A New York broker-dealer and four other individuals were charged with securities fraud by the SEC. It was alleged that they collectively raised billions of dollars illegally from investors to feed Bernie Madoff’s Ponzi scheme.
The legal complaint filed in a Southern District of New York U.S District Court lists the Cohmad Securities Corporation of being at fault. Chairman Maurice J. Cohn, COO Marcia B. Cohn, and representative Robert M. Jaffe were charged of marketing investment with Madoff without regarding the illegality of his Ponzi scheme. The same court filed a complaint against Stanley Chais, an investment adviser who handled three funds valued nearly at 1 billion dollars that were totally invested with Madoff.
Robert Khuzami, Director of the SEC’s Division of Enforcement, noted that:
“Madoff cultivated an air of exclusivity by pretending that he was too successful to trouble himself with marketing to new investors..In fact, he needed a constant in-flow of funds to sustain his fraud, and used his secret control of Cohmad to obtain them.”
The Cohmad defendants were indicted for fraud due to their peculiar apathy towards Madoff’s suspicious activities. For example the Cohns filed Forms BD and FOCUS reports that were falsified to hide Cohmad’s business of attracting investors to Bernard L. Madoff Investment Securities LLC (BMIS). The referral business was 90 percent of Cohmad’s revenue bringing in over 800 accounts and billions of dollars for BMIS. BMIS paid 100 million for Cohmad’s referral services. The compensation arraignment between the two entities created fraudulent conduct as well, with clients unable to withdraw money from accounts with false account statements.
Jaffe, the registered representative at Cohmad, brought in more than 1 billion into BMIS. Jaffe though he was getting overcompensated by Madoff when really BMIS employees were taking money out of Jaffe’s BMIS account.
Chais’s charges centered around his false role in managing the funds and for distributing false account statements. Chais built himself up as a qualified investor managing hundreds of millions of dollars worth of money with three partnerships. But Chais only sent them money out of one of his partnerships to BMIS and then proceeded to charge that partnership for his “service.” Chais apparently also ignored blatant inconsistencies with Madoff’s reported returns, and even encouraged them.
The article is linked here.