Since it first began to unfold in December 2008, the Madoff case has been almost beyond belief:

• A former Chairman of the NASDAQ, managing billions of dollars for many of the world’s largest and most prestigious institutions, is a complete fraud?
• His supposed investment advisory business that for decades appeared to be among Wall Street’s most successful and which managed thousands of clients’ money was, in his words, “all just one big lie?”
• Every trade, every order ticket, every account statement, every confirmation and all other relevant records reflected on millions of pages sent to customers were fictitious?

These facts and countless others that have emerged in the Madoff case boggle the mind, but try pondering this for a moment: what if Madoff’s ultimate arrest by the FBI in December 2008 had occurred not in his apartment in New York… but in his office in Washington, D.C. as Chairman of the SEC!  According to the SEC Inspector General’s Madoff report, when examiners from the SEC’s Northeast Regional Office were scrutinizing Madoff’s firm in 2005,

“Madoff would drop the names of high-up people in the SEC. Madoff told them that Christopher Cox was going to be the next Chairman of the SEC a few weeks prior to Cox being officially named. He also told them that Madoff himself “was on the short list” to be the next Chairman of the SEC.”

The report provides no support for Madoff’s claim that he was on any “short list” to be the next SEC Chairman, and Madoff’s credibility is surely as low as any person’s on this planet, but the idea of Madoff’s scheme being uncovered while he was serving as SEC Chairman is so mind-blowing that it seems like something that could only occur in a bad movie. It will be very interesting to learn whether there is any truth to that statement.

Pointing to recent Congressional testimony by SEC Chairman Mary Schapiro on July 14th, a Madoff victim group called the BernardMadoffVictims.org says that it is now clear that SIPC is a “mere façade” and is underfunded because SIPC and the SEC failed to charge the securities industry a realistic price for SIPC insurance.

In her testimony before the House of Representatives Committee on Financial Services, Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises, Schapiro was asked by Congressman Gary Ackerman of New York, “[w]hich investors are eligible for their SIPC insurance?” Schapiro responded that “[i]t shouldn’t be such a difficult issue but it is. The tragic truth is there is not enough money available to pay off all the customer claims.”

Ronnie Sue Ambrosino, the Coordinator of BernardMadoffVictims.org, says that Schapiro’s testimony finally explains why former Madoff investors have not received up to $500,000 from SIPC based upon their November 30, 2008 statements, as required, the group argues, under the Securities Investor Protection Act (”SIPA”). She says it also explains why the SEC and SIPC have

invent[ed] a totally new definition of “net equity” which limits investors to recovering their net investment, rather than the balance on their last statement. Thus, an investor who invested $100,000 in 1996 and had a last account statement (dated November 30, 2008) showing a value of $800,000 would only get $100,000 from SIPC. Under SIPA’s clear language, and under 38 years of SIPC’s compliance with SIPA, that investor is entitled to a claim of $800,000 and to $500,000 in SIPC insurance.

The BernardMadoffVictims.org Coalition argues that they received trade confirmations (albeit false ones) for every security they believed was bought and sold by the Madoff’s broker/dealer, and each such document confirmed that Madoff was a member of SIPC. Thus investors were entitled to believe that their accounts were protected up to $500,000.

Ambrosino further argues that this admitted lack of funding is not the investors’ responsibility, and that under the SIPA, the SEC has a statutory obligation to assure that SIPC borrows sufficient funds to pay off the obligations to all Madoff investors immediately. She says that as of July 9, however, SIPC has paid only 561 out of more than 15,000 clams. The Trustee’s website indicates that number has since risen to 747.

Today, 71-year-old Bernard Madoff was sentenced to the maximum sentence–150 years in prison (aka, “The Full Bernie“)–for his multibillion-dollar Ponzi scheme. U.S. District Judge Denny Chin issued the sentence today in the Southern District of New York.

After the high-profile scandals involving first Ebbers and now Madoff, I have to think that the name “Bernard” has seen its last birth certificate for some time.

It’s not as if the name – which was in the “Top 100″ at the turn of the century – was exactly flourishing before 2002, when the first hints of the WorldCom scandal became known.  According to Social Security name data, the name “Bernard” was already in a slow, steady decline through the 1990s, dropping from the 430th most popular boy’s name in 1990, to 496th in 1995, and to 654th in 2000.

The criminal charges of financial fraud brought against Ebbers in 2004 seemed to hasten the decline of “Bernard,” as the name, which had plateaued in the mid-700s from 2002 to 2004, suddenly plummeted over 200 spots to 952nd in 2006.  The name has held steady since 2006, however, and even climbed back up to 940th in 2008.

Enter Bernard Madoff, who was arrested in December 2008.  Madoff has since pleaded guilty to the largest fraud in history and become one of the most reviled criminals ever, with tens of thousands of victims scattered around the globe.  The Social Security data only covers the top 1000 names, but I think it is safe to say that following Madoff, the name “Bernard” will drop off that list altogether in 2009, for a good long time.

Let’s try to quickly catch up on the back and forth that has gone on since yesterday between House Financial Services Capital Markets Subcommittee Chairman Paul Kanjorski and SEC Inspector General H. David Kotz.  Yesterday, Kanjorski announced that he sent a letter to Kotz calling for an update by the end of this month on his internal investigation into why and how the SEC failed to detect the Madoff scandal.

Kotz began his investigation into the matter in December 2008 at the request of then-Chairman Christopher Cox, and he stated at that time that he planned to break the investigation into discrete pieces and issue reports on these pieces on a rolling basis (rather than holding all of his findings until the end and issuing one massive report).

In his letter, Kanjorski wrote that while Kotz previously acknowledged that it was critical for his investigation to be conducted expeditiously, “[s]ix months have now passed since you began your investigations into the $65 billion Madoff Ponzi scheme. In addition, more than five months have ensued since you testified and made public commitments regarding these matters.”  To date, Kanjorski observed, the only update Kotz has offered on the Madoff investigation is a “one-page summary” in Kotz’s recent semi-annual report to Congress (discussed here).  Kanjorski stated that this summary was “an inadequate response to my earlier requests and your prior public commitments.  The time has come for you to act.”  Kanjorksi asked for an update on the investigation no later than June 30.

Kotz responded the same day in a letter to Kanjorski, stating that he plans to release at least three reports over the coming months.  First, Kotz said, he will release a comprehensive investigative report no later than August 31 detailing all the examinations and investigations that the SEC has conducted on Bernard L. Madoff Securities LLC of New York from 1992 until the present.

In addition, based on the findings of the investigative report, the IG’s office will issue two more reports providing specific recommendations for improving the SEC’s Division of Enforcement and its Office of Compliance Inspections and Examinations (OCIE) no later than Sept. 30. Kotz added that “[w]e have been working as quickly as possible over the past several months.”

This response did not quite satisfy Kanjorski, however.  Today he shot off another letter to Kotz, saying that late August was too late because House Financial Services Committee Chairman Barney Frank has indicated that he plans to move regulatory restructuring legislation before the end of July, and Kanjorski wishes to “use the Madoff fraud as a case study for determining how to improve oversight of and investor protection in our securities markets.” Kotz’s recommendations, Kanjorski said, must therefore come

before, and not after, the House Financial Services Committee acts on a regulatory restructuring bill. As per my initial correspondence, by June 30 please provide me with your current suggestions for modifying our federal securities laws based on your Madoff investigations and other examinations.

Irving Picard, the bankruptcy trustee liquidating Bernard Madoff’s securities firm, had to file a motion with the court yesterday to block a supposed “$100 trillion offer” to buy Madoff’s company. The NY Post reports that Picard received correspondence from one Ade Ogunjobi proposing an “all stock tax free transaction involving $100 trillion in stock or 400 million shares” of his company, Toks Inc.

In his motion, Picard called the offer “replete with incredible and unfounded statements” and, shockingly, added that Ogunjobi offered “no facts” to back up his $100 trillion offer.  The Post reports that Ogunjobi has previously been barred from offering bogus promissory notes over the Internet.

Ogunjobi reportedly insists that his offer is real and that he will be in court for the scheduled June 2 hearing.

Hmmmm, I wonder if I could get a measly $100,000 for my Bernard Madoff coffee mug?

A new type of defendant emerged in the Madoff fallout this week as customers of Fiserv Investment Support Services, a former unit of Fiserv Inc. (FISV), filed a class action lawsuit on Thursday against Fiserv trying to recoup their lost money. The case has reportedly been filed in federal court in Denver by Jacob Zamansky of Zamansky & Associates on behalf of 800 investors who are hoping to recover up to $1 billion.

The lawsuit alleges that although Fiserv and its Fiserv Investment Support Services unit “were the designated ‘custodians’ for their pension and IRA accounts, that designation was pure fiction.”  In fact, the complaint alleges,  Fiserv Investment Support Services improperly turned actual custody of their pension and IRA accounts over to Madoff, without their knowledge. The plaintiffs allege that “from beginning to end, Madoff’s firm held and controlled the actual custody of their pension and IRA accounts, and their underlying cash,” not Fiserv. It was not until the day Madoff was arrested in December 2008 that plaintiffs learned that custody of their accounts had been handed over to Madoff’s firm, the complaint alleges.

The complaint also reportedly names TD Ameritrade Holdings Inc., as well, in a curious allegation related to its 2007 acquisition of about 300,000 retirement and custodial accounts from Fiserv.   Plaintiffs allege that TD Ameritrade excluded any business involving customer accounts with Madoff Securities when it acquired these 300,000 accounts from Fiserv in 2007, and claim that “[t]his exclusion is highly suspicious because it appears that [TD] obtained actual knowledge of Mr. Madoff’s fraud through the due diligence process, which caused these assets to be excluded.” It is unclear from the reports what cause of action, specifically, is alleged against TD Ameritrade for this “suspicious” exclusion.

The “Madoff Case Global Alliance of Law Firms” held its second meeting today, and its first in the U.S., at the Manhattan office of law firm McCarter & English.  McCarter’s Gaytri Kachroo is a member of the Alliance and the lawyer for Madoff whistleblower Harry Markopolos.

Members of the Alliance emerged from the meeting today to announce that it plans to propose that an International Financial Court be established as a forum for victims of financial crimes.  Charles Grice, the Managing Director of New York consulting firm CRI Compliance who has attended both meetings, told me today that the proposal will suggest the creation of an entity through the United Nations that is similar to the Court of International Justice, but which is a civil court for global financial crimes such as the alleged schemes carried out by Madoff and Allen Stanford.

The Alliance plans to present its written proposal to the Group of Twenty (”G-20″) Finance Ministers and Central Bank Governors before they meet in London on April 2, 2009.

The WSJ reports that at a meeting for Madoff investors held today in the U.S. Bankruptcy Court, the trustee overseeing the liquidation of Madoff’s firm stated that “his investigation has found no evidence that any securities were purchased on behalf of customers in at least 13 years.”

Read that again.

No evidence that any securities were purchased on behalf of customers in at least 13 years!

The trustee has already received claims from Madoff 2,350 customers so far.  If the trustee’s statement is correct, that means that every one of the trades listed on every statement of thousands of customers over at least the last 13 years has been simply made up by someone at the Madoff firm — just complete, straight up fiction.

Two days ago, on Tuesday, February 17, 2009, the first meeting of what is being called the “Madoff Case Global Alliance of Law Firms” took place in Madrid, Spain.  It was attended by approximately 40 lawyers from over 20 different countries, as well as at least one non-lawyer from the U.S. named Charles Grice.  Grice is the Managing Director of a 32-person consulting firm in New York called CRI Compliance, and was invited by Javier Cremades, the Spanish lawyer leading the group, to attend this extraordinary meeting at Cremades’ law office in Madrid.

I spoke with Grice shortly after his return to the U.S. from Madrid yesterday about the details of the meeting, and his take on the Global Alliance, its goals, and its prospects for success.  He told me the following:

The Global Alliance is being organized and led by Javier Cremades (pictured) of the Cremades & Calvo-Sotelo law firm in Spain.  The group has a President (Cremades); an Executive Secretariat (Henning Wegener, the Chairman of the Cremades firm and former Ambassador of Germany in Spain); and a Vice President (Gaytri Kachroo, a partner in the U.S. law firm McCarter & English who also represents Madoff whistleblower Harry Markopolos).

On relatively short notice, Cremades invited the group to meet at his office in Madrid, which Grice described as being in a pretty, “Georgetown-like” section of the city.  The 40 or so attendees packed into a single conference room in the Cremades’ office on Tuesday, and met for several hours.  The meeting of lawyers from around the globe was conducted in “awkward English.”  Lawyers were in attendance from the United States, UK, France, Mexico, Uruguay, Switzerland, Italy, France, Argentina, Chile, Panama, Israel, German, Lithuania, Colombia, Brazil, Austria, Ecuador, Luxembourg, Malta, Portugal, The Netherlands and Spain.

The primary goal of the Global Alliance is to bring lawyers involved in the case together to share information and attempt to develop facts, strategies and theories. Grice said that although it has now been more than two months since Madoff’s arrest, it is still clear that nobody knows what happened in the Madoff fraud yet.  Grice noted that he has now seen documents received by victims going back to the late 1980s, and it is “beautiful paperwork” with no obvious errors that would arouse suspicion.

Among the more specific goals of the Global Alliance is to create a “cyber-workroom” similar to those used on complex M&A deals that Global Alliance members can access remotely.  The group is also expected to unveil a website in the near future that will be available to the public.

Grice said that the ongoing settlement efforts of Banco Santander were of keen interest at the meeting.  A settlement in that case may be close, and Grice said that everyone is watching the outcome of those negotiations intently.

Grice observed that although it has a worthy objective, the Global Alliance will face many challenges.  Most notably, the participants in the Global Alliance currently include lawyers and representatives of banks and feeder funds that may well have conflicting interests with victims of the Madoff fraud.  Although many banks and feeder funds were themselves victims of the alleged fraud, they are also in an adversarial position with victims as they are key defendants in many of the cases brought to date for their own roles in the huge investment losses.  Second, the Global Alliance includes a contingent from the U.S., which Grice considers to be more contentious and not interested in any true alliance with potential adversaries such as feeder funds.  Grice noted that some of the U.S. law firms expected to participate did not attend.  Third, with so many lawyers and legal systems involved, Grice noted that it was often difficult for the group to reach consensus on issues.  He observed that at one point, the meeting stalled when a lengthy argument broke out due to multiple strong opinions on how Luxembourg law would treat banks that created wholly-owned feeder funds.

Grice said that there was an additional “elephant in the room” that loomed during the meeting - many of the lawyers represented unnamed victims who wished to remain so, perhaps due to tax or money laundering issues.

After the business of the meeting was completed, Cremades invited everyone in the group to participate in a ceremony where they wore traditional Spanish Court Dress - togas.  Many members of this group of senior lawyers from around the world took him up on the offer.  Finally, at the end of the day there was a press conference conducted in Spanish. Approximately 40-50 members of the press joined the lawyers in the crowded Cremades conference room for the press conference.

A list of the law firms and lawyers participating in the “Madoff Case Global Alliance of Law Firms” is available here.