The Corporate Observer : Washington D.C. Class Action Lawyer & Attorney : Steven Berk Law Firm : Consumer Protection, Corporate Abuse : The Corporate Observer Blog

 A “Private Right of Action” Must Be Added to the TARP Legislation

TARP monies must not become a slush fund for the ethically challenged.

On July 21, Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program, released his office’s quarterly report.  To his credit, he demonstrates the kind of transparency taxpayers who are footing the bill deserve.  Notably on page 5-6 of the report, he identifies and describes in some detail 35 investigations brought by his office.  He also describes in depth two matters that have already been publicly filed.  Good stuff indeed.  But the magnitude of this program (trillions of dollars) and the profound seriousness of this endeavor to our economy and the hopes of future generations demand more. 

A far greater degree of enforcement must be available. 

In just a few months, Mr. Barofsky has received 3,200 tips.  This means trouble is afoot as many feared. It needs to be “nipped in the bud”.  Confidence must be maintained and the TARP monies must not become a slush fund for the ethically challenged.

We recommend Mr. Barofsky seek additional funding for more staff and investigators.  The Administration should also request that Congress amend the TARP to allow a “private right of action”.  Private attorneys ferreting out fraud can make a real difference.  We need more than 2 filed cases to serve as a deterrent, protect the essential mission of the TARP, and limit the cost to taxpayers.

We cannot afford to wait.

The More Transparency the Better

We applaud the report as a small step in the right direction.  Much has been made of the $27.3 trillion that the report warns could end up as the overall cost of resolving the economic crisis.  Although this figure represents a worse-case scenario, the magnitude of that amount should alarm taxpayers and regulators alike.  To avoid coming close to that number, the Treasury must heed the recommendations of the report by: (1) enacting realistic mandatory transparency requirements; and (2) opening its own methods and decisions to the glare of public scrutiny.

As Justice Douglas said in framing the Securities Act of 1933, in the midst of the Depression, “Clean Air is the best disinfectant.”

(Post was prepared with the assistance of David Martin, University of North Carolina 2010)

• Email This
• Print
• Comments
• Trackbacks
• Share Link

It is time to return the term 'Ponzi scheme' to the microfiche headlines of the 1920s where it belongs.  To do so, regulators must start regulating and courts must start finding banks liable.

Over the past year or so, the term “Ponzi scheme” has sadly become as common as “Let’s have lunch” or “Text me.”  Yes, these schemes are emblematic of good old greed and the over-exuberance and blind optimism seen in all markets, but they also illustrate a serious failure in our banking system.  With leading reputable banks at their side, Ponzi schemes have the means to grow, metastasize, and take hard-earned (often retirement) monies from hundreds of thousands of victims.  Change needs to come in the form of enhanced regulation and the courts’ willingness to hold banks accountable.

One notable example is the case of an online Ponzi scheme called ADSURF.  Participants in this scheme were told in compelling YouTube videos, religious-type rallies, and internet ads that they could earn money by simply surfing the web.  When it sounds too good to be true, it is too good to be true.  All ADSURF was doing was recruiting new participants to pay into the scheme; this allowed the organizers to profit wildly while the unlucky newcomers got left holding the bag—just like all good Ponzi schemes.  

Contrary to core compliance requirements recently expanded and tightened in response to funding made available to the 9/11 terrorists, Bank of America placed itself at the heart of the ADSURF Ponzi scheme.  With the help of Bank of America, the ADSURF scheme went on to victimize over 100,000 participants who lost hundreds of millions of dollars.  Bank of America was privy to a slew of information that inexorably led to the conclusion that ADSURF was one big scam:

*         ADSURF was the brainchild of Thomas Bowdoin, a convicted felon with a history of securities fraud violations and failed business ventures.

*          ADSURF sold no products or services, held no intellectual property rights, and had no successful business professionals in management or on its Board.

*          ADSURF had no colorable, legitimate means to produce the massive profits (365% per year) Bowdoin and his co-conspirators promised investors.

*          ADSURF also lacked the means to legally generate the tens of millions of dollars a month flooding its tiny office—a former floral shop—in the small town of Quincy, Florida.

While unthinkable just a few years ago that one of the nation’s largest and most respected financial institutions could act so irresponsibly, their conduct is sadly consistent with a range of lax business practices.  A corporate culture that placed increased profits, seven-figure bonuses, and a higher stock price above sound banking judgment—this is the same culture that caused the Bank’s near-failure last fall (requiring a $45 billion dollar federal bailout because they were deemed “too big to fail”).

It is time to return the term “Ponzi scheme” to the microfiche headlines of the 1920s where it belongs.  To do so, regulators must start regulating and courts must start finding banks liable for knowingly assisting Ponzi schemes and other obvious fraudulent schemes.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As harsh as it was, the Madoff sentence does virtually nothing to protect investors on Main Street.  What will?  Cleaning up the banks is a good start.

By now it’s old news: Bernard Madoff sentenced to 150 years in jail.  While news agencies and pundits debate ad nausea the deterrent effect and importance of this “symbolic sentence” (with good behavior Mr. Madoff will be released when he is 221 years old), a critical issue remains out of the public glare.  What about the bank Madoff and company used to support the largest and longest-running Ponzi scheme in history?  Remember that Madoff’s scheme relied upon him not buying any securities for his money management clients for over two decades.  Let me say it again, Madoff did not buy any securities for his clients since 1986.

So what did he do with the billions flowing in from feeder funds and a worldwide network of well-heeled promoters from around the world?  The simple answer is he put the money in the bank.  Not just any bank, but one of the world’s largest and most respected financial institutions: JPMorgan Chase.  Month after month, year after year, Madoff deposited billions.  Surely if he was running a legitimate money management firm those deposits would have been a mere fraction of that amount.  Why?  Because the money would be needed to buy securities and stocks for investors.  But he never bought those securities or stocks.  Statements given to his clients were no more real than a romance novel.  The stocks and bonds listed were never purchased, held or traded.  It was all a big lie.

Did JPMorgan Chase ever hush a word of this to the SEC or other regulators?  Did anyone say “this ain’t right”?  Probably not—the bank had huge accounts to service and there was plenty of money to be made.  Despite strict regulations placed on JPMorgan Chase by the Patriot Act, Anti-Money Laundering Act and Bank Secrecy requirements to be on the lookout for suspicious activity, the beat went on until the music finally stopped.

As harsh as it was, the Madoff sentence does virtually nothing to protect investors on Main Street.  What will?  Cleaning up the banks is a good start.  Empowering regulators, prosecutors and private attorneys to go after the banks is a good start.  Because without the banks' complicity, Madoff would have had no ability to take in billions every year.  Even he could not have gotten away with accepting cash or banking at anything less than a large money center bank.  Unless we clean up the banks, the chances are good, indeed certain, that we will see many more Ponzi schemes blossom before Mr. Madoff hobbles out of jail at the ripe old age of 221.

(Post was prepared with the assistance of David Martin, University of North Carolina 2010)

• Email This
• Print
• Comments
• Trackbacks
• Share Link