Sunday, June 29, 2014

The Banality of Bernie Madoff

Bernie Madoff in October 7, 1999, photographed by Jonathan Saunders.
Bernie Madoff in October 7, 1999, photographed by Jonathan Saunders.

In the years since Bernie Madoff relocated to the Butner Federal Correctional Complex, it has been difficult for prosecutors to convict co-conspirators. Many of those involved claim that they were simply doing their job.

A lawsuit brought by investors in July 2013 reveals that the banker's at Madoff's custodial bank—Westport National—were, at the very least, not doing it very well.

When president Richard T. Cummings, Jr., a 36-year banking veteran, was asked at trial how the bank maintained accurate records he replied "I can't answer that question." What due diligence did the bank perform to ensure that customer assets were safe? “I don’t know.” Mr. Cumming has a finance degree from Georgetown (just saying).

Testifying by video deposition, the bank's vice president Dennis Clark said that he sometimes reviewed Madoff's trade confirmations out of “curiosity,” but then simply filed them away. Though Mr. Clark was the manager of custody services, he did not verify prices for derivative securities because he did not understand how puts and calls were priced.

Mr. Clark did, however, make an effort to look up stock prices listed on Madoff's monthly statements, in part because fees for the bank were based on assets under management—real or imagined.

In the end, the six jurors found that the bank breached its custodian agreements when it calculated its fees based on the Madoff firm’s reports instead of on the actual assets it held, and that the two plaintiffs had proved that the bank breached its agreements when it failed to issue accurate annual statements and failed to audit or verify the existence and value of the assets, the New York Times reported.

But the jury did not agree with the plaintiffs that economic loss occurred as a result of these (in)actions. A good day, overall, for sloppy custodial banks!

Many of the disputed custody accounts at Westport National were referrals from Robert L. Silverman, a professional actuary who ran a consulting firm about half a mile from the bank. "These investors were betrayed twice," Connecticut Attorney General Richard Blumenthal said in 2010. "First by Madoff and then by their advisers."

“I live in a tormented state now, knowing of all the pain and suffering that I have created," Madoff said at his sentencing in June 2009. "I am sorry,” adding abruptly, “I know that doesn’t help you.”
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Flannery O'Connor

You shall know the truth and the truth shall make you odd.