Records Show Billions Withdrawn Before Madoff Arrest

About $12 billion was pulled out of accounts at Bernard L. Madoff’s firm in 2008, according to several people briefed on an analysis of Mr. Madoff’s business records.

About $6 billion, or half, was taken out in just the three months before the financier was arrested in December and charged with operating an extensive Ponzi scheme, these people said.

Those figures offer a bit of hope for Mr. Madoff’s thousands of defrauded customers. Under federal law, the trustee overseeing the Madoff bankruptcy can sue to retrieve that money from the investors who withdrew it.

Indeed, the trustee, Irving H. Picard of Baker & Hostetler, filed two lawsuits on Tuesday seeking the return of a total of $6.1 billion, which he estimated had been withdrawn over the last decade.

One case seeks the return of $5.1 billion from various trust funds and partnerships run by Jeffry M. Picower, a prominent Palm Beach, Fla., investor whose charitable foundation was considered one of the notable victims of Mr. Madoff’s fraud.

Mr. Picard also sued to recover $1 billion withdrawn last year by Harley International, a hedge fund based in the Cayman Islands and administered by a unit of the Dutch bank Fortis.

Both lawsuits were filed in Federal Bankruptcy Court in Manhattan. And both assert that the defendants, as professional investors, should have realized that their profits were too high and too consistent — and Mr. Madoff’s paperwork and procedures were too sloppy — to be legitimate.

But the complaint against Mr. Picower goes further, accusing him of participating in a web of transparently false transactions with Mr. Madoff that were aimed at compensating him for “perpetuating the Ponzi scheme” at the expense of other investors.

In 1999, for example, one of Mr. Picower’s accounts posted an annual profit of more than 950 percent, the suit said. That account was one of two that reported annual returns from 1996 to 1999 ranging from 120 percent to more than 550 percent, the suit said.

In other accounts, backdated transactions generated billions of dollars of fictional year-end losses and one account grew by 30 percent in just two weeks in 2006 — thanks to trades that purportedly occurred months before the account was even opened.

A lawyer for Mr. Picower and his wife, Barbara, who was also named as a defendant, denied the allegations.

“Mr. and Mrs. Picower considered themselves friends of the Madoffs for over 35 years,” said the lawyer, William D. Zabel of Schulte Roth & Zabel. “They were totally shocked by his fraud and were in no way complicit in it.”

Mr. Zabel added: “They lost billions in personal assets, and most dear to them, all of the assets of their esteemed foundation.” The Picower Foundation closed its doors after Mr. Madoff’s arrest.

According to people familiar with the analysis of Mr. Madoff’s cash records, most of the $12 billion that flowed out of his fraudulent money-management operation last year was withdrawn by various “feeder funds,” which had raised cash from investors and pooled it to invest with Mr. Madoff.

Several of those feeder funds have already been the targets of lawsuits by Mr. Picard, who is searching for assets to be shared among customers who lost what they believed to be almost $65 billion in the Ponzi scheme.

It is not clear where the cash taken out of the Madoff accounts is located, or how much of it can be recovered through litigation.

In the lawsuit seeking to recover more than $1 billion withdrawn by Harley International, Mr. Picard asserts that the fund should have detected the fraud before investing more than $2 billion of its clients’ money.

According to that complaint, Harley International made 14 transfers out of its Madoff account over the last six years, including $425 million that was withdrawn three months before the Ponzi scheme became public.

A spokeswoman for Harley International, Jamie Moss, did not return calls seeking comment.

In the complaint, Mr. Picard said Harley International, which invested client money with Mr. Madoff since at least 1996, received “unrealistically high and consistent annual returns” of about 13.5 percent. That outpaced the swings in the stock index on which Mr. Madoff had apparently based his trading strategy.

Trading records indicate that the Madoff firm, Bernard L. Madoff Investment Securities, made at least 148 stock trades in Harley International’s account in the last decade at prices that did not match the trading range for those stocks on the dates the trades supposedly occurred.

Mr. Picard claims those trades should have raised red flags for “any investment professional managing the account.”

The Harley lawsuit is similar to one Mr. Picard has filed recently against J. Ezra Merkin, the New York financier who lost over $2 billion investing with Mr. Madoff.

The lawsuit against Mr. Picower mirrors similar allegations Mr. Picard made in a complaint against Stanley Chais, an investment manager and prominent Los Angeles philanthropist. Both investors have said they intend to fight the lawsuits.

Mr. Picard has raised about $1 billion in assets for Mr. Madoff’s victims, but the lawsuits filed in the last two weeks could push that number much higher.

Mr. Madoff pleaded guilty on March 12 to running the biggest Ponzi scheme in history. He is scheduled to be sentenced next month and faces 150 years in prison.



http://www.nytimes.com/

Nomination Hearing for Regulatory Czar, Cass Sunstein

There were no TV network cameras or overflow crowds of press or lobbyists at the May 12th nomination hearing of Cass R. Sunstein to head up the Office of Information and Regulatory Affairs (OIRA) at the Office of Management and Budget. The low-profile hearing was in keeping with the relative obscurity of OIRA.

But what the agency does is crucial to business and to ordinary Americans. If confirmed, as expected, Sunstein will be the regulatory czar, sitting in judgment of the rules coming out of agencies like the Environmental Protection Agency. OIRA “exerts enormous influence

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Antitrust’s Big Break
Posted by: Theo Francis on May 11

Anyone who listened to Barack Obama’s presidential campaign can’t be terribly surprised that his Justice Department in breaking with the Bush Administration on antitrust doctrine.

Still, it’s worth noting the vehemence with which Christine A. Varney, Justice’s newly minted antitrust czar, repudiated her predecessors’ "Section 2" report, issued last September (and now bearing a virtual sticky-note linking to the current administration’s rejection of it).

It’s also worth beginning to think about the consequences that rejection will have, because they’re potentially far-reaching.


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Obama Administration Trumpets Budget Cuts
Posted by: Theo Francis on May 06

It's budget day again as the Obama Administration releases a detailed spending plan on Thursday -- and this time, officials are pointing to a more extensive list of spending cuts and program terminations.

The overall budget is still huge, of course, but the administration will be emphasizing cost-cutting measures: 121 programs totaling $17 billion in savings in 2010 and more down the road. While some of the proposals have been heard before -- including Defense Secretary Robert Gates' proposals last month -- an administration officials says 80 of them will be entirely new. About half the cuts will be from the defense budget and half from elsewhere; most will be from the "discretionary" budget -- ie, not from entitlements like Medicare and Social Security.

The message of the day: "This is an important step in the process, but it's only a step." In other words, there's more to come.

The same administration official trotted out five examples of cuts the administration is proposing -- including at least one that has had big backing from Dems in the past.



Napolitano on H-1B: Hire Americans First?


By Moira Herbst

At Wednesday’s Senate Judiciary Committee hearing on oversight of the Department of Homeland Security, Senator Dick Durbin (D-Ill.) asked for DHS secretary Janet Napolitano’s views on the H-1B visa program. (The exchange starts around the 56-minute mark.)

Durbin said that he and Senator Charles Grassley (R-Iowa) “feel that our first obligation is to American workers. And to encourage, if not hold accountable, those firms that are looking to fill spots to first turn to the talent pool in America, and particularly those who've lost a job. Do you have any opinions on the H-1B visa program?”

“I agree with you,” Napolitano said. “Our top obligation [is] to American workers, making sure American workers have jobs.”

The comments were Napolitano’s first public statements on the H-1B visa program since she was named DHS Secretary by President Barack Obama. It was unclear from her remarks whether she was indicating support for the bill Senators Durbin and Grassley introduced on April 23. That bill would require that employers seeking an H-1B visa pledge they have first tried to hire an American worker for the position. Currently, only employers identified as heavy users of the H-1B visa program are required to make such a pledge.




Kosovo's Trip to Washington
Posted by: Steve LeVine on May 01

Dozens of the world’s central bankers rolled into Washington last week for the spring summit of the World Bank and the International Monetary Fund. Members of the elite Group of 7 nations and the more representative Group of 20 discussed under what terms China would contribute a few tens of billions of dollars in IMF financing for the troubled economies of the world; how and when to transform the IMF leadership so it actually reflects how the global economy has evolved over the last half-century; and how to implement an agreement to regulate the financial systems of the world’s leading economies.

But the meeting is also the scene of many smaller, personal missions, and among them last week was that of Ahmet Shala, economics minister of the world’s newest nation, Kosovo. Some five dozen countries have since recognized the Balkan province since it broke off from Serbia and declared independence in February of last year. But the exceptions – among them China, Russia and Spain – have prevented Kosovo from obtaining economic assistance from the IMF, the World Bank or the European Bank for Reconstruction and Development.

Hence Shala’s trip to Washington. He is in a bid to persuade more than half the IMF’s 182 members, or 92 of them, to support Kosovo’s membership application. His feeling was that he was one or two short, hence his nervousness.


http://www.businessweek.com/blogs/money_politics/

Why Are Oil Prices Rising?

Many are asking the question about oil prices: Is this deja vu all over again? Didn’t we just go through a several-year run-up in prices based largely not on fundamentals, but on traders bidding them up, ultimately to $147 a barrel? Only then to see them plunge to $32 a barrel?

If one puts stock in the plunge, then there appears to be air in the run-up today to a six-month-high of $60 a barrel. How much is anyone’s guess. The other day, one exceedingly smart oil analyst privately put it in the range of $5 to $10 a barrel.


Here is the case for a price bubble: Oil inventories are at a 19-year high; the U.S. alone has some 1 billion barrels sitting in storage tanks, according to Mark Williams at the Associated Press. Demand for oil is set to fall to its lowest level in five years, says the U.S. Energy Information Administration.


The opposite case goes as follow: The market is factoring in expected inflation because of global deficit spending; Chinese investment spending is reviving. Over at Alaron, Phil Flynn says these are also genuine “fundamentals.”



Regardless, there always seems to be reason offered up to trust in a price run-up. After all, markets are all about emotions, as Robert Shiller notes. Yet, there are still sober voices. In my view, the Financial Times’ Chris Flood delivers it straight: Prices are rising because of various types of trading gambles. Flood quotes Mike Wittner, a senior oil analyst at Société Générale saying the following: “Recent price strength is not based on fundamentals, but on financial flows.”



Over at the Oil Drum, Rune Likvern says up to 3 million barrels a day of oil is being bought purely for storage, including on the sea. But he predicts that such purchases – which help to prop up prices – will decline because storage is becoming harder and harder to find; when they do, Likvern says, prices will fall substantially.


It’s a fool’s game to predict oil prices. That doesn’t stop a lot of people, of course, especially the traders.


Reader Comments
bob
May 12, 2009 06:54 PM
Ask Goldman Sachs who writes many of the oil contracts. Someone has to pay for all of those Derivative Exposures!
Percentage of total exposure to Risk Based Capital is over 1,000%. And we know every Memorial Day many take to the skies and highways, what a better way to pay off some of that Debt. Consumers get played with again.

Strategery
May 12, 2009 07:15 PM
Here's what I don't understand about the 'free' market: why are consumers the ones paying for an oil bubble? If it were truly a free market, the investors would be the ones paying for the bad bets and consumers would pay the true price based on supply and demand. The bubble became obvious in 2008 when the price of oil and gasoline both peaked on the SAME DAY. Economists claim that there is a disconnect between oil and gas prices, so how do you explain that event? Looking at the numbers, supply was UP while demand was DOWN during 2008. The oil bubble in 2008 was created by the same big investment banks that were losing big money on bad loans--the same banks that have received TARP money. Don't count on a 2009 oil bubble--Obama will not let the market run afoul as it did last year. Also, on the demand side, the number of vehicles on the road is actually falling and any new vehicles are expected to get better gas mileage as hybrids become mainstream.

http://www.businessweek.com

Obama berates AIG and vows to try to block bonuses

WASHINGTON – Joining a wave of public anger, President Barack Obama blistered insurance giant AIG for "recklessness and greed" Monday and pledged to try to block it from handing its executives $165 million in bonuses after taking billions in federal bailout money. "How do they justify this outrage to the taxpayers who are keeping the company afloat?" Obama asked. "This isn't just a matter of dollars and cents. It's about our fundamental values."

Obama aggressively joined other officials in criticizing American International Group, the company that is fast becoming the poster boy for Americans' bailout blues.

The bonuses could contribute to a backlash against Washington that would make it tougher for Obama to ask Congress for more bailout help — and jeopardize other parts of the recovery agenda that is dominating the start of his presidency. Thus, the president and his top aides were working hard to distance themselves from the insurer's conduct, to contain possible political damage and to try to bolster public confidence in his administration's handling of the broader economic rescue effort.

Obama had scheduled a speech Monday to announce new help for recession-pounded small businesses. But first, he said, he had a few words to say about AIG. He lost his voice at one point and ad-libbed, "Excuse me, I'm choked up with anger here." It was just a light aside, but he meant the sternness of his remarks to come through.

"This is a corporation that finds itself in financial distress due to recklessness and greed," Obama declared.

He said he had directed Treasury Secretary Timothy Geithner to "pursue every legal avenue to block these bonuses and make the American taxpayer whole."

Later, White House spokesman Robert Gibbs said the administration would modify the terms of a pending $30 billion bailout installment for AIG to at least recoup the $165 million the bonuses represent. That wouldn't rescind the bonuses, just require AIG to account for them differently.

Gibbs said the tough talk from Obama and other administration officials was aimed in part at pressuring bonus recipients to turn them down. Anyone accepting the money should "think long and hard" about whether keeping it was appropriate "given the performance of the company," he said.

On a separate track, New York Attorney General Andrew Cuomo said Monday he would issue subpoenas for information on the bonuses after AIG missed his deadline for providing details. Cuomo said his office would investigate whether the employees were involved in AIG's near-collapse and whether the $165 million in bonus payments were fraudulent under state law.

AIG spokeswoman Christina Pretto told The Associated Press, "We are in contact with the attorney general and will of course respond to his request."

One reason that the AIG bonus giveaway is such a compelling story — and a politically troubling one for Obama if not neutralized — is that it offers a simple story line that appears to sum up ways in which the federal bailouts have gone awry.

"This is just the kind of issue that galvanizes public outrage," said Paul C. Light, professor of public service at New York University. "It's always the tangible stuff, the things that ordinary Americans can relate to. They don't know the first thing about credit default swaps. But they do know about bonuses. And it's just the sort of thing that will undermine any future bailout activity."

Bailout steps for AIG totaling over $170 billion since September have effectively left the federal government with an 80 percent stake in the faltering insurance giant.

Obama's comments came on the same day a new poll showed slippage in his approval rating. The poll by the Pew Research Center showed it dropped from 64 percent in February to 59 percent this month amid divisions of opinions over his economic proposals and what the pollsters said was a growing perception that the president is listening more to his party's liberals than to its moderates.

Still, those surveyed generally gave the president favorable marks for doing as much as he can to try to fix the economy, and few blame him for making the economy worse.

Andrew Kohut, Pew's director, said in an interview that people are most angry with banks and companies but there's also "pushback against Washington generally. And, of course, the buck stops with Barack Obama these days."

Obama's sharp words continued an insistent administration drumbeat over the past few days designed to pressure the bonus recipients to forgo them. Thus far, American International Group officials have refused to rescind the payments.

In a letter to Geithner over the weekend, the government-appointed chief executive of AIG, Edward Liddy, said the bonuses were legally binding obligations and the firm's "hands are tied."

Still, pressure was building on that issue — and on the government to rework its AIG bailout to make sure the company repays as much of the $170 billion as possible.

So far, the company has been honoring its contracts with U.S. and foreign banks, paying out more than $90 billion in economic bailout funds to big banks and others. The government agreed to uphold those contracts when it seized control of AIG in September, contending that failure would bring even worse global economic problems.

However, Obama officials made the rounds of Sunday talk shows to denounce the insurer. And even Federal Reserve Chairman Ben Bernanke weighed in, saying on CBS' "60 Minutes" that the AIG bailout angered him the most and that he "slammed the phone more than a few times on discussing AIG." Still, he said a collapse of AIG would have wreaked havoc on the global economy.

Obama was planning an appearance later in the week on Jay Leno's NBC talk show, perhaps to add a lighter touch to his efforts to show himself in command of efforts to resuscitate the economy.

The AIG bonuses were revealed over the weekend. It also was disclosed that AIG used $90 billion-plus in federal aid to pay foreign and domestic banks, some of which had received their own multibillion-dollar U.S. government bailouts.

The recipients included Goldman Sachs, at $12.9 billion, and three European banks — France's Societe Generale at $11.9 billion, Germany's Deutsche Bank at $11.8 billion, and Britain's Barclays PLC at $8.5 billion. Merrill Lynch, which also is undergoing federal scrutiny of its bonus plans and which is now part of Bank of America, had received $6.8 billion as of Dec. 31.

The money went to banks to cover their losses on complex mortgage investments, as well as for collateral needed for other transactions.

AIG reported this month that it had lost $61.7 billion for the fourth quarter of last year, the largest corporate loss in history.

Outcries against the company have also come from congressional leaders.

"I call upon the executives at AIG to right the wrong they have done to American taxpayers, who are footing the bill for the most expensive government rescue in history," House Speaker Nancy Pelosi, D-Calif., said Monday.

Senate Republican Leader Mitch McConnell called the bonuses "appalling" and said he hoped "the administration gets the message from the taxpayers on this issue."

___

AP White House Correspondent Jennifer Loven and Business Writers Stevenson Jacobs, Ieva M. Augstums and Daniel Wagner contributed to this report.