Archive for June, 2009

Madoff gets 150 years for massive investment fraud (Reuters)

Monday, June 29th, 2009 | Finance News

NEW YORK (Reuters) –
Bernard Madoff was sentenced on Monday to 150 years in prison -- the maximum penalty the judge could give him for "extraordinarily evil" crimes in Wall Street's biggest and most brazen investment fraud.

Fleeced investors in the courtroom cheered and applauded as the judge handed down the penalty.

Madoff, 71, stood passively with his hands clasped at his waist, showing no reaction when he heard the sentence that will send him to prison for the rest of his life.

The former nonexecutive chairman of the Nasdaq stock market has been jailed in a Manhattan cell since he pleaded guilty to 11 charges including securities fraud, money laundering and perjury in March.

"Here the message must be sent that Mr. Madoff's crimes were extraordinarily evil," U.S. District Judge Denny Chin said in rejecting defense pleas for a lenient, 12-year sentence. "The breach of trust was massive.

"I simply do not get the sense that Mr. Madoff has done all that he could or told all that he knows."

The gray-haired money manager was dressed in his signature dark gray suit, white shirt and tie instead of a prison jumpsuit.

The disgraced financier sat passively throughout the hour-and-a-half hearing as his victims called him a "beast," an "animal" and a "lowlife."

He apologized to them, at one point turning toward the 250 people in the courtroom.

"I will live with this pain, with this torment, for the rest of my life," he calmly said. "I live in a tormented state knowing the pain and suffering I have created."

Madoff, who has been accused of bilking investors worldwide out of as much as $65 billion, said, "In my business, when you make a trading error, you're expected to make a trading error, it's accepted. My error was much more serious. I made an error of judgment."

CAUGHT OUT BY FINANCIAL CRISIS

Madoff's December arrest came as investors were feeling the brunt of the worst financial crisis since the 1930s Great Depression.

The case has triggered widespread criticism of the U.S. Securities and Exchange Commission, which has been accused of missing red flags that could have brought the curtain down on his asset management business.

It was not known where Madoff will serve his sentence for what prosecutors described as a worldwide fraud of small and wealthy investors, charities and financial institutions.

Judge Chin heard wrenching statements from nine of Madoff's victims, some of whom said they had lost their life savings, were forced to sell their homes, or had to apply for government assistance to buy food.

"I only hope that his prison sentence is long enough so that his jail cell will become his coffin," said Michael Schwartz, 33, who said his family had been robbed of savings earmarked for the care of his mentally disabled brother.

The White House said that the judge had sent a strong signal to those who handle other people's money.

"My guess is that that message will be heard loud and clear," said President Barack Obama's spokesman Robert Gibbs.

Madoff was arrested in December after his two sons told authorities that he had confessed to them that his investment empire was a sham.

Prosecutors have said that Bernard L. Madoff Investment Securities showed $65 billion in customer accounts weeks before his arrest, but the trustee winding down the firm has so far only been able to collect $1.2 billion to return to investors.

As much as $170 billion flowed through the principle Madoff account over decades. Madoff was symbolically ordered to pay that amount in restitution.

While a much lower sentence would have sent Madoff to prison for life, Chin said he deserved the maximum, typically handed down to organized crime bosses.

"The fraud here was staggering," the judge said.

One law professor said she was surprised by the sentence but uncertain whether it would serve as a deterrent.

"I'd love to think that the mini-Madoffs out there would think that what happened today has something to do with them, but I suspect most of them do not," said Jayne Barnard of the College of William and Mary in Williamsburg, Virginia.

Madoff's lawyer said no decision had been made on whether to appeal the sentence.

None of Madoff's relatives came to court. They have not attended any of his prior court appearances.

The judge said he had not received a single letter on Madoff's behalf, testifying to any good deeds or charitable works. "The absence of such support is telling," Chin said.

Madoff's wife Ruth, 68, has not been charged with any crimes but she has been vilified by defrauded investors, shunned by friends, and pursued by the media. Breaking her long silence, she said in a statement on Monday that she had been "betrayed and confused" by her husband's scam.

"From the moment I learned from my husband that he had committed an enormous fraud, I have had two thoughts -- first, that so many people who trusted him would be ruined financially and emotionally, and, second, that my life with the man I have known for over 50 years was over," she said.

Madoff has said he acted alone. The only other person charged criminally is his outside accountant.

Madoff's brother, Peter, and his sons, Mark and Andrew, were executives in his firm's brokerage unit. They have said that they were not aware of or involved in the crooked asset management side.

Madoff and his wife have agreed to the sale of three luxury properties and other assets and valuables. Proceeds from asset sales will be distributed to defrauded investors.

Ruth Madoff will be left with $2.5 million, after forfeiting claim to some $80 million in assets including the couple's Manhattan penthouse apartment.

Madoff told investors in the courtroom that he could offer no excuses, saying he tried to undo his crimes but "the harder I tried, the deeper a hole I dug for myself."

Investors said the apologies left them cold.

"There's something very pathological. He is still making excuses for himself," said George Nierenberg, 57.

(Reporting by Grant McCool, Martha Graybow, Daniel Trotta, Mike Erman and Christine Kearney; Editing by John Wallace, Toni Reinhold)

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Judge delays ruling on Allen Stanford bail (Reuters)

Monday, June 29th, 2009 | Finance News

HOUSTON (Reuters) –
Allen Stanford will spend Monday night in jail after U.S. prosecutors told a federal judge that the accused swindler would likely flee the country rather than face life in prison if released on bail.

U.S. Magistrate Judge Frances Stacy last week said that Stanford, who faces criminal charges for a $7 billion Ponzi scheme, may leave federal custody, provided he comes up with a $500,0000 bond -- including $100,000 in cash -- and lives with his girlfriend in a Houston high-rise apartment.

But Stanford remains in custody after the U.S. Justice Department opposed bail of any sort and sought to keep him in jail until his trial, now set for August. Stanford, 59, faces life in prison if convicted of all 21 criminal charges.

Now U.S. District Judge David Hittner, who will preside over the upcoming criminal trial, must decide whether Stanford can walk free until his trial begins.

At a hearing on Monday, Hittner said he would decide on the government's motion to revoke Stanford's bond on Tuesday afternoon at the earliest.

Judge Hittner also raised the possibility that the losing side in the bond arguments might appeal his decision to the 5th Circuit Court of Appeals in New Orleans.

If his decision is appealed, it would be judged by the higher court as an "abuse of discretion issue," Judge Hittner told the court.

Both Dick DeGuerin, Stanford's lawyer, and Paul Pelletier, a federal prosecutor on the case, declined to comment on the possibility of an appeal.

SUITED UP

Stanford was brought to Houston federal court for the third time early on Monday, dressed in a dark suit but still shackled, after spending the weekend in the Montgomery County Jail in Conroe, Texas, about 40 miles north of Houston.

The once high-flying billionaire and sports promoter has been in federal custody since June 18, when he was taken into custody by the FBI in Virginia after a Houston grand jury indicted him on charges of conspiracy, fraud and obstruction of justice.

The government argued that Stanford was a flight risk and would likely flee the country rather than face jail for the rest of his life.

"The only way to reasonably assure the thousands of victims who lost billions of dollars that they will get their day in court is to detain Mr. Stanford," said Gregg Costa, an assistant U.S. attorney.

Costa painted Stanford as a callous jet-setter who had no qualms about wrongly taking the retirement and college funds of his investors. Instead, Stanford would spend the money to pay his monthly $100,000 American Express bill and fund his lavish lifestyle.

Prosecutors said that about $1 billion in investor deposits is still missing, which Stanford could possibly tap to fund a quick getaway.

Stanford's lawyer argued that the former chairman and sole shareholder of Stanford International Bank Ltd has deep roots in Texas and created thousands of jobs in the United States and Antigua with his many companies.

Stanford has demonstrated his willingness to answer the government's charges by offering to surrender three times, the lawyer said. "We wanted to show a track record of Mr. Stanford wanting to fight these charges," DeGuerin told the judge.

The courtroom was filled with Stanford's supporters, including his girlfriend, his estranged wife and at least four of his six children.

After the hearing, DeGuerin told reporters that he thought the hearing went well and he expected a fair decision from Hittner. Still, he said that the government's request for "an extremely high bond is just not fair" given the fact that the government had seized all of his clients' assets.

According to the U.S. Securities and Exchange Commission, Stanford, with the help of executives at his firm and a top Antigua and Barbuda financial regulator, ran a "massive Ponzi scheme" for over a decade that centered on certificates of deposit in his bank in Antigua.

Stanford says that he is innocent of the charges and that his multinational business was legitimate until the SEC "disemboweled" it by filing civil charges, which led to the confiscation of all his assets by a court-appointed receiver.

(Reporting by Anna Driver and Eileen O'Grady; Writing by Chris Baltimore; Editing by Gerald E. McCormick, Gary Hill)

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SEC tells State Street it could face civil charges (AP)

Monday, June 29th, 2009 | Finance News

NEW YORK – State Street Corp. on Monday disclosed in a regulatory filing that the Securities and Exchange Commission could bring civil charges against its main subsidiary for possible securities violations tied to past investments in subprime mortgages.

State Street Bank and Trust Co. received a "Wells" notice from the SEC on Thursday tied to the ongoing investigation by the SEC into disclosures and management of the bank's fixed-income investments during 2007 and earlier periods, according to Monday's regulatory filing.

In 2007, ahead of the collapse of the housing market, State Street's fixed-income investment unit increasingly invested in securities and bonds backed by subprime mortgages — loans given to customers with poor credit history. As the housing market unraveled in late 2007 and defaults on mortgages began to skyrocket, the value of those investments plummeted leading to losses in the investment funds.

The losses led some investors to file lawsuits, questioning whether State Street's investments fit strategies consistent with those of more traditional fixed-income funds. During the fourth quarter of 2007, State Street established a reserve fund of $625 million to settle claims.

About two-thirds of the fund has been spent settling claims since then. As of March 31, there was about $207 million remaining in the reserve fund.

Fox-Pitt Kelton analyst Andrew Marquardt said the notice of a potential civil action against State Street should have little impact on the company, aside from a potential regulatory fine. In a research note, Marquardt said any fine would likely be manageable and take several quarters before being resolved.

SunTrust Robinson Humphrey analyst John Stilmar said aside from the potential cost of a fine, another concern could be how the investigation affects generating new business. However, Stilmar said the bank's strengths far outweigh any risk of business being lost by the potential civil action.

Stilmar maintained a "buy" rating on the company's stock. Fox-Pitt Kelton's Marquardt rates it as "outperform."

The Wells notice indicates the possibility of an enforcement action and allows for the trust bank to provide its perspective on the investigation before any formal proceedings begin.

Boston-based State Street provides accounting, brokerage and other services to mutual funds, retirement plans, insurance companies and other customers. The company said it has been cooperating with the SEC, the Massachusetts secretary of state and the Massachusetts attorney general.

Shares of State Street advanced 18 cents to $48.50 in Monday trading.

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