Madoff put under curfew as he seeks people to vouch for him
NEW YORK -- The judge in the Bernard Madoff fraud case on Wednesday set new conditions for his bail, including a curfew and ankle-monitoring bracelet for the disgraced investor.
Madoff (MAY-doff) remains free on bail, with his wife and brother serving as co-signers for his bail package. A hearing had been scheduled for Wednesday in which Madoff was required to find two additional co-signers to vouch for him.
But with the scandal swirling around Madoff, he was unable to find co-signers. So the judge modified the bail package, and gave lawyers until Monday to come up with additional paperwork.
Madoff, wearing a baseball cap and a black jacket, said nothing to reporters as he walked out of the federal courthouse in Manhattan and drove away in a sport-utility vehicle. He was at the courthouse to sign over his Upper East Side apartment and his homes in Palm Beach and the Hamptons for his $10 million bond.
Madoff has already surrendered his passport, and now will be required to be at his Manhattan apartment from 7 p.m to 9 a.m. His wife was required to surrender her passport as well.
In related news:
• The chairman of a House Financial Services panel, Democratic Rep. Paul Kanjorski, says the scandal has further weakened already-battered investor confidence in securities markets and has raised more troubling questions about the effectiveness of the regulatory system.
The Pennsylvania congressman said Wednesday he'll convene a congressional inquiry early next month to examine the alleged Madoff fraud and to determine why the Securities and Exchange Commission and other regulators failed to detect what he described as "these substantial evasions."
• U.S. Attorney General Michael Mukasey has removed himself from involvement in the Madoff investigation, the Justice Department said Wednesday.
Mukasey's son, Marc Mukasey, represents Frank DiPascali, a Madoff firm official, in the probe.
Justice Department spokesman Peter Carr said Wednesday that the attorney general would not oversee or otherwise be involved in any aspect of the investigation, which is being run out of the U.S. attorney's office in Manhattan.
Securities and Exchange Commission Chairman Christopher Cox on Tuesday said he has asked for an investigation into how Madoff's alleged $50 billion Ponzi scheme went undetected despite repeated "credible and specific allegations" made to SEC staff since at least 1999.
Cox said SEC attorneys never bothered to seek a formal commission-approved investigation that would have forced Madoff to surrender vital information under subpoena. Instead, the staff relied on information voluntarily produced by Madoff and his firm.
In a statement, Cox said he is "gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations."
Madoff, 70, was charged last week with operating what authorities allege is a massive fraud that wiped out billions of dollars and whose victims range from major banks to individual investors. Critics have questioned how the SEC missed red flags about Madoff's firm.
Cox said relationships between the Madoff family and the SEC will be studied, as will the SEC's internal policies.
The SEC chairman said Madoff kept several sets of books and false documents, and provided false information involving his investment advisory activities to investors and to regulators.
Separately, Stephen Harbeck, chief executive of the Securities Investor Protection Corporation (SIPC), said one set of Madoff's books kept track of the losses at his investment advisory arm, while the other is what investors were shown.
SIPC, created by Congress and funded by the securities industry, can give customers up to $500,000 if it is determined their money was stolen. SIPC has about $1.6 billion to make payouts, which means that amount could quickly be depleted in the Madoff case, where losses could reach $50 billion. That figure comes from the SEC's court complaint, which quotes Madoff admitting to losses in that amount to two senior employees of his firm before his arrest last Thursday.
Tuesday, investigators said inconsistencies they have found in Madoff's books could delay for months the unwinding of the alleged scam.
Shortly before Cox denounced his own staff, a widely respected former SEC chief accountant, Lynn Turner, aired her own skepticism. "I can't comprehend how a well-run investigation would have missed a fraud of this magnitude," Turner said.
The Madoff scandal is just the latest instance in which SEC regulators have overlooked clear warning signs of possible fraud.
An earlier review by the SEC inspector general determined that the agency's monitoring of the five biggest Wall Street firms, which included Bear Stearns, was lacking.
Cox himself has come in for strong criticism.
In March, a few days before Bear Stearns nearly collapsed into bankruptcy, Cox told reporters the agency was closely monitoring the five investment firms and had "a good deal of comfort" in their capital levels. Then, as federal officials orchestrated the rescue, Bear Stearns was bought by rival JPMorgan Chase with a $29 billion government backstop.
Authorities want to know who else is to blame in the Madoff affair. Massachusetts Secretary of State William Galvin has subpoenaed Madoff's brother Peter, the firm's chief compliance officer, and Marcia Beth Cohn, chief compliance officer of Cohmad Securities, which is located in the same Manhattan building as Madoff's firm. Galvin wants to identify "feeder firms" that directed investors to Madoff without doing proper due diligence.
Some funds that invested their shareholders' money with Madoff are already under fire. Tuesday, New York Law School filed a lawsuit against Ascot Partners, manager J. Ezra Merkin and the Ascot fund's audit firm, BDO Seidman. The lawsuit alleges Ascot "recklessly" invested $1.8 billion, nearly the entire fund, with Madoff. The law school invested $3 million in the Ascot fund. Merkin, who also is chairman of GMAC, is a victim of Madoff himself and "intends to defend this lawsuit vigorously," attorney Andrew Levander of Dechert said in an e-mail. BDO Seidman said in a statement that it "is not and has never been the auditor of Madoff Securities. BDO Seidman's audits of Ascot Partners conformed to all professional standards and we will vigorously defend ourselves against these unfounded allegations."