Looks like I am not the only one who thinks the SEC should be held liable ( but I think those who seemingly protected Madoff, should go to jail, too-)—hot off my email box: OpEdNews Original Content at http://www.opednews.com/articles/Does-SEC-s-Failure-To-Unma-by-Sherwood-… ———————————————————————————————————————— February 5, 2009 Does SEC’s Failure To Unmask Madoff Make It Liable? By Sherwood Ross A Massachusetts law school dean that lost money invested with swindler Bernard Madoff says the Securities and Exchange Commission (SEC) was “willfully, horribly negligent” in failing to monitor Madoff’s operation. This raises the question of whether the SEC is liable to repay the investors who, collectively, lost billions of dollars. Lawrence Velvel, dean of the Massachusetts School of Law at Andover, said, “The SEC’s incredible willful negligence” to not seriously investigate Madoff’s operations despite repeated red flags and written warnings of his criminality probably makes the agency liable to legal action by aggrieved investors. The SEC, he said, “has no discretion—none—to fail to follow up, with serious investigations, when presented with knowledgeable, detailed, obviously highly competent, and in many respects easily ‘checkable’ allegations of…a huge fraud that is fooling thousands of people, stealing billions of dollars, and causing horrible injustice.” Equally bad, says Velvel, the SEC was responsible for a lot of people being sucked into Madoff in the first place, because in 1992 it publicly announced that there was no fraud.Referring to the preponderant majority of Madoff’s victims, Velvel said, “These are not the billionaires, or the huge institutions, that could hire expensive experts in due diligence…These are the plain people who worked hard and saved all their lives, as capitalism says they should, and who…depended on their government to protect them…but were failed by it because of one of the most willfully negligent, incompetent, and perhaps even complicitous courses of action any agency has ever engaged in.” Velvel also said The Financial Industry Regulatory Authority (FINRA), a private organization of brokerage industry members supposedly dedicated to “investor protection and market integrity,” is also probably liable for damages. FINRA examined Madoff every two years from 1960 onwards, and in 2007 FINRA conducted a sloppy probe that concluded parts of Madoff’s operation had no customers when, in fact, it had thousands. What’s more, “If FINRA had so much as competently checked whether the company had the securities and money it claimed, it would have uncovered the fraud,” Velvel writes. Velvel also says investors should not be required to return sums Madoff told them they had and which they innocently withdrew from Madoff to live on. “This is terrifying to people, and, rightly so. Having been wiped out … people now face the prospect of being obligated to give back six years of withdrawals—-often withdrawals they needed to live, as with older people.” These people often have no money to give back.Velvel is also critical of the fact that there is only a three year period for which Madoff investors can reclaim taxes they paid on “phantom income”—-money Madoff falsely told them they had earned, so they paid taxes on it. He notes that when the IRS finds an individual guilty of tax fraud it can collect taxes going back 25 years or more because it had a right to the money. When it had no right to the money, the defrauded investor can only go back three years. So the IRS does not allow the same right to those defrauded that it claims for itself. The SEC had been informed at least as far back as 1999 by investment professional Harry Markopolos, in a major study, that Madoff’s business “could not possibly be on the up and up,” Velvel says, and Markopolos kept reminding the agency periodically but to no avail. Again, the SEC was warned about Madoff in an article written in 2001 for the little known hedge fund-industry publication “MAR/Hedge” by reporter Michael Ocrant.Finally, most investors knew nothing about a 2001 Barron’s article by reporter Erin Arvedlund “that focused on secrecy” by Madoff and that should have been a red flag to the SEC, yet the SEC did nothing. The SEC should also have tumbled to Madoff’s crimes, Velvel says, because he was handling many billions of other peoples’ money with a tiny, three-person auditor shop, only one of whom was an accountant, and because Madoff handled his own trades rather than have an independent firm make them, and did not use an independent custodian, both of which would have helped to ensure that the claimed securities and money existed. As it turned out, Madoff lied to investors about trades he was making in their behalf. A former U.S. Justice Department attorney, Velvel is co-founder and Dean of the Massachusetts School of Law at Andover and regarded as one of the nation’s leaders in reforming the way legal education is taught and making quality legal education available to minorities and students from families of modest means. # (Sherwood Ross is a media consultant to the Massachusetts School of Law at Andover. Reach him at sherwoodr1@yahoo.com) Authors Bio: Sherwood Ross has worked as a publicist for Chicago; as a reporter for the Chicago Daily News and workplace columnist for Reuters. He has also been a media consultant to colleges, law schools, labor unions, and to the editors of more than 100 national magazines. A civil rights activist, he was News Director for the National Urban League, a talk show host at WOL Radio, Washington, D.C., and holds an award for “best spot news coverage” for Chicago radio stations for civil rights reporting. He is the author “Gruening of Alaska,”(Best Books)and several plays about Japan during World War II, including “Baron Jiro,” and “Yamamoto’s Decision,” read at the National Press Club, where he is a member. His favorite quotations are from the Sermon on The Mount.