It seems as if wronged Madoff investors had a brief moment to recover thanks to the efforts of Madoff trustee Irving Picard in his continued pursuit of reclaiming (i.e. – clawing back) capital from those who reaped profits from the Madoff scandal. One of the biggest benefactors from Madoff appears to have been the late Jeffry Picower (see previous posts about Picower here).

Mr. Picard recently announced a deal struck with the Picower estate to repay $7.2 billion. Only approximately $5 billion will go to Madoff victims with the remainder being paid to the government. Not every investor was happy with this deal and several of them have banded together and filed a lawsuit objecting to the settlement. This settlement will not leave Picower’s widow destitute. Most of this money had been intended for a philanthropic foundation, not for Picower’s heirs. According to the Washington Post, Picower’s widow will retain $200 million and his daughter will retain $25 million, the funds for all of which reportedly derived from sources other than Madoff-related profits.

Here is a video from MSNBC regarding the settlement:

And from the Wall St. Journal:

Here is a nice summary of the Picower withdrawals from Madoff:

In other Madoff news, Madoff’s former secretary Annette Bongiorno was recently freed on bail.

Here is a video regarding the original charges brought against Bongiorno’s and another Madoff secretary Joanne Crupi (who was responsible for supervising the primary bank account used in BMIS’s investment advisory operations):

Bongiorno is accussed of assisting Madoff implement his Ponzi scheme. Clients recruited by Bongiorno and her electrician husband Rudy had their money put in accounts that were code-named RuAnn in company files, according to a former Madoff employee . It is reported that Bongiorno mined her old Queens neighborhood for investors. Not helping her case are Bongiorno’s considerable assets including a $2.6 million mansion in a gated community in Manhasset, New York, and three fancy cars, including a Mercedes that sells for nearly $100,000.

Bongiorno, 62, is facing charges of helping Madoff defraud investors of billions of dollars. Bongiorno, pleaded not guilty to conspiracy and fraud charges. U.S. District Judge Laura Taylor Swain in Manhattan cut Bongiorno’s bail from $5 million to $3 million after prosecutors seized most of her bank accounts and defense lawyers agreed to disclose others. The judge required eight people to guarantee the bail. This bail reduction allowed Bongiorno with enough flexibility to make bail, but she will remain under house arrest in her Manhasset mansion…

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The Madoff saga has yielded another unfortunate death -Madoff’s eldest son Mark Madoff. According to media reports Mark Madoff, 46, committed suicide by hanging himself  with a black dog leash while his 2-year-old son slept nearby. His death occurred two years to the day after his father (Bernard Madoff) was arrested by the FBI.

Mark Madoff had sent at least two e-mails to his wife and one to his lawyer in the early morning, a police official said, before killing himself. In the e-mails to his wife, he asked her to take care of their son and said that he loved her, the official said. If you will remember Stephanie Madoff, Mark’s wife, petitioned a Manhattan court in February to change her and her children’s last names to Morgan to avoid harassment and threats (see previous post). Here is a video about Mark’s death:

Madoff and his first wife, Suzanne, divorced in 2000.He has two other children from a previous marriage, ages 18 and 16. Mark Madoff graduated from the University of Michigan. He was a licensed broker with his father’s firm since 1987.

Mark’s death is the fourth major death surrounding the Madoff scandal and the second purported suicide. The first was investor’s Rene-Thierry Magon de la Villehuchet’s suicide and the second being the death of Jeffry Picower (see previous post regarding Picower) and the third was Stanley Chais a Beverly Hills, California investment advisor who operated feeder funds which allocated capital to Madoff funds (see previous post regarding Chais).

In recent weeks, federal investigators had charged a number of Bernard Madoff associates in indictments. The latest under indictment was key operative Annette Bongiorno, who was charged last month with fabricating documents and securities fraud in connection with the Ponzi scheme.

Madoff’s other son Andy, despite attempts to continue to keep a low profile, was featured in several media articles relating to a company he started with his girlfriend Catherine Hooper (who reportedly has a tattoo of the Madoff name) called Black Umbrella which provides disaster recovery planning for families. Andy and the now deceased Mark reportedly also were avid fisherman which was coincidentally a hobby equally shared by Madoff’s former Chief Financial Officer Frank DiPascali (see previous post). Here’s is a video with Mark Madoff showing off Abel Reels (a company he was the leader of an investment group which bought them):

Agents investigating the scheme recently had focused more attention on Mark Madoff, one investigator said. “He was next up to the tee,” said the investigator, who didn’t want to be named because of the pending probe, referring to the shift of attention to Mark Madoff. Mark Madoff wasn’t viewed as a major insider with vast knowledge of his father’s fraud but he is believed to have had some awareness of the fraudulent nature of the operation, the investigator said.

“This is a tragic development, and my sympathy goes out to Mark Madoff’s family,” Irving Picard the Madoff trustee said in a statement yesterday.

Jeff Wilpon, chief operating officer of the New York Mets, who went to Roslyn High School with Madoff in the 1980s, said, “It is shocking, it is sad, it is tragic.” Mr. Wilpon, who said in December 2008 that Mark Madoff had been a friend of his for 30 years, has been sued along with other members of his family by Picard in one of hundreds of lawsuits the trustee has filed to get back profits from Madoff investors.

Ira Sorkin, Bernard Madoff’s lawyer, said he was unable to get in touch with his client, who is serving a 150-year sentence at federal prison in North Carolina. Sorkin did say, “I’m very sure he has been informed. This is a great tragedy on many, many levels.”

A lawyer for Madoff’s mother said, “Ruth is heartbroken.” Mark Madoff had not spoken to his parents since his father’s arrest, on the advice of his lawyer.

There have been no reported statements made by Peter Madoff (Bernard’s brother and Mark’s uncle) or Peter’s daughter (Bernard Madoff’s niece and Mark and Andy’s cousin Shana Madoff). Both Peter and Shana were also named in a suit recently filed by Irving Picard.

Perhaps this fictional account of Mark and Andy teaming up with their own lawyers and distancing themselves from Bernard Madoff around the holidays puts Mark’s death this in perspective:

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Photos recently surfaced of Stanford beaten in prison over a dispute related to using the telephone.

Since the allegations against Stanford broke a number of interesting facts have come out regarding his business and operations including many operational risk red flags.

Here is part one of the BBC Panorama special on Stanford:

Part two:

Part three:

And here’s a video about Stanford being sued for gambling losses. This video also talks about allegations by James M. Davis, Mr. Stanford’s former CFO who has since agreed to a plea deal with the government, that Stanford participated in a  bizarre blood brothers ritual with Leroy King, Antigua’s chief banking supervisor – where Stanford’s offshore bank was located:

And here is a video of Stanford victims and former employee:

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The topics covered during the presentation are expected to include:

a) The impact of recent crises on how managers conduct operational due diligence

b) What aspects of a hedge fund’s operations are most important to investors today?

c) Best practices for meeting increased due diligence scrutiny

The event will take place on November 10, 2010 at the Hilton New York.

To register for the event here, please click here.

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A new paper has been released by Corgentum Consulting, the preeminent provider of the industry’s most comprehensive hedge fund operational due diligence reviews for investors, entitled Hedge Fund Audits: Scope, Materiality, Audit Opinions and Operational Risk.

This paper provides an introduction to audit opinions, the concept of audit materiality and audit scope in the context of assessing operational risk in hedge funds. Also discussed in this paper are several commonly held misconceptions regarding the work of hedge fund auditors.

The paper can be found in the Research section of the www.Corgentum.com website, or via direct link here.

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Understanding a hedge funds trading strategy, the nature of any particularly large bets and the potential publicity (positive or negative) that may be associated with such trades is all an important part of the initial and on-going hedge fund operational due diligence process. Incidentally, a magnetar is a type of star (neuron) with a very strong magnetic field whose decay emits high energy electromagnetic radiation including gamma rays (which created the Incredible Hulk). Did this trade have a similar decaying effect on fueling the economic meltdown in America – you decide…

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“We wanted to keep the story alive because Congress hasn’t made the changes necessary to protect the average American investors,” said Tim Murray (a Madoff victim). Murray joined a number of other victims who gathered outside Madoff’s former offices in the Lipstick Building on New York City’s Third Avenue to promote the book on the one year anniversary of Madoff’s sentecing. Here is a video about the one year anniversary:

The book is published by The Doukathsan Press Of The Massachusetts School of Law. If you recall, as discussed in this post, Erin Arvedlund (who is the editor of The Club No One Wanted to Join) was featured in a video series discussing her book Too Good to be True- The Rise and Fall of Bernie Madoff with Lawrence R. Velvel, the Dean of Massachusetts School of Law at Andover and himself a Madoff victim.

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Echoing shades of the deceased Jeffry Picower and Rene-Thierry Magon de la Villehuchet in the Madoff scandal, Mr. Frerichs proved to be an interesting character in the K1 scandal whose full story will never be revealed. He

Mr. Frerichs, 72, died of a gunshot wound on Saturday after police officers went to his home in Palma, Majorca to serve a warrant for extradition to Germany, the Spanish police said Monday.

According to a police spokeswoman, three officers went to Mr. Frerichs’s home on the island at 11:30 a.m. on Saturday and found him sunbathing nearby on rocks overlooking the sea. When the officers identified themselves, they said, Mr. Frerichs took a gun from a bag that was lying beside him and leapt into the water.

Mr. Frerichs fired two shots, the spokeswoman said. The first, presumably to test the gun, the authorities said, was fired in the air; with the second, he shot himself in the head. Mr. Frerichs was picked up by a rescue boat and taken to the Son Dureta hospital in Palma. He died not long after arrival.

According to the New York Times, the case has sent shock waves through Spain, where Mr. Frerichs’s stepdaughter, Fiona Ferrer Leoni, initially told the media that the police had shot Mr. Frerichs. She also questioned the police account of him sunbathing with a gun.

Ms. Ferrer, a prominent television personality and model, is married to Jaime Polanco, a Spanish tycoon whose family controls Promotora de Informaciónes, or Prisa, the media group, whose assets include the newspaper El País.

She also told the Spanish news media that Mr. Frerichs had been sought only for his relationship to K1 Group executives and that he was innocent of any fraud.

The police spokeswoman, who cannot be identified because of department policy, denied that officers had fired at Mr. Frerichs. She said his weapon had been retrieved and would be used, along with an autopsy, to determine the exact circumstances of his death.

“It is not normal to be sunbathing with a bag that has a gun,” the spokeswoman said. “But that’s what he did.”

Dietrich Güder, the state prosecutor in Würzburg, declined to comment beyond confirming that the Spanish police had informed him of the events.

Lutz Libbertz, a lawyer in Munich for Mr. Kiener, argued in a November court filing that Mr. Kiener could “at the most be accused of making bad investment decisions, but not of actions constituting breach of trust.” Mr. Libbertz declined to comment on Monday, saying through an associate that “he had nothing to add to what’s already been said.”

Mr. Kiener promoted the power of his “K1 Fund Allocation System,” and is accused of taking advantage of lax lending oversight by banks during the credit boom. He claimed his investments had returned more than 700 percent from 1996 and the end of 2008.

Mr. Kiener, K1′s founder, is equally interesting. He was a former telephone book salesman and psychologist (who graduated from Johann Wolfgang Goethe-University in Frankfurt, Germany in 1987) who founded a seemingly successful and large asset management organization.

The case has been an embarrassment for Germany, as BaFin, the market regulator, had several times sought to stop Mr. Kiener’s activities because of significant legal questions but had its enforcement overturned on appeal.

Mr. Kiener has been in custody in Würzburg, Germany, since October on suspicion of operating a pyramid scheme, defrauding thousands of privat

e investors and banks including JPMorgan Chase, Barclays and BNP Paribas of more than 300 million euros, or $375 million. The F.B.I. is also investigating the group; so are authorities in the British Virgin Islands, Liechtenstein and Switzerland.

The two highly leveraged funds had a combined 421 million euros ($529 million) of liabilities when the accounting firm Grant Thornton was retained in November to liquidate them. The authorities say the prospects for recovering most of the money are poor.

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Corgentum – Working with Investors to Evaluate and Monitor Operational Drag® in Hedge Funds

The paper is available for download in the research section of  www.Corgentum.com or here.

Hedge Fund Operational Due Diligence: Operational Drag

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This paper provides an overview of the importance of independence and objectivity in the Corgentum hedge fund operational due diligence process. This paper also outlines the benefits of Corgentum’s sole focus on operational due diligence as well as the benefits of Corgentum’s multidisciplinary approach.

The paper is available in the Research section of www.Corgentum.com or via direct link here.

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