Madoff and the Mob (again)

One of the more interesting aspects of Harry Markopolos's testimony before the House Financial Services committee yesterday was his assertion that the Russian mob, or Latin American drug cartels, were probably involved in the Bernie Madoff fraud. This issue has reared its head before.

Markopolos also said (and the two are being jumbled together in news reports) that he was in fear for his life, albeit for different reasons. His written testimony said: “Our analysis lead us to conclude that Mr. Madoff’s fund and the secret walls around it posed great danger to those questioning and investigating them. He was one of the most powerful men on Wall Street and in a position to easily end our careers or worse.”

That makes sense. Personally I think an even greater danger came from civil litigation, and that was certainly a credible threat, even though Madoff was guilty as hell and knew it.

Markopolos had no evidence of mob money was involved; it's basically a hypothesis, based on the amount of dirty money flowing into offshore accounts. Frankly I think it's a bit of a red herring that tends to divert attention from the real issue, which is the failure of regulators to uncover the fraud.

The House committee, particularly Rep. Gary Ackerman, pounded their fists convincingly for the cameras, which is nice I guess, and the SEC officials present were suitably evasive and squirmy. But what happens before the cameras doesn't matter. Let's see Ackerman put some legislation where his mouth is.

As for the mob: It's entirely possible that shady money was invested with Madoff, through feeder funds and such, but the shtunk would have been insane to solicit money directly from people he knew were involved in organized crime. Since he was a ripoff artist, he'd have been putting his life in danger. Indeed, skimming the list of victims released today, it's obvious that Madoff went out of his way to rip off people who weren't going to pose much of a danger to him -- such as the dead (the "Estate of Howard M. Squadron," a noted New York attorney, for instance).

Now it's always possible that the mob was involved in some other way, such as through money laundering. In Born to Steal I describe how money laundering was used by crooked brokers in the 1990s. Perhaps Madoff used such mechanisms to get his money out of the country. But, again, no evidence on that has energed so far.

© 2009 Gary Weiss. All rights reserved.