SEC Complaint vs Frank DiPascali, Jr

I just reviewed the complaint filed by the SEC as plaintiff against Madoff CFO, Frank DiPascali Jr. as defendant. For anybody interested in the dynamics of our markets and regulatory system, this 33 page document is a must read.

Securities and Exchange Commission, Plaintiff versus Frank DiPascali, Jr. Defendant.

Many highlights but to me the following jumps out:

1. DiPascali was a college dropout who rose to become a CFO of a supposed major financial money manager. Come on. Any legitimate feeder fund and any legitimate regulator should have immediately questioned the credibility and qualifications of this individual rising to that position.

2. Madoff did not officially become a registered investment adviser until 2006. To that point, his entire business would have been regulated by the SEC AND NASD. Why does the NASD, the parent organization of FINRA seem to get a pass in this scandal.

3. The financial subterfuge is so widespread that it seems that regulators would almost have been trying to miss this fraud. I view this SEC complaint as much an indictment of the regulators as it is an indictment of Madoff and DiPascali. As Harry Markopolos asserted, he knew it was a fraud 5 minutes after looking at it and it took him 4 hours to prove it!!

4. Madoff’s fraudulent activities have operated for a very long time. How do we know? The complaint highlights that while Madoff started in the 1960s,

Over time this advisory business expanded and various accountants and financial advisors began soliciting individual investors around the country and providing the money they raised to BMIS. These “feeders” sometimes issued to investors promissory notes that guaranteed high rates of return ~ 19%) and then invested the proceeds with BMIS at higher rates promised by Madoff (~ 21%), seeking to pocket the difference for themselves. Unlike the friends and family accounts, Madoff and BMIS did not deal directly with these individual investors. Instead, Madoff dealt with the feeders and set up aggregate, pooled accounts at BMIS for each feeder, leaving it to the feeder to deal with the individual investors, issue statements to such investors, and make distribution payments to them.

21% guaranteed returns? Are you kidding me? Regulators missed that?

I repeat my assertion the other day in writing Madoff CFO, Frank DiPascali, Singing Like a Canary,

Who were the regulators from NASD/FINRA and the SEC responsible for monitoring the Madoff operation? Are they nervous as well? Will investigators dare to pursue this angle?

I strongly encourage people to fully read this complaint. It is an easy read. One will receive a birds eye view into this enormous financial fraud and equally enormous case of financial regulatory malfeasance.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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2 Comments on SEC Complaint vs Frank DiPascali, Jr

  1. Did you check out the “non-slip/strike investors” described in the complaint who were offered even higher returns (59%!)?

    That would be too smart to be fooled and crooked enough to get paid off…..

  2. If Bernie were offering 21% in 1982, that would have been about 5% higher than the 30 year mortgage rate of 16% and not the “sub prime” rate either. Agreed the fraud was obvious, but quoting 21% now about rates offered in the early 1980’s is a bit deceptive…10-12% would be a comparable return now. The thing was his consistently positive returns not necessarily that any particular year’s returns were high. In fact the argument was that the returns were more modest than other “hedge funds” because they were “safer” and more consistent. It was that consistency that most bothered Harry Markopolos. One of the FOF’s had a average return of 12% from 1990 to 2005 according to Markopolo’s memo to the SEC.

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