrepreneurship flourishes in a climate of economic freedom, with low taxes and little regulation. You don’t hear too much about entrepreneurs in the discussion about the stimulus package and in talk about the economy. Wall Street firms and banks and Detroit seem to hog most of the attention.

But it’s the entrepreneurs and small businesses that will likely play a key role in reviving our animal spirits and lifting us out of this recession. Thomas Friedman of the New York Times wrote a great and timely column today related to this issue when he slammed the Senate’s version of the stimulus, which banned banks and other financial institutions that receive taxpayer bailout money from hiring high-skilled immigrants on temporary work permits known as H1-B visas. More than half of Silicon Valley startups were founded by immigrants over the last decade. It is dumb and shortsighted to keep these industrious and smart folks out of our country–a subject I’ve written about before at BusinessWeek.

General Doriot, the focus of my book, was all about supporting entrepreneurs–from across the globe. The Doriot bucks above inspired me to write this post. Doriot used to give out this fake money at the annual meetings of his venture capital firm American Research & Development. last year, Scott Kirsner of the Boston Globe was kind enough to send me a few of them. And now I am happy to share them with you.


Doh! Worst Predictions of 2008

December 26, 2008

My BusinessWeek colleague Peter Coy published his worst predictions of 2008–a year that probably embarrassed a lot of pundits and prognosticators.

Coy did not pull any punches. Rep. Barney Frank, President George W. Bush, investor T. Boone Pickens, scammer Bernard Madoff and even Federal reserve Chairman Ben Bernanke made the ignominous list.

Here are the top three:

1. “A very powerful and durable rally is in the works. But it may need another couple of days to lift off. Hold the fort and keep the faith!” —Richard Band, editor, Profitable Investing Letter, Mar. 27, 2008

At the time of the prediction, the Dow Jones industrial average was at 12,300. By late December it was at 8,500.

2. AIG (AIG) “could have huge gains in the second quarter.” —Bijan Moazami, analyst, Friedman, Billings, Ramsey, May 9, 2008

AIG wound up losing $5 billion in that quarter and $25 billion in the next. It was taken over in September by the U.S. government, which will spend or lend $150 billion to keep it afloat.

3. “I think this is a case where Freddie Mac (FRE) and Fannie Mae (FNM) are fundamentally sound. They’re not in danger of going under…I think they are in good shape going forward.” —Barney Frank (D-Mass.), House Financial Services Committee chairman, July 14, 2008

Care to add anymore?

Too Little, Too Late Department: SEC Offers Mea Culpa on Madoff Flop

December 17, 2008

Yesterday morning, I posted a story saying that the Bernard Madoff scandal represented a new low point for the U.S. Securities and Exchange Commission, underscoring the need for fresh leadership at this small yet critical federal agency.

Last night, I was happy to see that the leader of the agency, chairman Christopher Cox, has recognized the failures of his leadership and of the organization he leads by putting out a press release with the bland title, “Statement Regarding the Madoff Investigation.” It should have been titled, “Statement Regarding Our Failure and Abdication of Our Responsibility.”

“The Commission has learned that credible and specific allegations regarding Mr. Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action,” wrote chairman Cox. “I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them.”

Although it’s too little and too late, chairman Cox has now ordered a “full and immediate review of past allegations regarding Mr. Madoff and his firm and the reasons they were not found credible, to be led by the SEC’s Inspector General.”

One potentially explosive issue is that the SEC may have reined in its investigation of Madoff due to a serious conflict of interest. One of the SEC’s investigative teams was led by a lawyer named Eric Swanson–the husband of Shana Madoff, a niece of Bernard Madoff and daughter of his brother Peter Madoff, the firm’s chief compliance officer. A New York Times story delves into the issue.

This may explain why the SEC NEVER used its subpoena power to obtain information about Madoff. Rather, it relied on information voluntarily produced by Madoff and his firm, information we now know that was full of lies.

Trying to understand your mistakes makes sense because it may help you avoid making the same mistakes in the future. But instead of making such a big stink about investigating past failures, I think the public would be better served if the SEC told us it was putting most of its power and resources behind uncovering the next big fraud–or making sure another one doesn’t happen.

Who Should Obama Appoint to Head the SEC?

December 16, 2008

The Bernard Madoff scandal is the last straw for the existing leadership of the U.S. Securities & Exchange Commission.

That the SEC was warned repeatedly about Madoff, and even conducted several inquiries into his firm, but did not uncover the massive fraud proves that the important agency needs a major overhaul.

SEC chairman Christopher Cox has proved to be an ineffective leader, to say the least. Most famously, Cox assured investors nine months ago that Bear Stearns was fine. It collapsed three days later.

It gets worse. According to a story by Stephen Labaton in today’s New York Times, the SEC has been plagued by some pretty shady behavior, including botched investigations and “accusations that several SEC employees have engaged in illegal insider trading and falsified financial disclosure forms.”

This is unbelievably appalling! The agency tasked with enforcing securities laws is allegedly breaking those very laws! Check out this link to the reports of the SEC’s inspector general.

Many people don’t realize this but the SEC was created as a result of the 1929 stock market crash and related financial shenanigans. The main reason for the creation of the SEC in 1934 was to regulate the stock market and prevent corporate abuses relating to the offering and sale of securities and corporate reporting. Sounds relevant today, no?

In fact, a strong regulator overseeing financial markets is more important than ever in today’s complex, fluid and interconnected global economy.

So who would be an ideal leader to overhaul the agency and take it into the future?

I am not sure. But I think we need someone with same gravitas and experience like past SEC chairman Arthur Levitt, who ran the SEC from 1993 to 2001 and was widely credited with upgrading the agency and serving as a strong advocate and protector of investors.

Although chairman Cox is a smart guy with law and business degrees from Harvard, I think experience has shown that he did not have a full understanding of today’s financial markets. So whoever gets the job needs to have a lot more experience working on or with Wall Street.

I am throwing out a few ideas here just to get the conversation started:

John Thain, former CEO of Merrill Lynch
Warren Buffett, investing legend
Joel Seligman, leading scholar of SEC and president of University of Rochester
Lynn Turner, former chief accountant of the SEC
Laura Unger, former SEC Commissioner and Acting Chairperson of the SEC

Questioning Bernard Madoff

December 15, 2008

I don’t know about you, but I’ve been transfixed by this Bernard Madoff scandal. I spoke to two people over the weekend who told me they knew folks who invested in Madoff’s fake funds. The ripples of this humongous rip-off are just beginning to be felt.

What floors me is the fact that Madoff was the former chairman of Nasdaq–a pillar of the financial community. This was not some sketchy, fly-by-night boiler room. Madoff supposedly represented everything that was good about Wall Street. And now he’s been exposed as possibly the biggest scam artist of all time. It makes you think that NO ONE ON WALL STREET CAN BE TRUSTED.

How did he get away with this for so long? I have no idea. But there a few people who questioned Madoff’s eerily consistent returns.

Check out this one story published in MAR/Hedge in May 2001, “Madoff tops charts; skeptics ask how,” by Michael Ocrant. “Most of those who are aware of Madoff’s status in the hedge fund world are baffled by the way the firm has obtained such consistent, non-volatile returns month after month and year after year,” wrote Ocrant.

This story was followed by another piece in Barron’s written by my former colleague at, Erin Arvedlund, titled “Don’t Ask, Don’t Tell.” (registration required to see full story.)

And here’s another interesting blog post commenting on Madoff’s scam, written by an investor who looked into this funds for a client.