Legal News

Our Ponzi Nation: SEC Sues Major Madoff Investors

By Ashby Jones

It might be tempting to put the Madoff situation out of mind until next Monday, when Bernie shows up in court again to find out his sentence. (Frankly, we’re curious to see what several months holed up in the Metropolitan Correctional Center will have done to him. Will he have slimmed down? Will his lustrous silver locks be shorn?)

In any event, news keeps on rolling out of Madoff land. On Monday, the SEC filed civil fraud charges against co-owners of Cohmad Securities, a brokerage entity that steered billions of dollars to Bernie’s firm and allegedly helped hide the Ponzi scheme from regulators. Click here for the WSJ story; here for the NYT story; here for the SEC’s complaint.

The SEC sued Cohmad co-founder Maurice “Sonny” Cohn, his daughter and Cohmad president Marcia Cohn, and executive Robert Jaffe for allegedly aiding Madoff’s fraud. Cohmad billed itself as a retail-brokerage business, but the SEC alleges it was Madoff’s “in-house marketing arm” and a critical cog in the Madoff money machine.

Jaffe’s attorney, Stanley Arkin, derided the complaint in terms we don’t hear that often, saying it “smacks of impulsiveness and efforts at self-justification.” An attorney for Cohn and Marcia Cohn couldn’t be reached for comment.

In a separate SEC complaint, the commission also charged Stanley Chais (pictured), a Los Angeles-based investment advisor, with placing about $1 billion of investors’ funds with Madoff, often without their knowledge. He withdrew more than $500 million before the scheme unraveled, the SEC said.

According to the complaint, Chais told Madoff he didn’t want to see any losses on the funds’ trades (who would?). The SEC says Madoff complied with that request from 1999 to 2008. Chais sent his clients account statements the SEC says he should have known were false.

An attorney for Mr. Chais said the SEC filing “paints a distorted and false picture of Stanley Chais” and that Mr. Chais was a victim since he and his family “have lost virtually everything — an impossible result were he involved in the underlying fraud.”

Full post as published by Law Blog - WSJ.com on June 23, 2009 (boomark / email).