International Law

Cohmad Madoff Feeder Fund may be De-Registered

Image by Getty Images via Daylife

Reuters reports on the Cohmad feed fund to Madoff, and Massachusetts Secretary of State William Galvin's novel and aggressive approach to scrutinize the middlemen more closely, in particular Cohmad and Robert Jaffe, and others.

From the  Massachusett's lawsuit against Cohmad:

"On December 10th, 2008 Bernard L. Madoff turned himself into federal authorities and confessed that he had been running a Ponzi scheme and his firm had $50 billion in liabilities. Subseqently, the Division received some calls from Madoff victims.  Certain victims identified Robert Jafee and Cohmad as conduits through which they invested in Madoff."

Reuters goes on with feeder fund story:

"Growing scrutiny of those who channeled funds to Madoff also follows the filing of court documents on the Massachusetts island of Nantucket suggesting that another middleman, Frank Avellino, may have known crucial information about Madoff's losses a week before the New York money manager was arrested for running a purported $50 billion investment fraud.

Harry Markopolos, a former investment manager who tried to warn regulators about Madoff, told a congressional hearing this month that Madoff could not have acted alone, pointing to accountants and people helping to convey money to his firm.

Several lawyers working on the case told Reuters they agree.

Markopolos said he knew of at least a dozen feeder funds that have not been publicly identified."

It appears that Madoff Investments made payments to Cohmad in the last eight years for about $65 million, which represented 85% of Cohmad's revenue. Madoff is listed as a director of Cohmad, and presumably therefore under FINRA's jurisdiction.  (I mention this point because the current head of the SEC denies that when she was the head of FINRA they had any regulatory control of Madoff.)

The Division is looking at piercing the corporate veil between Madoff Investment and Cohmad, which would make Cohmad liable for Madoff's liabilities.  Jaffe invoked his 5th amendment right when testifying in the case.

On January 23rd he was order to report to Suffolk court, but when he did on February 4th, he declined to testify.

Full post as published by Misleading Advertising Law on February 11, 2009 (boomark / email).