If that sounds like a Robert Ludlum novel, it's because, well, it sounds like a Robert Ludlum novel - complete with references to intelligence-trained Rangers (in this context a Ranger is a sort of American commando, rather than the last best hope for the safety of our pic-a-nic baskets). Markopolos even said he had spent the last eight years in fear for his life - I hope that he is comforting himself by remembering that the person who has most to worry about in that regard is probably the person who is accused of stealing several billion dollars belonging to a lot of very influential and presumably highly annoyed people, rather than the person who tried to get the SEC to stop it.

He makes a lot of good points - not least, that a standard SEC inspection consists solely of walking into an empty conference room and inspecting the books provided by the company, rather than anything more probing like e.g. talking to employees. This may explain why its normal investigative technique for securities fraud over the last two decades has consisted of waiting for people to give themselves up.

Anyway, Congress is wattling furiously and suggesting that the SEC ought to be shut down, and the rhetoric is reaching almost Australian Parliament levels of directness:

"You've told us nothing, and I believe that that is your intention. Your mission was to protect investors; what went wrong? One guy with a few friends and helpers discovered this thing nearly a decade ago. He led you to this pile of dung that this Bernie Madoff was and stuck your nose in it and you couldn't figure it out. You couldn't find your backside with two hands with the lights on. This is pathetic".

Posted by Alexander Campbell at 10:57 AM | Permalink | Comments (0)

"You follow the drugs, you get drug addicts and drug dealers. But you start to follow the money, and you don't know where it's going to take you."

"In many instances, drug money is currently the only liquid investment capital... In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor," according to the UN's head of drug and criminal policy, Antonio Maria Costa (who has his own blog, including previous comments on the link between organised crime profits and the structured products business.)
It would be fascinating to know what this is based on...

Posted by Alexander Campbell at 12:27 PM | Permalink | Comments (0)

Patrick Littaye, Mr. de La Villehuchet's partner, a co-founder of Access and the manager on the firm's Madoff relationship, says... his firm conducted thorough due diligence when selecting outsider fund managers. Candidates had to undergo a handwriting test with a graphologist and Access would often hire private investigators to check the background of executives.

The relationship with Mr. Madoff, which for Mr. Littaye dated to the mid-1980s, wasn't subject to the same rigor, in part because of Mr. Madoff's reputation on Wall Street. "Of course we made an exception with Mr. Madoff," says Mr. Littaye. "I can't imagine asking him to pass a handwriting test."

So it's not even that they used graphology - a pseudoscience with the same intellectual basis as phrenology - in order to assess investment prospects. (Graphology is so famously nonsense that there are psychological studies done on why people keep believing it.)

It's that they didn't even bother to use graphology when they thought someone was an nice guy. Their due diligence process was, essentially, "are you a decent chap? If not, do you at least write with the letters all sort of wiggly?"

That alone should have been a warning sign. Even if there were other more orthodox due diligence processes in place - scrying, perhaps, or the invocation of Grande Ayizan, the voodoo spirit of commerce - using such patent nonsense as graphology should have warned people that not all was well at Access.

Access apparently lost $1.5 billion of other peoples' money in the Madoff business.

Mr. Littaye says many people came to him over past decades dismissing Madoff as a scam, but he says he has no recollection of Mr. Markopolos sounding an alarm ahead of the December debacle.

Guess he didn't see the writing on the wall. (sorry)

Posted by Alexander Campbell at 5:41 PM | Permalink | Comments (0)