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PricewaterhouseCoopers May Face Madoff Audit Liability

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As reported in the WSJ, the auditors for Fairfield, PricewaterhouseCoopers may face some liability in their role as auditors.  The trustee for the Madoff Bankruptcy stated that they could not find any evidence that Madoff made any trades for his client for the past thirteen years.

"Investigators suspect that Madoff never executed many of the trades that he'd claimed he was making.

When you see the slips now, each with the information filled in as if by an electric typewriter, you begin to appreciate how much scut work a fraud of this magnitude would have required.

For Madoff to have pulled it off himself, you can imagine that he would have had to fill out fake slips day and night, or to have deployed a Ponzi robot."

Thirteen years of yearly audits PWC, and Fairfield still couldn't find out that the data was faked?

"Fairfield also says that auditors from PricewaterhouseCoopers, Sentry's auditor starting in 1993, accompanied by a Fairfield employee, went to Mr. Madoff's offices in 2002 and scrutinized a number of Sentry's trades and didn't raise any concerns to Fairfield.

Fairfield says it looked into Mr. Madoff's options trading, which industry observers and the lawsuits have said posed a red flag that the Madoff investment business was a fraud.

The main issue is whether there was enough options-trading volume to absorb the strategy Mr. Madoff said he was employing.

If not, that could have signaled to investors like Fairfield that the strategy as stated wasn't being executed."

Many people will find it hard to understand how Fairfield could not have drawn the right conclusion from the fact that Madoff claimed not to be trading options in America, but rather in the more expensive location for trading, Europe.  

This, on its face does not make a lot of sense.

As, Steven B. Adler is Director of IBM's Data Governance Solutions write about the fake Madoff trades:

"Am I the only one wondering how it is possible that an investment fund can take investor dollars, send out an investment prospectus, never really execute any trades, and that there is no regulatory authority that is connecting the dots between investment claims and results?

I think the answer is that there are many regulatory authorities that have the mandates to monitor these gaps but that none of them have the information infrastructure necessary to connect corporate actions, financial disclosures, regulatory filings, and exchange transactions."

What did Charles Ponzi say about those trading slips, again?

""A few individuals would hurry to his office immediately to collect their money. But others would take their time, convinced by the mere fact that they had a one cent postcard that they had made a 50% return on their investment."

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Full post as published by Misleading Advertising Law on March 02, 2009 (boomark / email).