Counsel Asks Court of Appeals Not to Suspend Surrogate-Elect
The New York Law Journal by Joel Stashenko and Daniel Wise - December 23, 2008
Nora S. Anderson should be allowed to become Manhattan surrogate on Jan. 1, even as the Manhattan district attorney prosecutes her on felony charges of concealing improper political contributions during her campaign for the bench earlier this year, her attorney has told the Court of Appeals. And if the Court decides to suspend Ms. Anderson, it should do so with pay because she is supporting an ill mother and brother, and the surrogate-elect will be prohibited from practicing law when her term begins on Jan. 1, the attorney, Richard Godosky, urged in a letter to the Court.
The Court is determining Ms. Anderson's status as surrogate following her Dec. 10 arraignment on a 10-count indictment of falsely reporting that $250,000 that poured into her campaign coffers before the September primary was her own money. Prosecutors contend the money came from attorney Seth Rubenstein, for whom Ms. Anderson has worked for nearly a decade. "Ms. Anderson's indictment . . . does not charge Ms. Anderson with acts of venality or corruption, but violations of the campaign finance provisions of the Election Law either as misdemeanors under the Election Law or generic felonies under the Penal Law based on the Election Law misdemeanors," Mr. Godosky wrote. "Obviously, because she has yet to take the Bench, the conduct with which Ms. Anderson is charged has nothing to do with her conduct or fitness as a judge." Mr. Godosky cited Matter of Cornelius, 48 NY2d 1014 (1980), as supporting his view that suspension of a judge is not merited in every instance where the judge is charged with a felony. In Cornelius, a 5-2 Court ruled against suspending a Family Court judge from Monroe County who faced a felony for offering testimony while a prosecutor which he had been advised was false.
Robert H. Tembeckjian, administrator of the state Commission on Judicial Conduct, argued in his letter to the Court that suspension is the customary course the Court has taken when judges have been charged with felonies. Doing so balances the "presumption of innocence to which the accused is entitled at trial with the need for public confidence in the integrity of the judiciary, the courts and the administration of justice," Mr. Tembeckjian wrote. "The Commission believes that public confidence in the integrity of the judiciary, the courts and the administration of justice would be undermined were Ms. Anderson to exercise the powers of judicial office in one court while contemporaneously defending against felony charges pending against her in another," Mr. Tembeckjian opined. The commission advised the Court of Appeals it could find no other instance since the current constitutional and statutory provisions giving the Court the authority to decide the status of judges went into effect in 1978 when an individual not holding judicial or other public office was charged with a felony between the election and when the individual was to take office. Mr. Tembeckjian said the commission was taking no position on whether Ms. Anderson should be paid if she is suspended. Mr. Godosky criticized Mr. Tembeckjian for not citing Matter of Cornelius in his letter to the Court. Mr. Tembeckjian said it was an oversight. The Court is expected to make a determination on Ms. Anderson's judicial status as of Jan. 1 based on the submissions.
Both Ms. Anderson and Mr. Rubenstein have been free on their own recognizance since being arraigned on the charges before Acting Supreme Court Justice Bruce Allen of Manhattan (NYLJ, Dec. 11). Both face a maximum prison term of 1 1/3 to four years if convicted of the top six counts of the indictment, all Class E felonies. When announcing the indictments earlier this month, District Attorney Robert M. Morgenthau contended Ms. Anderson found herself short of money in the waning days of the Democratic primary in September. Mr. Rubenstein is accused of making payments of $100,000 and $150,000 from his own accounts to Ms. Anderson's personal accounts, with Ms. Anderson allegedly donating the money or lending it to her campaign fund. By law, the maximum Mr. Rubenstein could contribute to Ms. Anderson's primary was $33,122, Mr. Morgenthau said.
Ms. Anderson won a three-way race against John J. Reddy, counsel to the public administrator, and Manhattan Justice Milton A. Tingling by capturing 48 percent of the 55,000 votes cast. She ran unopposed in the general election. The Manhattan surrogate makes $136,700 a year. If Ms. Anderson is suspended, Chief Administrative Judge Ann Pfau could assign another judge to fill in until her case is resolved. Mr. Godosky, of Godosky & Genile, is representing Ms. Anderson in the suspension matter. Gustave H. Newman of Newman & Greenberg is her trial counsel. "She fully expects to be vindicated, whether on pretrial motion or after trial," Mr. Godosky told the Court. Stuart M. Cohen, clerk of the Court, invited both Ms. Anderson and the commission to offer their views to the Court as it considers whether Ms. Anderson should be suspended. Joel.Stashenko@incisivemedia.com, Daniel.Wise@incisivemedia.com
Suspension Recommended for Judge-Elect
The New York Times by JAMES BARRON - December 22, 2008
The State Commission on Judicial Conduct recommended on Monday that Judge-elect Nora S. Anderson be suspended when she takes office next month in Manhattan Surrogate’s Court and that she not exercise judicial power until charges that she violated campaign-finance laws are settled. The commission said in a letter to the Court of Appeals, the state’s highest court, that “public confidence in the integrity of the judiciary, the courts and the administration of justice would be undermined” if Ms. Anderson presided over cases in Surrogate’s Court while facing criminal charges. Robert H. Tembeckjian, the commission’s administrator and counsel, said in the letter that the commission was not taking a position on the allegations against Ms. Anderson, a lawyer who won a three-way race last month. A grand jury in Manhattan indicted her on Dec. 10 on charges of accepting $250,000 in campaign contributions from her boss and concealing where the money came from. Under state law, individual donors are not allowed to give any campaign more than $33,122.50.
Mr. Tembeckjian said in an interview that since 1978, when the current laws covering the state judiciary took effect, there had been no other cases that he was aware of involving felony charges against a judge who had been elected but not yet sworn in. He said that a felony indictment against a judge or a judge-elect was “rare,” but that it had been the “consistent practice” of the Court of Appeals to suspend an accused judge while the charges were pending. “In so doing,” he said in the letter, “the court has balanced the presumption of innocence to which the accused is entitled at trial with the need for public confidence in the integrity of the judiciary, the courts and the administration of justice.” The Court of Appeals notified Ms. Anderson on Dec. 11 that it may consider suspending her until the case was settled. A lawyer for Ms. Anderson, Gustave H. Newman, did not return a call for comment.
Judge Could Be Suspended on the Day She Is Sworn In
The New York Times by JOHN ELIGON - December 12, 2008
The New York Court of Appeals notified Judge-elect Nora S. Anderson on Thursday that it may consider suspending her until criminal charges against her are decided. The court also offered her an opportunity to oppose suspension. A day earlier, Ms. Anderson, who was elected last month to the Manhattan Surrogate’s Court, was indicted on charges that she had concealed the source of $250,000 worth of contributions to her campaign. Manhattan prosecutors also charged Seth Rubenstein — the head of the Brooklyn law firm where Ms. Anderson works, and her campaign adviser — who they say funneled the money to Ms. Anderson’s campaign account. Ms. Anderson is to officially assume her judgeship on Jan. 1. But the Court of Appeals, the state’s highest court, which has the authority to suspend a judge charged with a felony, could act before the end of the year, said David Bookstaver, a spokesman for the Office of Court Administration. If the court does decide to suspend her, its action would not take effect until Jan. 1. Chief Judge Judith S. Kaye will not participate in the discussions because she is retiring Dec. 31, before any decision involving Ms. Anderson would take effect, Gary Spencer, a Court of Appeals spokesman, said.
A letter, signed by Stuart M. Cohen, the court clerk, notifying Ms. Anderson of the possibility of suspension, gives Ms. Anderson until Dec. 22 to offer “reasons or arguments why suspension action should not be taken.” The letter also said that the Commission on Judicial Conduct, which has the authority to remove a judge from the bench, may present its views. Such letters are standard when judges face suspension, Mr. Spencer said. If Ms. Anderson is suspended, Ann Pfau, the state’s chief administrative judge, would assign a temporary replacement. John Reddy, one of the candidates Ms. Anderson beat in the Democratic primary in September, said he would reserve judgment because the truth remained uncertain. Justice Milton Tingling of State Supreme Court, another candidate who lost to Ms. Anderson, said sitting judges could not comment on active cases. Ravi Batra, Justice Tingling’s campaign finance chairman, who called for an investigation into Ms. Anderson in July, said it might be best for her to resign. Ms. Anderson’s lawyer, Gus Newman, said Ms. Anderson “is not going to resign the post.”
Tuesday, December 23, 2008
Monday, December 22, 2008
Commingling Concerns in Dreier Mess
'Commingling' Concern Raised; Judge Authorizes Dreier Trustee
The New York Law Journal by Noeleen G. Walder and Daniel Wise - December 22, 2008
Southern District Chief Bankruptcy Judge Stuart M. Bernstein authorized the appointment of a trustee for the Dreier LLP Chapter 11 proceeding at an emergency hearing on Friday. Judge Bernstein acted after being warned by receiver Mark F. Pomerantz that there was "a huge amount of commingling" between the assets of the firm and its founder, Marc S. Dreier and sole equity partner, who is being held in jail without bail on allegations of a $380 million scam. Mr. Pomerantz, a partner at Paul, Weiss, Rifkind, Wharton & Garrison and former assistant U.S. attorney in the Southern District of New York, participated in the hearing via telephone. Judge Bernstein also authorized the expenditure of $666,000 to buy time until the trustee is in place, which is expected in about a week. The payments included $214,000 to keep the firm's malpractice insurance policy in place through at least Feb. 2 and $107,000 in wages for the 17 Dreier employees - two of whom are partners - who remain to wind down the firm's affairs. Judge Bernstein repeatedly expressed concern that matters be handled as economically as possible. For instance, he several times questioned whether, instead of paying to keep the former firm's health insurance afloat, a new policy could be purchased for remaining employees.
As of last week, the firm had about $1.1 million in its operating account, according to a lawyer for Wachovia Bank, which is suing to recover a $15 million loan. About 25 persons attended the hour-long hearing which proceeded smoothly with no opposition to the four motions brought by counsel for Mr. Pomerantz, who had been appointed as a receiver to stand in Mr. Dreier's stead in a civil recovery proceeding brought by the Securities and Exchange Commission. Among the spectators were Timothy Joseph McAuliffe Jr., a litigation associate who worked at Dreier for four years and caught the tail end of the proceedings. Mr. McAuliffe, whose wife is 8 1/2 months pregnant, said he attended the hearing to see if his insurance premiums would be paid by the firm. Under the terms agreed to at today's hearing, the trustee's receiver has authority to use up to $160,000 to keep the entire firm's health insurance policy in effect, unless a cheaper policy can be found to insure the skeleton crew of 17 remaining employees. Meanwhile, Mr. McAuliffe said that he makes ends meet by doing contract legal work and is looking for a job that offers health insurance, which he said can cost as much as $4,000 per month for a family. "Know anybody that wants to hire a securities arbitrator?," Mr. McAuliffe asked as he dashed home to spend time with his kids.
Mr. Dreier was arrested in New York on Dec. 7 on charges of securities and wire fraud for selling more than $100 million in fraudulent notes to three hedge funds. Prosecutors have said that the total amount involved in the fraud is at least $380 million. With lawyers fleeing the firm and the disclosure that as much as $38.5 million in escrow money is missing, Mr. Pomerantz filed a bankruptcy petition last Monday. But Brian S. Hermann, one of the Paul Weiss lawyers representing Mr. Pomerantz, said in reviewing its list of clients, Paul Weiss had discovered a potential for conflict because it and Dreier have many of the same clients. Further, Mr. Hermann said that if Mr. Dreier does not voluntarily file for personal bankruptcy, Paul Weiss would seek to force him to take that step. Gerald Shargel, Mr. Dreier criminal attorney, has suggested that Mr. Dreier has no plans to file for personal bankruptcy. Gregory Sipes, an attorney with the U.S. Trustee's Office, said that his office already had received resumes from potential appointees and was reviewing them. The new trustee will replace Mr. Pomerantz in overseeing the bankruptcy proceeding. Mr. Pomerantz will remain as the receiver in the SEC proceeding pending in the Southern District.
The SEC proceeding is not stayed by the Chapter 11 filing, but, as a practical matter, it is not likely to proceed until the criminal cases against Mr. Dreier is concluded because he would likely invoke the Fifth Amendment if questioned about the whereabouts of his assets, bankruptcy experts said. Concerns about Mr. Dreier's assets were also raised by Steven J. Reisman, who on Friday was appointed to investigate the disappearance of as much as $38.5 million from an escrow account being held by Mr. Dreier in a bankruptcy case where the firm had represented a creditors committee. Mr. Reisman, a partner at Curtis, Mallet-Prevost, Colt & Mosle, expressed concern that some of the $600,000 reported to have been in the firm's operating account when the Chapter 11 petition was filed last Monday may have come from the firm's escrow accounts. Referring to the Dreier firm's assets, Mr. Reisman said, "there doesn't seem to be a lot of money and every dollar is meaningful." Wachovia's lawyer, Joseph Lubertazzi, Jr., a partner at McCarter & English, agreed to the expenditures requested by Mr. Pomerantz as long as Judge Bernstein would agree to expand the lien the bank had to protect its loan. Judge Bernstein agreed that the bank needed the added protection. Steven J. Shimshak, a Paul Weiss partner, also representing Mr. Pomerantz, said that the firm had filed what looked to be a liquidation as a Chapter 11 reorganization to allow Dreier's 10 affiliate firms some measure of protection as long as they were free of any Dreier assets. "We don't want to stand in the way" of allowing partners in the affiliated entities to move on with their lives, he said at the close of the hearing. Daniel.Wise@incisivemedia.com, Noeleen.Walder@incisivemedia.com
The New York Law Journal by Noeleen G. Walder and Daniel Wise - December 22, 2008
Southern District Chief Bankruptcy Judge Stuart M. Bernstein authorized the appointment of a trustee for the Dreier LLP Chapter 11 proceeding at an emergency hearing on Friday. Judge Bernstein acted after being warned by receiver Mark F. Pomerantz that there was "a huge amount of commingling" between the assets of the firm and its founder, Marc S. Dreier and sole equity partner, who is being held in jail without bail on allegations of a $380 million scam. Mr. Pomerantz, a partner at Paul, Weiss, Rifkind, Wharton & Garrison and former assistant U.S. attorney in the Southern District of New York, participated in the hearing via telephone. Judge Bernstein also authorized the expenditure of $666,000 to buy time until the trustee is in place, which is expected in about a week. The payments included $214,000 to keep the firm's malpractice insurance policy in place through at least Feb. 2 and $107,000 in wages for the 17 Dreier employees - two of whom are partners - who remain to wind down the firm's affairs. Judge Bernstein repeatedly expressed concern that matters be handled as economically as possible. For instance, he several times questioned whether, instead of paying to keep the former firm's health insurance afloat, a new policy could be purchased for remaining employees.
As of last week, the firm had about $1.1 million in its operating account, according to a lawyer for Wachovia Bank, which is suing to recover a $15 million loan. About 25 persons attended the hour-long hearing which proceeded smoothly with no opposition to the four motions brought by counsel for Mr. Pomerantz, who had been appointed as a receiver to stand in Mr. Dreier's stead in a civil recovery proceeding brought by the Securities and Exchange Commission. Among the spectators were Timothy Joseph McAuliffe Jr., a litigation associate who worked at Dreier for four years and caught the tail end of the proceedings. Mr. McAuliffe, whose wife is 8 1/2 months pregnant, said he attended the hearing to see if his insurance premiums would be paid by the firm. Under the terms agreed to at today's hearing, the trustee's receiver has authority to use up to $160,000 to keep the entire firm's health insurance policy in effect, unless a cheaper policy can be found to insure the skeleton crew of 17 remaining employees. Meanwhile, Mr. McAuliffe said that he makes ends meet by doing contract legal work and is looking for a job that offers health insurance, which he said can cost as much as $4,000 per month for a family. "Know anybody that wants to hire a securities arbitrator?," Mr. McAuliffe asked as he dashed home to spend time with his kids.
Mr. Dreier was arrested in New York on Dec. 7 on charges of securities and wire fraud for selling more than $100 million in fraudulent notes to three hedge funds. Prosecutors have said that the total amount involved in the fraud is at least $380 million. With lawyers fleeing the firm and the disclosure that as much as $38.5 million in escrow money is missing, Mr. Pomerantz filed a bankruptcy petition last Monday. But Brian S. Hermann, one of the Paul Weiss lawyers representing Mr. Pomerantz, said in reviewing its list of clients, Paul Weiss had discovered a potential for conflict because it and Dreier have many of the same clients. Further, Mr. Hermann said that if Mr. Dreier does not voluntarily file for personal bankruptcy, Paul Weiss would seek to force him to take that step. Gerald Shargel, Mr. Dreier criminal attorney, has suggested that Mr. Dreier has no plans to file for personal bankruptcy. Gregory Sipes, an attorney with the U.S. Trustee's Office, said that his office already had received resumes from potential appointees and was reviewing them. The new trustee will replace Mr. Pomerantz in overseeing the bankruptcy proceeding. Mr. Pomerantz will remain as the receiver in the SEC proceeding pending in the Southern District.
The SEC proceeding is not stayed by the Chapter 11 filing, but, as a practical matter, it is not likely to proceed until the criminal cases against Mr. Dreier is concluded because he would likely invoke the Fifth Amendment if questioned about the whereabouts of his assets, bankruptcy experts said. Concerns about Mr. Dreier's assets were also raised by Steven J. Reisman, who on Friday was appointed to investigate the disappearance of as much as $38.5 million from an escrow account being held by Mr. Dreier in a bankruptcy case where the firm had represented a creditors committee. Mr. Reisman, a partner at Curtis, Mallet-Prevost, Colt & Mosle, expressed concern that some of the $600,000 reported to have been in the firm's operating account when the Chapter 11 petition was filed last Monday may have come from the firm's escrow accounts. Referring to the Dreier firm's assets, Mr. Reisman said, "there doesn't seem to be a lot of money and every dollar is meaningful." Wachovia's lawyer, Joseph Lubertazzi, Jr., a partner at McCarter & English, agreed to the expenditures requested by Mr. Pomerantz as long as Judge Bernstein would agree to expand the lien the bank had to protect its loan. Judge Bernstein agreed that the bank needed the added protection. Steven J. Shimshak, a Paul Weiss partner, also representing Mr. Pomerantz, said that the firm had filed what looked to be a liquidation as a Chapter 11 reorganization to allow Dreier's 10 affiliate firms some measure of protection as long as they were free of any Dreier assets. "We don't want to stand in the way" of allowing partners in the affiliated entities to move on with their lives, he said at the close of the hearing. Daniel.Wise@incisivemedia.com, Noeleen.Walder@incisivemedia.com
Sunday, December 21, 2008
Tom Robbins on Surrogate Judge Arrest
Prosecutors Target a Brand-New Judge - Another Manhattan bench press
The Village Voice by Tom Robbins - December 10, 2008
Courting trouble: Anderson
New Yorkers who can tell you the precise number of electoral votes in Ohio and Indiana give only blank looks when asked how their own local judges are selected. This willful ignorance is the result of common sense and self-preservation. ¶ For one thing, most people have no great concern about judges until they're in front of one. For another, every now and again, some terrible story bubbles up about the foolish and wicked things done by those seeking and winning election to the bench. Each is a reminder to sensible people to have nothing to do with this awful business. Just last week, a court delivered one of these lessons when it rendered the final verdict on the wretched career of an ex-judge of Surrogate's Court in Brooklyn. Michael Feinberg was a party regular, groomed for his post by the borough's top Democratic officials. His job as surrogate was to protect the property and interests of widows, orphans, and the deceased. He did this by promptly naming a law-school chum as counsel to handle these estates. Feinberg then let Louis Rosenthal collect fees far in excess of those legally allowed, while never bothering him with the silly requirement to provide reports of his work. This casual approach allowed Feinberg to approve payments of $8.6 million to his friend. The insider trading only ceased when the judge learned that a pair of reporters from the Daily News, Nancie Katz and Larry Cohler-Esses, were about to expose them. Even though Feinberg and Rosenthal's schemes occurred while Brooklyn District Attorney Charles Hynes was on a self-declared crusade against judicial misconduct, the pair somehow managed to escape prosecution. The Court of Appeals, however, removed Feinberg from the bench. It ruled that his conduct reflected "not mere lapses or errors in judgment, but a wholesale failure" of his sworn duty, one that showed "an indifference, if not cynicism toward his judicial office." Last week, another panel finished the job when it ordered Feinberg permanently disbarred from the practice of law, and handed Rosenthal a two-year suspension.
In the next few days, New Yorkers will get another tasteless episode of judicial lust and its consequences. This one comes out of Manhattan, where indictments are expected to be brought against an otherwise likable attorney named Nora Anderson who was elected last month as a county surrogate judge, the first such African-American. Also likely to be charged is Anderson's employer and mentor, an aged and veteran lawyer named Seth Rubenstein, who has one of the largest surrogate-court practices in the city. Several people familiar with the case said that the charges would involve a series of hefty loans and gifts that Rubenstein made to Anderson that provided the bulk of her campaign's funding. The money, said one source, appears to show an "attempt to evade the state's campaign finance limits," compounded by the campaign's filings of allegedly false statements. Prosecutors have interviewed key vendors who worked for Anderson's election. Campaign manager Michael Oliva last week publicly acknowledged that he had been questioned before a grand jury, but insisted that his client had done no wrong. "Everything was fully disclosed," said Oliva, who believes Anderson's victory put powerful noses out of joint, thus making her a target. "Nora was a no-name candidate who came out of nowhere. We won the endorsement of 12 clubs in Manhattan. That really pissed everybody off," he said.
In the September primary, Anderson defeated two other contenders: Judge Milton Tingling had the backing of the borough's Democratic organization, while John Reddy Jr. was supported by another circle of surrogate-court regulars. In addition to her hard work and forthright demeanor, Anderson's win stemmed from the all-important endorsement of The New York Times. She got the Times's backing even after questions were raised—again by the Daily News—about the fact that much of her campaign expenses were being paid by a $225,000 loan that Anderson received from her boss. The candidate swore to the Times—which repeated her oath in its endorsement editorial—that she would never steer work to Rubenstein should she win office. That assurance was good enough for others as well. Alan Flacks, the indefatigable Upper West Side political watchdog, said that early in the campaign he put in a call to Anderson to learn more about her. "I called Anderson, and Rubenstein returned the call," said Flacks. "He said he was authorized to speak for her. He was a real gentleman. On the issue of the money and appearing before her, he said, 'I know better. Of course I won't.' He talked like a proud Jewish grandfather."
In addition to the $225,000 loan, Rubenstein kick-started Anderson's campaign with a $25,000 donation back in April. Another Rubenstein associate, Janise Dawson, served as Anderson's campaign treasurer and gave $6,000. It wasn't until two weeks before the primary that Anderson made the first sizable contribution to her own campaign, giving herself a $100,000 donation on August 20. A few days later, campaign records show, she added $170,000 to the kitty, this time as a loan. Around that time, sources said, a former prosecutor working at a large bank tipped his old boss, District Attorney Robert Morgenthau, that several SARs—Suspicious Activity Reports—had been generated by the bank after large transactions were made involving Rubenstein and Anderson's accounts. These are the same kind of pesky reports that tripped up ex-governor Eliot Spitzer when he tried to secretly funnel money to high-priced hookers.
Prosecutors asked witnesses before the grand jury about a meeting that took place in August between Anderson, Rubenstein, and others. Oliva said he knew nothing about it. "I worked with her for almost eight months. She was never deceptive or dishonest," he said. Rubenstein did not return calls, but another source who knows him acknowledged that the lawyer "gifted" Anderson more than $100,000, in addition to the $225,000 loan. "She put that in the campaign," said the source. Things got awkward for Anderson after she failed to pay back Rubenstein's loan by the time of the primary election, a failure that automatically converts the loan into a contribution—in this case, one well beyond the maximum of $32,000. For her part, Anderson insisted that the general election deadline was the one that counted, and she made her final repayment of the $225,000 loan on November 3—the day before the vote, records show. Prosecutors have questioned whether those funds also originated from Rubenstein.
Old-timers will tell you that this is hardly the first campaign to miss the deadline to repay loans, and that criminal prosecutions are rare. "We don't have any record of something along these lines," said state Board of Elections spokesman Robert Brown. Anderson's allies are also happy to spin out scenarios suggesting that any prosecution by Morgenthau's office is just a way for the D.A. to protect his own political flank as he gets ready to seek re-election next year, at age 90. If so, it's an excellent motive. The only thing more unseemly than watching judicial candidates raise thousands of dollars for their campaigns is seeing them squirm when their contributors come calling. Let lawyers and experts pick the judges so the rest of us can get back to handicapping the Iowa caucuses.
The Village Voice by Tom Robbins - December 10, 2008
Courting trouble: Anderson
New Yorkers who can tell you the precise number of electoral votes in Ohio and Indiana give only blank looks when asked how their own local judges are selected. This willful ignorance is the result of common sense and self-preservation. ¶ For one thing, most people have no great concern about judges until they're in front of one. For another, every now and again, some terrible story bubbles up about the foolish and wicked things done by those seeking and winning election to the bench. Each is a reminder to sensible people to have nothing to do with this awful business. Just last week, a court delivered one of these lessons when it rendered the final verdict on the wretched career of an ex-judge of Surrogate's Court in Brooklyn. Michael Feinberg was a party regular, groomed for his post by the borough's top Democratic officials. His job as surrogate was to protect the property and interests of widows, orphans, and the deceased. He did this by promptly naming a law-school chum as counsel to handle these estates. Feinberg then let Louis Rosenthal collect fees far in excess of those legally allowed, while never bothering him with the silly requirement to provide reports of his work. This casual approach allowed Feinberg to approve payments of $8.6 million to his friend. The insider trading only ceased when the judge learned that a pair of reporters from the Daily News, Nancie Katz and Larry Cohler-Esses, were about to expose them. Even though Feinberg and Rosenthal's schemes occurred while Brooklyn District Attorney Charles Hynes was on a self-declared crusade against judicial misconduct, the pair somehow managed to escape prosecution. The Court of Appeals, however, removed Feinberg from the bench. It ruled that his conduct reflected "not mere lapses or errors in judgment, but a wholesale failure" of his sworn duty, one that showed "an indifference, if not cynicism toward his judicial office." Last week, another panel finished the job when it ordered Feinberg permanently disbarred from the practice of law, and handed Rosenthal a two-year suspension.
In the next few days, New Yorkers will get another tasteless episode of judicial lust and its consequences. This one comes out of Manhattan, where indictments are expected to be brought against an otherwise likable attorney named Nora Anderson who was elected last month as a county surrogate judge, the first such African-American. Also likely to be charged is Anderson's employer and mentor, an aged and veteran lawyer named Seth Rubenstein, who has one of the largest surrogate-court practices in the city. Several people familiar with the case said that the charges would involve a series of hefty loans and gifts that Rubenstein made to Anderson that provided the bulk of her campaign's funding. The money, said one source, appears to show an "attempt to evade the state's campaign finance limits," compounded by the campaign's filings of allegedly false statements. Prosecutors have interviewed key vendors who worked for Anderson's election. Campaign manager Michael Oliva last week publicly acknowledged that he had been questioned before a grand jury, but insisted that his client had done no wrong. "Everything was fully disclosed," said Oliva, who believes Anderson's victory put powerful noses out of joint, thus making her a target. "Nora was a no-name candidate who came out of nowhere. We won the endorsement of 12 clubs in Manhattan. That really pissed everybody off," he said.
In the September primary, Anderson defeated two other contenders: Judge Milton Tingling had the backing of the borough's Democratic organization, while John Reddy Jr. was supported by another circle of surrogate-court regulars. In addition to her hard work and forthright demeanor, Anderson's win stemmed from the all-important endorsement of The New York Times. She got the Times's backing even after questions were raised—again by the Daily News—about the fact that much of her campaign expenses were being paid by a $225,000 loan that Anderson received from her boss. The candidate swore to the Times—which repeated her oath in its endorsement editorial—that she would never steer work to Rubenstein should she win office. That assurance was good enough for others as well. Alan Flacks, the indefatigable Upper West Side political watchdog, said that early in the campaign he put in a call to Anderson to learn more about her. "I called Anderson, and Rubenstein returned the call," said Flacks. "He said he was authorized to speak for her. He was a real gentleman. On the issue of the money and appearing before her, he said, 'I know better. Of course I won't.' He talked like a proud Jewish grandfather."
In addition to the $225,000 loan, Rubenstein kick-started Anderson's campaign with a $25,000 donation back in April. Another Rubenstein associate, Janise Dawson, served as Anderson's campaign treasurer and gave $6,000. It wasn't until two weeks before the primary that Anderson made the first sizable contribution to her own campaign, giving herself a $100,000 donation on August 20. A few days later, campaign records show, she added $170,000 to the kitty, this time as a loan. Around that time, sources said, a former prosecutor working at a large bank tipped his old boss, District Attorney Robert Morgenthau, that several SARs—Suspicious Activity Reports—had been generated by the bank after large transactions were made involving Rubenstein and Anderson's accounts. These are the same kind of pesky reports that tripped up ex-governor Eliot Spitzer when he tried to secretly funnel money to high-priced hookers.
Prosecutors asked witnesses before the grand jury about a meeting that took place in August between Anderson, Rubenstein, and others. Oliva said he knew nothing about it. "I worked with her for almost eight months. She was never deceptive or dishonest," he said. Rubenstein did not return calls, but another source who knows him acknowledged that the lawyer "gifted" Anderson more than $100,000, in addition to the $225,000 loan. "She put that in the campaign," said the source. Things got awkward for Anderson after she failed to pay back Rubenstein's loan by the time of the primary election, a failure that automatically converts the loan into a contribution—in this case, one well beyond the maximum of $32,000. For her part, Anderson insisted that the general election deadline was the one that counted, and she made her final repayment of the $225,000 loan on November 3—the day before the vote, records show. Prosecutors have questioned whether those funds also originated from Rubenstein.
Old-timers will tell you that this is hardly the first campaign to miss the deadline to repay loans, and that criminal prosecutions are rare. "We don't have any record of something along these lines," said state Board of Elections spokesman Robert Brown. Anderson's allies are also happy to spin out scenarios suggesting that any prosecution by Morgenthau's office is just a way for the D.A. to protect his own political flank as he gets ready to seek re-election next year, at age 90. If so, it's an excellent motive. The only thing more unseemly than watching judicial candidates raise thousands of dollars for their campaigns is seeing them squirm when their contributors come calling. Let lawyers and experts pick the judges so the rest of us can get back to handicapping the Iowa caucuses.
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Heavily Conflicted Administrative Judge Nicolai Up to Old Tricks
Judge orders White Plains PAC tied to mayor to open its books
The Journal News by Keith Eddings - December 21, 2008
WHITE PLAINS - A state judge has ordered a political action committee tied to White Plains Mayor Joseph Delfino to open its books to five Democratic city leaders who allege it is a shadow fundraising organization for the Republican mayor and illegally underwrote his re-election campaign three years ago. State Supreme Court Justice Francis Nicolai issued the order over the objections of the PAC's lawyer, who has accused the Democrats of trying to "conduct a fishing expedition and rummage through the records of another committee."
The lawyer, Guy Parisi, also said the Democrats are seeking to force the PAC to surrender records that state election law does not require it to give up, and that the PAC had already made all the financial disclosures the state requires. Nicolai's order that the Year 2001 Committee PAC open its books and records for the last three and a half years by Jan. 30 is the latest in a string of defeats it has suffered in his court, beginning when he rejected Parisi's argument in the spring that it's up to the state Board of Elections, not the courts, to enforce election laws. But the PAC did score a victory in Nicolai's ruling last week; the judge rejected the Democrats' request to question its treasurer, Joseph Malara, about its fundraising and spending. Tim James, the lawyer for the Democrats and the husband of local party leader Liz Shollenberger, said he may ask Nicolai to reconsider his request to depose Malara after he sees the books. "I believe the records, combined with future discovery, will show that the Year 2001 Committee has been operated specifically for the benefit of Mayor Delfino," James said Friday. "The committee appears to be run with the express purpose of evading the financial disclosure laws and campaign contribution limits of the election laws."
The laws prohibit political action committees from paying bills on behalf of candidates and limit their direct contributions to candidates. In White Plains, the limit is about $1,400 every four years for mayoral candidates. The law makes it a felony to form committees to help candidates evade limits on contributions. Delfino declined to be interviewed Friday but issued a statement saying he "has nothing to do with the committee." PAC Chairman John Ioris referred to Parisi questions about whether the PAC would appeal Nicolai's latest order. Parisi did not return a call. The PAC has filed one appeal in the case.
Shollenberger and four other Democrats sued to force more disclosure from the PAC on May 10, after The Journal News reported its ties to the Friends of Mayor Joseph Delfino committee. The disclosure forms the PAC had filed up to that point showed it had never written a check to Delfino's campaigns, but its spending for printing, signs and similar items spiked during the mayor's last campaign in 2005. Delfino and the PAC hold a joint fundraiser every spring, when Ioris said they share the expenses and the proceeds, and the mayor hosts a second fundraiser for the PAC every fall, most recently on Sept. 18. The mayor's campaign and the PAC also have shared a post office box, donor lists, staff and Ioris' fundraising skills. Until the Democrats filed their suit, the PAC had never filed required forms with county or state election boards identifying which candidates benefit from its spending; about $142,000 over the past three years. When Nicolai ordered the PAC to file forms in September, it accounted for just $6,759.75 of the spending by listing five candidates - including Delfino - and said each received $1,352 worth of support in October 2005. The forms did not say what form the support took. The Democrats said the disclosure fell short and that it defied Nicolai's order. They responded by asking the judge for the order requiring the PAC to open its books, which he issued Wednesday.
See Related Nicolai Stories:
Administrative Judge Clean-Up Releases Creative Juices
Novel Administrative Judge Babbling: No Recollection
Judicial Reports: The Color of Judge Money
Judicial Meltdown Renews Call for New Administrative Judge
Recent Clawing for Another Rigged Election Fails
Report on Judge's Anger Over Election Fix Block
New York Post: Appeals Court Blasts Administrative Judge
3 Judges Covered Pal's 9/11 Donation Fraud
Judicial Destruction of Court Records
Nostalgically, One Last Rigged Election
Judicial Steering in New York Courts
The Journal News by Keith Eddings - December 21, 2008
WHITE PLAINS - A state judge has ordered a political action committee tied to White Plains Mayor Joseph Delfino to open its books to five Democratic city leaders who allege it is a shadow fundraising organization for the Republican mayor and illegally underwrote his re-election campaign three years ago. State Supreme Court Justice Francis Nicolai issued the order over the objections of the PAC's lawyer, who has accused the Democrats of trying to "conduct a fishing expedition and rummage through the records of another committee."
The lawyer, Guy Parisi, also said the Democrats are seeking to force the PAC to surrender records that state election law does not require it to give up, and that the PAC had already made all the financial disclosures the state requires. Nicolai's order that the Year 2001 Committee PAC open its books and records for the last three and a half years by Jan. 30 is the latest in a string of defeats it has suffered in his court, beginning when he rejected Parisi's argument in the spring that it's up to the state Board of Elections, not the courts, to enforce election laws. But the PAC did score a victory in Nicolai's ruling last week; the judge rejected the Democrats' request to question its treasurer, Joseph Malara, about its fundraising and spending. Tim James, the lawyer for the Democrats and the husband of local party leader Liz Shollenberger, said he may ask Nicolai to reconsider his request to depose Malara after he sees the books. "I believe the records, combined with future discovery, will show that the Year 2001 Committee has been operated specifically for the benefit of Mayor Delfino," James said Friday. "The committee appears to be run with the express purpose of evading the financial disclosure laws and campaign contribution limits of the election laws."
The laws prohibit political action committees from paying bills on behalf of candidates and limit their direct contributions to candidates. In White Plains, the limit is about $1,400 every four years for mayoral candidates. The law makes it a felony to form committees to help candidates evade limits on contributions. Delfino declined to be interviewed Friday but issued a statement saying he "has nothing to do with the committee." PAC Chairman John Ioris referred to Parisi questions about whether the PAC would appeal Nicolai's latest order. Parisi did not return a call. The PAC has filed one appeal in the case.
Shollenberger and four other Democrats sued to force more disclosure from the PAC on May 10, after The Journal News reported its ties to the Friends of Mayor Joseph Delfino committee. The disclosure forms the PAC had filed up to that point showed it had never written a check to Delfino's campaigns, but its spending for printing, signs and similar items spiked during the mayor's last campaign in 2005. Delfino and the PAC hold a joint fundraiser every spring, when Ioris said they share the expenses and the proceeds, and the mayor hosts a second fundraiser for the PAC every fall, most recently on Sept. 18. The mayor's campaign and the PAC also have shared a post office box, donor lists, staff and Ioris' fundraising skills. Until the Democrats filed their suit, the PAC had never filed required forms with county or state election boards identifying which candidates benefit from its spending; about $142,000 over the past three years. When Nicolai ordered the PAC to file forms in September, it accounted for just $6,759.75 of the spending by listing five candidates - including Delfino - and said each received $1,352 worth of support in October 2005. The forms did not say what form the support took. The Democrats said the disclosure fell short and that it defied Nicolai's order. They responded by asking the judge for the order requiring the PAC to open its books, which he issued Wednesday.
See Related Nicolai Stories:
Administrative Judge Clean-Up Releases Creative Juices
Novel Administrative Judge Babbling: No Recollection
Judicial Reports: The Color of Judge Money
Judicial Meltdown Renews Call for New Administrative Judge
Recent Clawing for Another Rigged Election Fails
Report on Judge's Anger Over Election Fix Block
New York Post: Appeals Court Blasts Administrative Judge
3 Judges Covered Pal's 9/11 Donation Fraud
Judicial Destruction of Court Records
Nostalgically, One Last Rigged Election
Judicial Steering in New York Courts
Saturday, December 20, 2008
Disgraceful Attempt by City Bar to Advance Corruption in State Courts
New York City Bar Association
PRESS RELEASE - FOR IMMEDIATE RELEASE
Contact: Eric Friedman (212) 382-6754
New York City Bar Association Issues Evaluations of Candidates For Chief Judge of the New York Court of Appeals
New York , December 19, 2008 – The New York City Bar announced today its ratings of candidates recommended by the New York State Commission on Judicial Nomination for appointment as Chief Judge of the New York Court of Appeals. The term of current Chief Judge Judith S. Kaye will expire on December 31, 2008.
The evaluations of the seven candidates nominated by the Commission are:
George Carpinello: Not Well Qualified
Evan Davis: Exceptionally Well Qualified
Steven Fisher: Well Qualified
Theodore Jones, Jr.: Well Qualified
Jonathan Lippman: Exceptionally Well Qualified
Eugene Pigott, Jr.: Well Qualified
Peter Zimroth: Well Qualified
PRESS RELEASE - FOR IMMEDIATE RELEASE
Contact: Eric Friedman (212) 382-6754
New York City Bar Association Issues Evaluations of Candidates For Chief Judge of the New York Court of Appeals
New York , December 19, 2008 – The New York City Bar announced today its ratings of candidates recommended by the New York State Commission on Judicial Nomination for appointment as Chief Judge of the New York Court of Appeals. The term of current Chief Judge Judith S. Kaye will expire on December 31, 2008.
The evaluations of the seven candidates nominated by the Commission are:
George Carpinello: Not Well Qualified
Evan Davis: Exceptionally Well Qualified
Steven Fisher: Well Qualified
Theodore Jones, Jr.: Well Qualified
Jonathan Lippman: Exceptionally Well Qualified
Eugene Pigott, Jr.: Well Qualified
Peter Zimroth: Well Qualified
The Association's Executive Committee extensively reviewed the background and qualifications of the candidates. Representatives of the Association's Executive, Judiciary and State Courts of Superior Jurisdiction Committees interviewed each candidate and for all candidates, reviewed their writings, investigated their background, and interviewed judges and lawyers familiar with the candidates. The full Executive Committee then considered whether to rate each candidate “well qualified” or “not well qualified” or “exceptionally well qualified” for the position of Chief Judge of the Court of Appeals after considering the candidate's intellectual ability, knowledge of the law, integrity, impartiality, judicial demeanor and temperament. In addition, in evaluating a candidate for Chief Judge of the Court of Appeals, the Executive Committee considers that the Chief Judge of the Court of Appeals is also Chief Judge of the State of New York, and the oversight and administrative powers and responsibilities that accompany this position. This three-tiered rating was adopted by the Executive Committee in May, 2007, and is being utilized for the first time for the Chief Judge position. The criteria for each rating are as follows:
“Well Qualified” : Consistent with the term “well qualified” as it is set forth in describing the Commission’s mandate in Judiciary Law Section 63(1) and in Article 6, Section 2 of the Constitution: candidates “who by their character, temperament, professional aptitude and experience are well qualified to hold such
judicial office.”
“Not Well Qualified” : Candidates who may be a competent lawyer or judge but, in the judgment of the Executive Committee, does not meet the requisite standard for “Well Qualified” in one or more of the constitutional and statutory criteria of “character, temperament, professional aptitude and experience.”
“Exceptionally Well Qualified”: A candidate who is exceptional to the degree that he or she is superior to others who are “well qualified.” This rating should be given as an exception and not the norm.
For more information, please contact Eric Friedman, Communications Director, at (212) 382-6754 or efriedman@nycbar.org
About the Association
The New York City Bar Association (www.nycbar.org) was founded in 1870, and since then has been dedicated to maintaining the high ethical standards of the profession, promoting reform of the law, and providing service to the profession and the public. The Association continues to work for political, legal and social reform, while implementing innovative means to help the disadvantaged. Protecting the public’s welfare remains one of the Association’s highest priorities.
“Well Qualified” : Consistent with the term “well qualified” as it is set forth in describing the Commission’s mandate in Judiciary Law Section 63(1) and in Article 6, Section 2 of the Constitution: candidates “who by their character, temperament, professional aptitude and experience are well qualified to hold such
judicial office.”
“Not Well Qualified” : Candidates who may be a competent lawyer or judge but, in the judgment of the Executive Committee, does not meet the requisite standard for “Well Qualified” in one or more of the constitutional and statutory criteria of “character, temperament, professional aptitude and experience.”
“Exceptionally Well Qualified”: A candidate who is exceptional to the degree that he or she is superior to others who are “well qualified.” This rating should be given as an exception and not the norm.
For more information, please contact Eric Friedman, Communications Director, at (212) 382-6754 or efriedman@nycbar.org
About the Association
The New York City Bar Association (www.nycbar.org) was founded in 1870, and since then has been dedicated to maintaining the high ethical standards of the profession, promoting reform of the law, and providing service to the profession and the public. The Association continues to work for political, legal and social reform, while implementing innovative means to help the disadvantaged. Protecting the public’s welfare remains one of the Association’s highest priorities.
Update on Madoff Disaster: Chase Bank Mob Connection?
Madoff CFO, Frank Dipascali, Married to JPMorganChase Private Banker
by Josh Marshall - December 19, 2008
Frank Dipascali, referred to in the media as either Madden CFO or senior execuive, is married to Joanne Dipascali, an employee of JPMorganChase National Association, the private banking arm of JPMorgan. Frank is the only non-family employee working on the 17th floor who has been publicly identified to date. (Charles Wiener, another 17th floor employee, is Bernie's sister's son.)
JPMorganChase was Madoff's custodian bank. At the end of every reporting period, Madoff's brokerage firm liquidated its holdings to avoid SEC disclosure requirements. That alone should have been a red flag for the SEC in 2006. The SEC also should have confirmed Madoff's cash balance at 12/31/05 with JPChase as a matter of routine. A couple of posts ago, I speculated as to why the Madoff family trusted someone named Dipascali and whether organized crime is involved in the scandal. Now I read that Joanne Dipascali is from Howard Beach. Not for nothing but a lot of members of organized crime are out of Howard Beach, too. She also lived in Island Park, home of Alphonse D'Amato and Phil Basile. The Dipascalis now live in Bridgewater NJ and appear to be enjoy marlin fishing on their boat, the Dorothy-Jo. In fact, the Dipascalis like fishing so much, Joanne started a business named Dorothy-Jo Sportfishing LLC which, according to Manta, is in the Sports Club/Manager/Promoter business. Great way to launder money! I am surprised no one in the press has reported the the link between Madoff's firm and JPMorganChase. I don't know if one has to do with the other but the stock fell on 12/15. It also fell substantially in late November. Someone might have had advance notice of pending problems at the bank.
If Madoff was working with organized crime, the SEC and the exchanges are not going to tell John Q. Public about it, investor confidence and all that. I'm starting to wonder if Treasury Secretary Henry Paulsen is lending taxpayer money to banks to buy other banks to cover up an even bigger scandal in the markets. Maybe somebody became curious enough to check whether any of the banks now being bought actually had cash on hand and they didn't. Remember Businessweek's 1996 story, "The Mob on Wall Street - Part I & II? The wiseguys never got put away like they should have been. For what its worth, information about the Dipascalis is fast disappearing from Google. Whether I'm right or wrong about Bernie and the mob, I want to know why the Madoffs trusted Frank Dipascali with their deepest, darkest secrets and $24 billion.
Madoff Restricted to Home; U.S. Warns of Harm, Flight
Bloomberg News by David Glovin - December 19, 2008
Dec. 19 (Bloomberg) -- Bernard Madoff, accused of masterminding a $50 billion investment fraud, was placed under round-the-clock house arrest in his $7 million New York City apartment after prosecutors warned of his “harm or flight.” Madoff, 70, had been subject to electronic monitoring and a 7 p.m. curfew under a Dec. 17 court order. Now he is barred from leaving his Upper East Side apartment except for court appearances, and his building will be watched by security guards and video surveillance, according to a letter from prosecutors filed today in federal court in Manhattan. “The bail conditions are what the government has agreed to,” Madoff’s lawyer, Ira Sorkin, said in an interview, declining further comment. He wouldn’t say whether Madoff had been threatened. Madoff, 70, was arrested Dec. 11 after telling his two sons and federal investigators that he had been using money from new investors to pay off old ones in a massive Ponzi scheme. He said clients of New York-based Bernard L. Madoff Investment Securities LLC lost $50 billion. Assistant U.S. Attorney Marc Litt said in the letter, sent to U.S. Magistrate Judge Theodore Katz in New York, that Madoff’s wife, Ruth, will pay for the surveillance. Katz agreed to the conditions.
‘Harm or Flight’
The security service, which will be in place by tomorrow, will watch Madoff’s doors and will be able to send a signal from an observation post to the Federal Bureau of Investigation, according to the letter. One reason for the new bail conditions was “to prevent harm or flight,” the government said. The New York Daily News reported yesterday, citing an unnamed source, that Madoff and his family were threatened with harm if he didn’t repay investors. Other bail conditions remain as before. Madoff posted a $10 million bond, guaranteed by his wife and brother Peter, and he and his wife have agreed to surrender homes in Manhattan, Montauk, New York, and Palm Beach, Florida, if he flees. Madoff remains subject to electronic monitoring. The Manhattan apartment is worth about $7 million, according to bail papers. Ruth Madoff, who hasn’t been accused of wrongdoing, also has surrendered her passport. Madoff, who hasn’t formally responded to a securities fraud charge against him, is due to return to court Jan. 12, unless prosecutors indict him before then. Prosecutors and defense lawyers may also agree to postpone the court date. In an interview yesterday, Sorkin said Madoff’s company is “cooperating fully with the government.” Madoff met with prosecutors earlier this week, according to people familiar with the case. The case is U.S. v. Madoff, 08-mag-2735, U.S. District Court, Southern District of New York (Manhattan). To contact the reporter on this story: David Glovin in U.S. District Court in New York at dglovin@bloomberg.net.
by Josh Marshall - December 19, 2008
Frank Dipascali, referred to in the media as either Madden CFO or senior execuive, is married to Joanne Dipascali, an employee of JPMorganChase National Association, the private banking arm of JPMorgan. Frank is the only non-family employee working on the 17th floor who has been publicly identified to date. (Charles Wiener, another 17th floor employee, is Bernie's sister's son.)
JPMorganChase was Madoff's custodian bank. At the end of every reporting period, Madoff's brokerage firm liquidated its holdings to avoid SEC disclosure requirements. That alone should have been a red flag for the SEC in 2006. The SEC also should have confirmed Madoff's cash balance at 12/31/05 with JPChase as a matter of routine. A couple of posts ago, I speculated as to why the Madoff family trusted someone named Dipascali and whether organized crime is involved in the scandal. Now I read that Joanne Dipascali is from Howard Beach. Not for nothing but a lot of members of organized crime are out of Howard Beach, too. She also lived in Island Park, home of Alphonse D'Amato and Phil Basile. The Dipascalis now live in Bridgewater NJ and appear to be enjoy marlin fishing on their boat, the Dorothy-Jo. In fact, the Dipascalis like fishing so much, Joanne started a business named Dorothy-Jo Sportfishing LLC which, according to Manta, is in the Sports Club/Manager/Promoter business. Great way to launder money! I am surprised no one in the press has reported the the link between Madoff's firm and JPMorganChase. I don't know if one has to do with the other but the stock fell on 12/15. It also fell substantially in late November. Someone might have had advance notice of pending problems at the bank.
If Madoff was working with organized crime, the SEC and the exchanges are not going to tell John Q. Public about it, investor confidence and all that. I'm starting to wonder if Treasury Secretary Henry Paulsen is lending taxpayer money to banks to buy other banks to cover up an even bigger scandal in the markets. Maybe somebody became curious enough to check whether any of the banks now being bought actually had cash on hand and they didn't. Remember Businessweek's 1996 story, "The Mob on Wall Street - Part I & II? The wiseguys never got put away like they should have been. For what its worth, information about the Dipascalis is fast disappearing from Google. Whether I'm right or wrong about Bernie and the mob, I want to know why the Madoffs trusted Frank Dipascali with their deepest, darkest secrets and $24 billion.
Bloomberg News by David Glovin - December 19, 2008
Dec. 19 (Bloomberg) -- Bernard Madoff, accused of masterminding a $50 billion investment fraud, was placed under round-the-clock house arrest in his $7 million New York City apartment after prosecutors warned of his “harm or flight.” Madoff, 70, had been subject to electronic monitoring and a 7 p.m. curfew under a Dec. 17 court order. Now he is barred from leaving his Upper East Side apartment except for court appearances, and his building will be watched by security guards and video surveillance, according to a letter from prosecutors filed today in federal court in Manhattan. “The bail conditions are what the government has agreed to,” Madoff’s lawyer, Ira Sorkin, said in an interview, declining further comment. He wouldn’t say whether Madoff had been threatened. Madoff, 70, was arrested Dec. 11 after telling his two sons and federal investigators that he had been using money from new investors to pay off old ones in a massive Ponzi scheme. He said clients of New York-based Bernard L. Madoff Investment Securities LLC lost $50 billion. Assistant U.S. Attorney Marc Litt said in the letter, sent to U.S. Magistrate Judge Theodore Katz in New York, that Madoff’s wife, Ruth, will pay for the surveillance. Katz agreed to the conditions.
‘Harm or Flight’
The security service, which will be in place by tomorrow, will watch Madoff’s doors and will be able to send a signal from an observation post to the Federal Bureau of Investigation, according to the letter. One reason for the new bail conditions was “to prevent harm or flight,” the government said. The New York Daily News reported yesterday, citing an unnamed source, that Madoff and his family were threatened with harm if he didn’t repay investors. Other bail conditions remain as before. Madoff posted a $10 million bond, guaranteed by his wife and brother Peter, and he and his wife have agreed to surrender homes in Manhattan, Montauk, New York, and Palm Beach, Florida, if he flees. Madoff remains subject to electronic monitoring. The Manhattan apartment is worth about $7 million, according to bail papers. Ruth Madoff, who hasn’t been accused of wrongdoing, also has surrendered her passport. Madoff, who hasn’t formally responded to a securities fraud charge against him, is due to return to court Jan. 12, unless prosecutors indict him before then. Prosecutors and defense lawyers may also agree to postpone the court date. In an interview yesterday, Sorkin said Madoff’s company is “cooperating fully with the government.” Madoff met with prosecutors earlier this week, according to people familiar with the case. The case is U.S. v. Madoff, 08-mag-2735, U.S. District Court, Southern District of New York (Manhattan). To contact the reporter on this story: David Glovin in U.S. District Court in New York at dglovin@bloomberg.net.
Friday, December 19, 2008
Lawyer Charged with Insider Trading
Associate Charged With Insider Trading
The New York Law Journal by Mark Hamblett - December 19, 2008
A Paul Hastings associate was among four people charged yesterday in a $4.8 million insider trading scheme involving a former Lehman Brothers representative and his wife, who worked at a public relations firm that had information on impending corporate deals. Eric A. Holzer, 34, a Paul Hastings tax associate, was allegedly caught on tape discussing the scheme with Matthew C. Devlin, 35, of Lehman Brothers, whose wife, Nina Devlin, is a partner at the public relations firm Brunswick Group LLC. Mr. Devlin has already pleaded guilty in the case and is cooperating with prosecutors. The criminal complaint against Mr. Holzer was one of three unsealed yesterday in the Southern District charging conspiracy and securities fraud, complaints that allege insider trading on information on 12 impending corporate transactions obtained by Mr. Devlin from Ms. Devlin, who is not charged in the case and is reported by her lawyer to be "devastated" by the revelations. A companion civil suit filed by the Securities and Exchange Commission in the Southern District details illegal trading on 13 impending transactions that Mr. Devlin learned about from his wife. (See the SEC's press release and complaint.) Mr. Devlin allegedly referred to his wife as the "golden goose" for the information she provided, information the SEC said he used to curry "favor with his friends and business associates and received in return cash, luxury items and other benefits."
A second lawyer was named as a relief defendant in the SEC suit, Lee H. Corbin of Kurzman Eisenberg Corbin & Lever. A relief defendant is someone who has obtained funds as part of the alleged securities violations by the named defendants "under circumstances in which it is not just, equitable or conscionable for them to retain the illegal profits." Relief defendants are not charged criminally, but Mr. Corbin's son, 32-year-old Daniel A. Corbin of Miami Beach, was charged. A call to Lee Corbin and his firm was not returned. Daniel Corbin allegedly provided information to his father that he obtained from Mr. Devlin on three corporate acquisitions and one company's stock repurchase. Also charged in the criminal complaints unsealed yesterday were Jamil A. Bouchareb, 27, of Miami Beach. Daniel Corbin and Mr. Bouchareb were described in the complaint as being day traders. Frederick E. Bowers, 40, a Lehman broker, was also charged. The SEC civil complaint states that the Corbins, Mr. Bouchareb, Mr. Bouchareb's parents and another defendant in that civil case reaped illegal profits of more than $4.2 million on the information. Mr. Holzer is accused in the criminal complaint of buying shares in three different companies between 2004 and 2005 - InVision Technologies Inc., Eon Labs and Abgenix Inc. The trading was done on three accounts, two in Mr. Holzer's name and a third in the name of his parents that was maintained for Mr. Holzer's benefit.
Criminal Complaint
FBI Special Agent Michael T. Ryan said in the criminal complaint that Mr. Holzer purchased stock in three companies and then cashed in on the good news he knew would soon be announced. All told, Agent Ryan said Mr. Holzer and his parents made $175,000. Mr. Holzer was accused of proposing a scheme to pay Mr. Devlin for the information by buying and selling stocks on his behalf, and, on at least one occasion, paid him $1,000 in cash from trades. Mr. Devlin, listed as only Confidential Witness-1 (CW-1) in the criminal complaint, informed Mr. Holzer that Mr. Holzer's name had appeared on a watch list at Brunswick, a list of people whose trading had attracted attention. At that point, Agent Ryan said, they agreed Mr. Holzer would stop receiving inside information. Agent Ryan said that in a taped conversation on Sept. 4, in which Mr. Devlin wore a wire, Mr. Devlin brings up the watch list and said to Mr. Holzer, "Remember, and that's why we stopped?" "Yeah?" Mr. Holzer replied. Then Mr. Devlin said he wanted to make sure "you have a backstory if anybody ever comes to you and says why you bought X, Y, Z." After a brief exchange, Mr. Holzer said, "Oh yeah, I've got a backstory. Oh yeah, I'm not worried about it, my heart almost dropped." Mr. Holzer then said, "That was probably over two years ago, right? That was a long time ago."
A spokeswoman for Paul Hastings released a brief statement saying, "We learned today of allegations against an associate of the firm, which have no connection to any firm or client matters. We will cooperate fully with the authorities in any investigation." Ms. Devlin is represented by James Benjamin of Akin Gump Strauss Hauer & Feld. "Nina Devlin is devoted to her clients and colleagues and has always sought to uphold the highest standards of professionalism in her work," Mr. Benjamin said. "She was completely unaware that confidential information about her job was being used as the basis for securities trading. She is devastated by this terrible situation." Mr. Holzer and the three criminal defendants were also named in the SEC suit along with Mr. Devlin, broker-dealer Thomas R. Faulhaber, 44, of New York, broker-dealer Jeffrey R. Glover, 46, of Texas, and Corbin Investment Holdings LLC and Augustus Management LLC. Mr. Bowers made his initial appearance before Southern District Magistrate Judge Gabriel Gorenstein late yesterday. Mr. Holzer had yet to appear in court by press time. The case is being handled by Assistant U.S. Attorneys Joan M. Loughnane and Reed M. Brodsky.
The New York Law Journal by Mark Hamblett - December 19, 2008
A Paul Hastings associate was among four people charged yesterday in a $4.8 million insider trading scheme involving a former Lehman Brothers representative and his wife, who worked at a public relations firm that had information on impending corporate deals. Eric A. Holzer, 34, a Paul Hastings tax associate, was allegedly caught on tape discussing the scheme with Matthew C. Devlin, 35, of Lehman Brothers, whose wife, Nina Devlin, is a partner at the public relations firm Brunswick Group LLC. Mr. Devlin has already pleaded guilty in the case and is cooperating with prosecutors. The criminal complaint against Mr. Holzer was one of three unsealed yesterday in the Southern District charging conspiracy and securities fraud, complaints that allege insider trading on information on 12 impending corporate transactions obtained by Mr. Devlin from Ms. Devlin, who is not charged in the case and is reported by her lawyer to be "devastated" by the revelations. A companion civil suit filed by the Securities and Exchange Commission in the Southern District details illegal trading on 13 impending transactions that Mr. Devlin learned about from his wife. (See the SEC's press release and complaint.) Mr. Devlin allegedly referred to his wife as the "golden goose" for the information she provided, information the SEC said he used to curry "favor with his friends and business associates and received in return cash, luxury items and other benefits."
A second lawyer was named as a relief defendant in the SEC suit, Lee H. Corbin of Kurzman Eisenberg Corbin & Lever. A relief defendant is someone who has obtained funds as part of the alleged securities violations by the named defendants "under circumstances in which it is not just, equitable or conscionable for them to retain the illegal profits." Relief defendants are not charged criminally, but Mr. Corbin's son, 32-year-old Daniel A. Corbin of Miami Beach, was charged. A call to Lee Corbin and his firm was not returned. Daniel Corbin allegedly provided information to his father that he obtained from Mr. Devlin on three corporate acquisitions and one company's stock repurchase. Also charged in the criminal complaints unsealed yesterday were Jamil A. Bouchareb, 27, of Miami Beach. Daniel Corbin and Mr. Bouchareb were described in the complaint as being day traders. Frederick E. Bowers, 40, a Lehman broker, was also charged. The SEC civil complaint states that the Corbins, Mr. Bouchareb, Mr. Bouchareb's parents and another defendant in that civil case reaped illegal profits of more than $4.2 million on the information. Mr. Holzer is accused in the criminal complaint of buying shares in three different companies between 2004 and 2005 - InVision Technologies Inc., Eon Labs and Abgenix Inc. The trading was done on three accounts, two in Mr. Holzer's name and a third in the name of his parents that was maintained for Mr. Holzer's benefit.
Criminal Complaint
FBI Special Agent Michael T. Ryan said in the criminal complaint that Mr. Holzer purchased stock in three companies and then cashed in on the good news he knew would soon be announced. All told, Agent Ryan said Mr. Holzer and his parents made $175,000. Mr. Holzer was accused of proposing a scheme to pay Mr. Devlin for the information by buying and selling stocks on his behalf, and, on at least one occasion, paid him $1,000 in cash from trades. Mr. Devlin, listed as only Confidential Witness-1 (CW-1) in the criminal complaint, informed Mr. Holzer that Mr. Holzer's name had appeared on a watch list at Brunswick, a list of people whose trading had attracted attention. At that point, Agent Ryan said, they agreed Mr. Holzer would stop receiving inside information. Agent Ryan said that in a taped conversation on Sept. 4, in which Mr. Devlin wore a wire, Mr. Devlin brings up the watch list and said to Mr. Holzer, "Remember, and that's why we stopped?" "Yeah?" Mr. Holzer replied. Then Mr. Devlin said he wanted to make sure "you have a backstory if anybody ever comes to you and says why you bought X, Y, Z." After a brief exchange, Mr. Holzer said, "Oh yeah, I've got a backstory. Oh yeah, I'm not worried about it, my heart almost dropped." Mr. Holzer then said, "That was probably over two years ago, right? That was a long time ago."
A spokeswoman for Paul Hastings released a brief statement saying, "We learned today of allegations against an associate of the firm, which have no connection to any firm or client matters. We will cooperate fully with the authorities in any investigation." Ms. Devlin is represented by James Benjamin of Akin Gump Strauss Hauer & Feld. "Nina Devlin is devoted to her clients and colleagues and has always sought to uphold the highest standards of professionalism in her work," Mr. Benjamin said. "She was completely unaware that confidential information about her job was being used as the basis for securities trading. She is devastated by this terrible situation." Mr. Holzer and the three criminal defendants were also named in the SEC suit along with Mr. Devlin, broker-dealer Thomas R. Faulhaber, 44, of New York, broker-dealer Jeffrey R. Glover, 46, of Texas, and Corbin Investment Holdings LLC and Augustus Management LLC. Mr. Bowers made his initial appearance before Southern District Magistrate Judge Gabriel Gorenstein late yesterday. Mr. Holzer had yet to appear in court by press time. The case is being handled by Assistant U.S. Attorneys Joan M. Loughnane and Reed M. Brodsky.
Thursday, December 18, 2008
Woman Will Replace Chief Judge Theodore T. Jones on Top Bench
Once Theodore T. Jones is named New York's next Chief Judge by Governor Paterson, the plan is to get a minority associate judge on the Court of Appeals, say sources. Governor David Paterson and Attorney General Andrew Cuomo have publicly denounced the lack of diversity on the presented list of high court nominees. "The eventual plan is to eliminate the Commission on Judicial Nomination as we know it- the Commission's a politically-based sham operation," says the source. A half-baked explanation, by Commission spewer John O'Mara, attempts to justify the outrageous presentation to the Governor of a list of candidates that does not adequately represent the diverse population of New York State.
Panel Defends Efforts to Find Chief Judge Candidates
The New York Law Journal by Joel Stashenko - December 18, 2008
ALBANY - The state commission criticized by Governor David A. Paterson and Attorney General Andrew M. Cuomo for nominating seven men - six of them white - for the state's chief judgeship defended its search yesterday as diligent and far-reaching. The Commission on Judicial Nomination released a letter its chairman, Elmira attorney John F. O'Mara, sent to Mr. Paterson explaining its search methods and expanding on the biographical information it provided to the governor's office when reporting on Dec. 1 the names of the candidates it found "well qualified." Mr. O'Mara said the unprecedented release of additional information on the commission's candidate list was in response to Mr. Paterson's "observations" about the screening and nominating process (NYLJ, Dec. 4). Mr. Paterson said he was "outraged" that the list did not include the names of any women he could select as the successor to Chief Judge Judith S. Kaye. He also questioned how aggressively the commission had informed the legal community of the chief judge's impending retirement and how aggressively the commission recruited applicants to provide more diversity to the list.
"The Commission and its staff carefully reviewed the voluminous applications provided by each applicant, which included extensive information concerning professional qualifications, writings, and background," wrote Mr. O'Mara, of Davidson & O'Mara. "Commission staff conducted numerous confidential interviews with leaders of the bench regarding each candidate whom the Commission interviewed. In the case of sitting judges, we spoke with attorneys who had recently appeared in their courts." As far as soliciting applications, the commission notified all newspapers in the state beginning in June 2008, Mr. O'Mara said. Members of the commission's staff also "encouraged applications from dozens of potential candidates from a wide range of backgrounds, including college and law school deans, professors, state solicitor generals, former prosecutors, in-house counsel and prominent attorneys in private practice," Mr. O'Mara told the governor. "As a result of these efforts, this Chief Judge vacancy was one of the most widely publicized and discussed in the history of the Commission," he said. Confidentiality laws do not permit the commission to disclose the names of applicants or of the candidates it interviews. Sources familiar with the commission's work said it interviewed 12 candidates on Nov. 10 and Nov. 11. According to Mr. O'Mara, the commission is not obligated by law to detail its outreach efforts and had never done so before.
The commission also issued expanded resumés for the seven candidates, including, in the case of the four sitting judges, a sampling of appellate rulings they have issued. Mr. O'Mara, who was appointed to the nominating committee by former Governor George E. Pataki, said confidential information about the candidates' personal finances have been made available to Mr. Paterson's counsel. By law, Mr. Paterson must choose from the list when he nominates Chief Judge Kaye's successor to the state Senate between Jan. 1 and Jan. 15. The list consists of Court of Appeals Judges Eugene F. Pigott Jr. and Theodore T. Jones Jr.; Appellate Division, First Department, Presiding Justice Jonathan Lippman; Second Department Justice Steven W. Fisher; and three private practitioners, George F. Carpinello of Boies, Schiller & Flexner in Albany, Evan A. Davis of Cleary Gottlieb Steen & Hamilton and Peter L. Zimroth of Arnold & Porter (NYLJ, Dec. 2). Mr. Jones, who is black, is the only minority on the list.
Judge Carmen Beauchamp Ciparick, a name Mr. Paterson is believed to have wanted on the list, did not make the final cut. She is the senior associate judge on the Court of Appeals and its only Hispanic. Judge Ciparick and Fern A. Fisher, chief administrative judge of New York City Civil courts, acknowledged applying for Chief Judge Kaye's seat. While conceding that he probably must choose from the list, Mr. Paterson earlier this month asked Mr. Cuomo to examine whether the governor has any options other than nominating one of the seven candidates selected by the commission. Mr. Cuomo said last week that his review would be completed within a week or two. Morgan Hook, a spokesman for Mr. Paterson, said the governor's office was reviewing the letter and would have no immediate comment. Mr. Cuomo did not immediately return a call for comment. Joel.Stashenko@incisivemedia.com
The New York Law Journal by Joel Stashenko - December 18, 2008
ALBANY - The state commission criticized by Governor David A. Paterson and Attorney General Andrew M. Cuomo for nominating seven men - six of them white - for the state's chief judgeship defended its search yesterday as diligent and far-reaching. The Commission on Judicial Nomination released a letter its chairman, Elmira attorney John F. O'Mara, sent to Mr. Paterson explaining its search methods and expanding on the biographical information it provided to the governor's office when reporting on Dec. 1 the names of the candidates it found "well qualified." Mr. O'Mara said the unprecedented release of additional information on the commission's candidate list was in response to Mr. Paterson's "observations" about the screening and nominating process (NYLJ, Dec. 4). Mr. Paterson said he was "outraged" that the list did not include the names of any women he could select as the successor to Chief Judge Judith S. Kaye. He also questioned how aggressively the commission had informed the legal community of the chief judge's impending retirement and how aggressively the commission recruited applicants to provide more diversity to the list.
"The Commission and its staff carefully reviewed the voluminous applications provided by each applicant, which included extensive information concerning professional qualifications, writings, and background," wrote Mr. O'Mara, of Davidson & O'Mara. "Commission staff conducted numerous confidential interviews with leaders of the bench regarding each candidate whom the Commission interviewed. In the case of sitting judges, we spoke with attorneys who had recently appeared in their courts." As far as soliciting applications, the commission notified all newspapers in the state beginning in June 2008, Mr. O'Mara said. Members of the commission's staff also "encouraged applications from dozens of potential candidates from a wide range of backgrounds, including college and law school deans, professors, state solicitor generals, former prosecutors, in-house counsel and prominent attorneys in private practice," Mr. O'Mara told the governor. "As a result of these efforts, this Chief Judge vacancy was one of the most widely publicized and discussed in the history of the Commission," he said. Confidentiality laws do not permit the commission to disclose the names of applicants or of the candidates it interviews. Sources familiar with the commission's work said it interviewed 12 candidates on Nov. 10 and Nov. 11. According to Mr. O'Mara, the commission is not obligated by law to detail its outreach efforts and had never done so before.
The commission also issued expanded resumés for the seven candidates, including, in the case of the four sitting judges, a sampling of appellate rulings they have issued. Mr. O'Mara, who was appointed to the nominating committee by former Governor George E. Pataki, said confidential information about the candidates' personal finances have been made available to Mr. Paterson's counsel. By law, Mr. Paterson must choose from the list when he nominates Chief Judge Kaye's successor to the state Senate between Jan. 1 and Jan. 15. The list consists of Court of Appeals Judges Eugene F. Pigott Jr. and Theodore T. Jones Jr.; Appellate Division, First Department, Presiding Justice Jonathan Lippman; Second Department Justice Steven W. Fisher; and three private practitioners, George F. Carpinello of Boies, Schiller & Flexner in Albany, Evan A. Davis of Cleary Gottlieb Steen & Hamilton and Peter L. Zimroth of Arnold & Porter (NYLJ, Dec. 2). Mr. Jones, who is black, is the only minority on the list.
Judge Carmen Beauchamp Ciparick, a name Mr. Paterson is believed to have wanted on the list, did not make the final cut. She is the senior associate judge on the Court of Appeals and its only Hispanic. Judge Ciparick and Fern A. Fisher, chief administrative judge of New York City Civil courts, acknowledged applying for Chief Judge Kaye's seat. While conceding that he probably must choose from the list, Mr. Paterson earlier this month asked Mr. Cuomo to examine whether the governor has any options other than nominating one of the seven candidates selected by the commission. Mr. Cuomo said last week that his review would be completed within a week or two. Morgan Hook, a spokesman for Mr. Paterson, said the governor's office was reviewing the letter and would have no immediate comment. Mr. Cuomo did not immediately return a call for comment. Joel.Stashenko@incisivemedia.com
Attorney Tax Shelter Fraud Convictions Flavor Financial Crisis
Former Attorney, Two Others Convicted of Tax Shelter Charges
The New York Law Journal by Mark Hamblett - December 18, 2008
A former lawyer was among three of the four remaining defendants in the KPMG tax shelter case convicted yesterday by a Manhattan federal jury. Raymond Ruble, who once was a partner at Brown & Wood, was convicted on 10 counts of tax evasion while investment consultants Robert Pfaff and John Larson were convicted on 12 counts. Each defendant faces five years on each count when they are sentenced March 20 by Southern District Judge Lewis A. Kaplan. The hundreds of millions of dollars the government claimed was lost in tax revenue from the bogus shelters is expected to factor into Judge Kaplan's calculation on appropriate sentences. David Greenberg, an ex-KPMG partner, was acquitted yesterday on all counts.
Mr. Greenberg, who was jailed for more than five months following his arrest, wore a look of relief as he offered brief words of consolation to his co-defendants. He then left the courtroom ahead of his lawyers, Richard Strassberg and David B. Pitofsky of Goodwin Procter. "David Greenberg was innocent, he is innocent and the jury found that to be the case," Mr. Strassberg said. "We've had three years of horrible injustice against Mr. Greenberg." The trial began on Oct. 13 and the jury deliberated for a full week, weighing a large volume of evidence in a complex case, before reaching its decision. Judge Kaplan ordered Mr. Pfaff and Mr. Larson to home confinement and electronic monitoring while they await sentencing. Mr. Ruble remains free on bail. All three men were acquitted of a conspiracy to defraud the Internal Revenue Service as well as a single count on one kind of tax shelter. Mr. Ruble was acquitted on two counts involving one tax shelter. The guilty verdicts brought a measure of vindication for the Southern District U.S. Attorney's Office, which had seen most of the defendants in what was billed as the largest tax fraud prosecution in U.S. history dismissed by Judge Kaplan last year on interference with the right to counsel. Prosecutors John Hillebrecht and Margaret Garnett succeeded in persuading the jury that the tax shelter known as BLIPS had no legitimate business justification.
A scheme that was motivated by "greed," Mr. Hillebrecht told the jury, worked this way: Mr. Larson and Mr. Pfaff, formerly of KPMG, marketed the tax shelter to KPMG clients, and Mr. Ruble provided hundreds of opinion letters to the clients saying the shelters were more than likely to hold up in court if challenged by the IRS. Mr. Ruble received $50,000 per letter. The BLIPS tax shelter was, on the surface, a seven-year "investment" that was tied to the unlikely event that foreign currencies would be depegged from the U.S. dollar. In reality, all of the wealthy clients who made an investment in what Mr. Hillebrecht called a "magic tax elimination machine" ended their transactions in 60 days and acquired a huge paper loss to offset millions in capital gains. A key to Mr. Greenberg's defense was the cross-examination of California accountant Steven Acosta, who was brought forth by the prosecution to show that Mr. Greenberg had fraudulent intent in the selling of a tax shelter called SOS. Mr. Acosta was exposed as a liar during cross, a fact that led to a remarkable admission by Mr. Hillebrecht during his rebuttal closing argument. "And let there be no doubt about it, not that I thought that there was any, Steven Acosta was a catastrophe," Mr. Hillebrecht said. "Steve Acosta got destroyed on cross-examination by Mr. Strassberg." After telling the jury that "Mr. Strassberg will be telling that story for years," Mr. Hillebrecht said that, while watching Mr. Acosta on cross, "I wanted to crawl under the table." Mr. Acosta also appalled Judge Kaplan, who said afterwards that Mr. Greenberg had suffered "an injustice."
In June, 2006, Judge Kaplan found the government "let its zeal get in the way of its judgment," and "violated the Constitution it is sworn to defend" by using its leverage to force the accounting firm to stop paying attorney's fees for indicted partners and employees (NYLJ, June 28, 2006). KPMG, the judge said, was facing extinction unless it cooperated with the government and was willing to bend over backwards and change its legal fee policy, thereby interfering with the right to counsel, and for some, the right to counsel of their choice. The firm escaped with a deferred prosecution agreement, paid a huge fine, and a single charge of conspiracy was dropped against the firm in 2006. In 2007, Judge Kaplan dismissed charges against 13 defendants, a decision that was upheld four months ago by the U.S. Court of Appeals for the Second Circuit (NYLJ, Aug. 29). The circuit agreed with Judge Kaplan that the Sixth Amendment was violated when the government caused "KPMG to place conditions on the advancement of legal fees" and to "cap fees and ultimately end them." It endorsed the dismissal of the indictment as the only remedy for the constitutional violation, leaving only Messrs. Larson, Pfaff, Greenberg and Ruble in the case.
U.S. Attorney Michael Garcia and his staff weighed whether to seek a writ of certiorari from the U.S. Supreme Court, but decided against it and allowed a late-November filing deadline to expire. Against the remaining defendants, Judge Kaplan whittled the charges down at the close of the government's case, dismissing the SOS counts against the three men who were ultimately convicted and the BLIPS counts against Mr. Greenberg - all for insufficiency of evidence, Mr. Strassberg said. The convicted defendants and their lawyers left the courtroom without comment. In the final tally for the case, 19 defendants were charged, two pleaded guilty, 13 had charges dismissed, three were convicted at trial and one acquitted. Mr. Ruble is represented by Jack S. Hoffinger and Susan Hoffinger of Hoffinger, Stern & Ross and Stuart Abrams of Frankel & Abrams. Mr. Pfaff is represented by David C. Scheper of Overland Borenstein Scheper & Kim in Los Angeles. Mr. Larson was represented by Thomas A. Hagemann of Gardere Wynne Sewell in Houston. Mark.Hamblett@incisivemedia.com
The New York Law Journal by Mark Hamblett - December 18, 2008
A former lawyer was among three of the four remaining defendants in the KPMG tax shelter case convicted yesterday by a Manhattan federal jury. Raymond Ruble, who once was a partner at Brown & Wood, was convicted on 10 counts of tax evasion while investment consultants Robert Pfaff and John Larson were convicted on 12 counts. Each defendant faces five years on each count when they are sentenced March 20 by Southern District Judge Lewis A. Kaplan. The hundreds of millions of dollars the government claimed was lost in tax revenue from the bogus shelters is expected to factor into Judge Kaplan's calculation on appropriate sentences. David Greenberg, an ex-KPMG partner, was acquitted yesterday on all counts.
Mr. Greenberg, who was jailed for more than five months following his arrest, wore a look of relief as he offered brief words of consolation to his co-defendants. He then left the courtroom ahead of his lawyers, Richard Strassberg and David B. Pitofsky of Goodwin Procter. "David Greenberg was innocent, he is innocent and the jury found that to be the case," Mr. Strassberg said. "We've had three years of horrible injustice against Mr. Greenberg." The trial began on Oct. 13 and the jury deliberated for a full week, weighing a large volume of evidence in a complex case, before reaching its decision. Judge Kaplan ordered Mr. Pfaff and Mr. Larson to home confinement and electronic monitoring while they await sentencing. Mr. Ruble remains free on bail. All three men were acquitted of a conspiracy to defraud the Internal Revenue Service as well as a single count on one kind of tax shelter. Mr. Ruble was acquitted on two counts involving one tax shelter. The guilty verdicts brought a measure of vindication for the Southern District U.S. Attorney's Office, which had seen most of the defendants in what was billed as the largest tax fraud prosecution in U.S. history dismissed by Judge Kaplan last year on interference with the right to counsel. Prosecutors John Hillebrecht and Margaret Garnett succeeded in persuading the jury that the tax shelter known as BLIPS had no legitimate business justification.
A scheme that was motivated by "greed," Mr. Hillebrecht told the jury, worked this way: Mr. Larson and Mr. Pfaff, formerly of KPMG, marketed the tax shelter to KPMG clients, and Mr. Ruble provided hundreds of opinion letters to the clients saying the shelters were more than likely to hold up in court if challenged by the IRS. Mr. Ruble received $50,000 per letter. The BLIPS tax shelter was, on the surface, a seven-year "investment" that was tied to the unlikely event that foreign currencies would be depegged from the U.S. dollar. In reality, all of the wealthy clients who made an investment in what Mr. Hillebrecht called a "magic tax elimination machine" ended their transactions in 60 days and acquired a huge paper loss to offset millions in capital gains. A key to Mr. Greenberg's defense was the cross-examination of California accountant Steven Acosta, who was brought forth by the prosecution to show that Mr. Greenberg had fraudulent intent in the selling of a tax shelter called SOS. Mr. Acosta was exposed as a liar during cross, a fact that led to a remarkable admission by Mr. Hillebrecht during his rebuttal closing argument. "And let there be no doubt about it, not that I thought that there was any, Steven Acosta was a catastrophe," Mr. Hillebrecht said. "Steve Acosta got destroyed on cross-examination by Mr. Strassberg." After telling the jury that "Mr. Strassberg will be telling that story for years," Mr. Hillebrecht said that, while watching Mr. Acosta on cross, "I wanted to crawl under the table." Mr. Acosta also appalled Judge Kaplan, who said afterwards that Mr. Greenberg had suffered "an injustice."
In June, 2006, Judge Kaplan found the government "let its zeal get in the way of its judgment," and "violated the Constitution it is sworn to defend" by using its leverage to force the accounting firm to stop paying attorney's fees for indicted partners and employees (NYLJ, June 28, 2006). KPMG, the judge said, was facing extinction unless it cooperated with the government and was willing to bend over backwards and change its legal fee policy, thereby interfering with the right to counsel, and for some, the right to counsel of their choice. The firm escaped with a deferred prosecution agreement, paid a huge fine, and a single charge of conspiracy was dropped against the firm in 2006. In 2007, Judge Kaplan dismissed charges against 13 defendants, a decision that was upheld four months ago by the U.S. Court of Appeals for the Second Circuit (NYLJ, Aug. 29). The circuit agreed with Judge Kaplan that the Sixth Amendment was violated when the government caused "KPMG to place conditions on the advancement of legal fees" and to "cap fees and ultimately end them." It endorsed the dismissal of the indictment as the only remedy for the constitutional violation, leaving only Messrs. Larson, Pfaff, Greenberg and Ruble in the case.
U.S. Attorney Michael Garcia and his staff weighed whether to seek a writ of certiorari from the U.S. Supreme Court, but decided against it and allowed a late-November filing deadline to expire. Against the remaining defendants, Judge Kaplan whittled the charges down at the close of the government's case, dismissing the SOS counts against the three men who were ultimately convicted and the BLIPS counts against Mr. Greenberg - all for insufficiency of evidence, Mr. Strassberg said. The convicted defendants and their lawyers left the courtroom without comment. In the final tally for the case, 19 defendants were charged, two pleaded guilty, 13 had charges dismissed, three were convicted at trial and one acquitted. Mr. Ruble is represented by Jack S. Hoffinger and Susan Hoffinger of Hoffinger, Stern & Ross and Stuart Abrams of Frankel & Abrams. Mr. Pfaff is represented by David C. Scheper of Overland Borenstein Scheper & Kim in Los Angeles. Mr. Larson was represented by Thomas A. Hagemann of Gardere Wynne Sewell in Houston. Mark.Hamblett@incisivemedia.com
Wednesday, December 17, 2008
Manhattan Ethics Committee Whitewashed Dreier Complaints
The question for Manhattan Attorney Departmental Disciplinary Committee Chairman, Roy Reardon is: Exactly how many complaints against attorneys at the Dreier law firm have been whitewashed under Thomas Cahill, Sherry Cohen and Alan Friedberg? We believe their number should be higher than the number we have unless, of course, entire complaint files were simply discarded. Perhaps this question should also go to:
The Hon. Jonathan Lippman, Appellate Division, First Department, Presiding Justice; New York Attorney General Andrew Cuomo; and New York Governor David Paterson.
Please advise us if you have filed an Ethics Grievance Complaint against the Dreier LLP law firm or any attorney employed there over the last ten years. Here's the latest on the Dreier LLP law firm:
NY Firm Smashed by Founder's Alleged $380 Million Crime Spree Files for Bankruptcy
The New York Law Journal by Mark Hamblett and Noeleen G. Walder - December 17, 2008
Declaring that "no effective management" exists at Dreier LLP in the wake of the arrest of Marc S. Dreier, the sole equity partner of the firm, a receiver late yesterday afternoon filed for Chapter 11 bankruptcy protection for the firm and related entities. Receiver Mark F. Pomerantz said in an affidavit filed with the Southern District Bankruptcy Court that the firm faces "an accelerating onslaught" of demands from creditors, clients and its attorneys. (See supporting affidavit of Roberto Finzi.) Mr. Dreier himself, who allegedly defrauded investors of hundreds of millions of dollars, has no intention of seeking personal bankruptcy protection, according to his attorney, Gerald Shargel. However, Mr. Shargel said his client, who was moved from solitary confinement to the general population at the Metropolitan Correction Center on Monday night, is working with Mr. Pomerantz to "present a clearer picture" of his finances and to "deal with the court's concern that the money has somehow been spirited out of the country."
Under the Speedy Trial Act, the government must indict Mr. Dreier within 30 days of his presentment or initial appearance in magistrate's court Dec. 8. Mr. Shargel said he would waive that time limit for another 30 days, but no longer, "in order to work out some of the complex issues we are facing." "There are cases where the bail issue is more complicated than others and there are times when it takes a little longer than you'd like to win a client's release, so we are doing what I've done countless times before and that's get our ducks in a row," he said. Mr. Shargel said Mr. Dreier's first meeting with Mr. Pomerantz, of Paul, Weiss, Rifkind, Wharton & Garrison, is scheduled for today. While calls to the firm yesterday went unreturned, an employee who answered the phone said that apart from a "skeleton crew," hardly anyone remained at the Park Avenue offices.
The Hon. Jonathan Lippman, Appellate Division, First Department, Presiding Justice; New York Attorney General Andrew Cuomo; and New York Governor David Paterson.
Please advise us if you have filed an Ethics Grievance Complaint against the Dreier LLP law firm or any attorney employed there over the last ten years. Here's the latest on the Dreier LLP law firm:
NY Firm Smashed by Founder's Alleged $380 Million Crime Spree Files for Bankruptcy
The New York Law Journal by Mark Hamblett and Noeleen G. Walder - December 17, 2008
Declaring that "no effective management" exists at Dreier LLP in the wake of the arrest of Marc S. Dreier, the sole equity partner of the firm, a receiver late yesterday afternoon filed for Chapter 11 bankruptcy protection for the firm and related entities. Receiver Mark F. Pomerantz said in an affidavit filed with the Southern District Bankruptcy Court that the firm faces "an accelerating onslaught" of demands from creditors, clients and its attorneys. (See supporting affidavit of Roberto Finzi.) Mr. Dreier himself, who allegedly defrauded investors of hundreds of millions of dollars, has no intention of seeking personal bankruptcy protection, according to his attorney, Gerald Shargel. However, Mr. Shargel said his client, who was moved from solitary confinement to the general population at the Metropolitan Correction Center on Monday night, is working with Mr. Pomerantz to "present a clearer picture" of his finances and to "deal with the court's concern that the money has somehow been spirited out of the country."
Under the Speedy Trial Act, the government must indict Mr. Dreier within 30 days of his presentment or initial appearance in magistrate's court Dec. 8. Mr. Shargel said he would waive that time limit for another 30 days, but no longer, "in order to work out some of the complex issues we are facing." "There are cases where the bail issue is more complicated than others and there are times when it takes a little longer than you'd like to win a client's release, so we are doing what I've done countless times before and that's get our ducks in a row," he said. Mr. Shargel said Mr. Dreier's first meeting with Mr. Pomerantz, of Paul, Weiss, Rifkind, Wharton & Garrison, is scheduled for today. While calls to the firm yesterday went unreturned, an employee who answered the phone said that apart from a "skeleton crew," hardly anyone remained at the Park Avenue offices.
Madoff Under House Arrest; Growing Focus on DiPascali Associates
Madoff Put Under House Arrest as SEC Admits Detection Failure
Bloomberg News by David Glovin and Jesse Westbrook - December 17, 2008
Dec. 17 (Bloomberg) -- Bernard Madoff, accused mastermind of a $50 billion investment fraud, was placed under house arrest as pressure mounted on the Securities and Exchange Commission to explain its failure to detect his financial wrongdoing for almost a decade. Madoff, 70, will be subject to electronic monitoring and a 7 p.m. curfew while his wife, Ruth, today agreed to give up homes in Montauk, New York, and Palm Beach, Florida, if her husband flees. Madoff was arrested Dec. 11 after telling his sons that his firm was “one big lie,” the SEC said. The legal developments came after SEC Chairman Christopher Cox said yesterday that his agency failed to act on “credible, specific” allegations about Madoff dating back to 1999. The Madoff affair will be at the center of planned congressional hearings on the reform of the SEC, said a senior Senate official, speaking on condition of anonymity. The allegations “were repeatedly brought to the attention of SEC staff, but were never recommended to the commission for action,” Cox, 56, said in a statement yesterday, without detailing the allegations. He announced an internal probe to review the “deeply troubling” revelations. The SEC, already faulted in connection with the collapse of Bear Stearns Cos. and Lehman Brothers Holdings Inc., now faces criticism for failing to detect what Madoff termed “a giant Ponzi scheme.” Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and Senator Charles Grassley, an Iowa Republican, have questioned its vigilance in enforcing securities laws.
Tokyo to Paris
Victims of Madoff’s fraud stretch from Tokyo to Paris, encompassing foundations set up by Boston philanthropist Carl Shapiro and Nobel laureate Elie Wiesel and clients of global banks such as Banco Santander SA of Spain, Nomura Holdings Inc of Japan, and HSBC Holdings Plc of the U.K. Yeshiva University in New York lost $110 million, mostly through hedge funds controlled by trustee J. Ezra Merkin. Cox, a Republican appointed by President George W. Bush, has said he will leave office at the end of the Bush administration. His term officially ends in June 2009 after taking over in August 2005. President-elect Barack Obama may name Cox’s successor as soon as tomorrow, people familiar with the matter said. Instead of wielding subpoena power to obtain information, SEC staff “relied upon information voluntarily produced by Mr. Madoff and his firm,” Cox said.
Recusals
The internal review will include “all staff contact and relationships with the Madoff family and firm,” he said, and mandate the recusal of any SEC employee with more than an “insubstantial personal” contact with Madoff and his family. Eric Swanson, a former assistant director of compliance and examinations at the SEC, is married to Madoff’s niece, Shana, who was a compliance lawyer at the Madoff firm. Swanson left the SEC in August 2006 and is now the general counsel of Bats Trading Inc., the third-largest U.S. equity exchange by trading volume. Besides talking with Madoff, who met with federal prosecutors yesterday, authorities have also been scrutinizing the role of Frank DiPascali, a senior official in Madoff’s investment advisory firm, according to a person familiar with the case. Janice Oh, a spokeswoman for Acting Manhattan U.S. Attorney Lev Dassin, declined to comment. Madoff’s lawyer, Ira Sorkin, didn’t return a call seeking comment.
Michael Mukasey
“Like everyone else, we’re trying to sort out everything and learn the facts,” DiPascali’s lawyer, Marc Mukasey of Bracewell & Giuliani in New York, said in an interview, declining further comment. U.S. Attorney General Michael Mukasey, Marc Mukasey’s father, has recused himself from the Justice Department’s investigation into Madoff’s alleged fraud, a department spokesman said today.
Michael Mukasey is a 1959 graduate of the Ramaz School, a modern Orthodox Jewish school in New York that invested as much as $6 million in a fund that invested with Madoff, said Kenny Rochlin, Ramaz’s director of institutional advancement. Mukasey’s wife, Susan, was headmistress of Ramaz’s Lower School for children in primary grades, Rochlin said. Justice Department spokesman Peter Carr declined to say whether the family connection is the reason Mukasey removed himself from the case. U.S. Magistrate Judge Gabriel Gorenstein in Manhattan also ordered Madoff and his wife, Ruth, to surrender their passports. The ruling came as a bail hearing for her husband was postponed for a second time in as many days. The number of co-signers on his $10 million bond was reduced by Gorenstein from four to two after Madoff was unable to find two additional guarantors. Madoff’s wife and brother, Peter, have co-signed the bond. The case is U.S. v. Madoff, 08-mag-2735, U.S. District Court, Southern District of New York (Manhattan). To contact the reporter on this story: David Glovin in U.S. District Court in New York at dglovin@bloomberg.net. Last Updated: December 17, 2008 12:36 EST
Bloomberg News by David Glovin and Jesse Westbrook - December 17, 2008
Dec. 17 (Bloomberg) -- Bernard Madoff, accused mastermind of a $50 billion investment fraud, was placed under house arrest as pressure mounted on the Securities and Exchange Commission to explain its failure to detect his financial wrongdoing for almost a decade. Madoff, 70, will be subject to electronic monitoring and a 7 p.m. curfew while his wife, Ruth, today agreed to give up homes in Montauk, New York, and Palm Beach, Florida, if her husband flees. Madoff was arrested Dec. 11 after telling his sons that his firm was “one big lie,” the SEC said. The legal developments came after SEC Chairman Christopher Cox said yesterday that his agency failed to act on “credible, specific” allegations about Madoff dating back to 1999. The Madoff affair will be at the center of planned congressional hearings on the reform of the SEC, said a senior Senate official, speaking on condition of anonymity. The allegations “were repeatedly brought to the attention of SEC staff, but were never recommended to the commission for action,” Cox, 56, said in a statement yesterday, without detailing the allegations. He announced an internal probe to review the “deeply troubling” revelations. The SEC, already faulted in connection with the collapse of Bear Stearns Cos. and Lehman Brothers Holdings Inc., now faces criticism for failing to detect what Madoff termed “a giant Ponzi scheme.” Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and Senator Charles Grassley, an Iowa Republican, have questioned its vigilance in enforcing securities laws.
Tokyo to Paris
Victims of Madoff’s fraud stretch from Tokyo to Paris, encompassing foundations set up by Boston philanthropist Carl Shapiro and Nobel laureate Elie Wiesel and clients of global banks such as Banco Santander SA of Spain, Nomura Holdings Inc of Japan, and HSBC Holdings Plc of the U.K. Yeshiva University in New York lost $110 million, mostly through hedge funds controlled by trustee J. Ezra Merkin. Cox, a Republican appointed by President George W. Bush, has said he will leave office at the end of the Bush administration. His term officially ends in June 2009 after taking over in August 2005. President-elect Barack Obama may name Cox’s successor as soon as tomorrow, people familiar with the matter said. Instead of wielding subpoena power to obtain information, SEC staff “relied upon information voluntarily produced by Mr. Madoff and his firm,” Cox said.
Recusals
The internal review will include “all staff contact and relationships with the Madoff family and firm,” he said, and mandate the recusal of any SEC employee with more than an “insubstantial personal” contact with Madoff and his family. Eric Swanson, a former assistant director of compliance and examinations at the SEC, is married to Madoff’s niece, Shana, who was a compliance lawyer at the Madoff firm. Swanson left the SEC in August 2006 and is now the general counsel of Bats Trading Inc., the third-largest U.S. equity exchange by trading volume. Besides talking with Madoff, who met with federal prosecutors yesterday, authorities have also been scrutinizing the role of Frank DiPascali, a senior official in Madoff’s investment advisory firm, according to a person familiar with the case. Janice Oh, a spokeswoman for Acting Manhattan U.S. Attorney Lev Dassin, declined to comment. Madoff’s lawyer, Ira Sorkin, didn’t return a call seeking comment.
Michael Mukasey
“Like everyone else, we’re trying to sort out everything and learn the facts,” DiPascali’s lawyer, Marc Mukasey of Bracewell & Giuliani in New York, said in an interview, declining further comment. U.S. Attorney General Michael Mukasey, Marc Mukasey’s father, has recused himself from the Justice Department’s investigation into Madoff’s alleged fraud, a department spokesman said today.
Michael Mukasey is a 1959 graduate of the Ramaz School, a modern Orthodox Jewish school in New York that invested as much as $6 million in a fund that invested with Madoff, said Kenny Rochlin, Ramaz’s director of institutional advancement. Mukasey’s wife, Susan, was headmistress of Ramaz’s Lower School for children in primary grades, Rochlin said. Justice Department spokesman Peter Carr declined to say whether the family connection is the reason Mukasey removed himself from the case. U.S. Magistrate Judge Gabriel Gorenstein in Manhattan also ordered Madoff and his wife, Ruth, to surrender their passports. The ruling came as a bail hearing for her husband was postponed for a second time in as many days. The number of co-signers on his $10 million bond was reduced by Gorenstein from four to two after Madoff was unable to find two additional guarantors. Madoff’s wife and brother, Peter, have co-signed the bond. The case is U.S. v. Madoff, 08-mag-2735, U.S. District Court, Southern District of New York (Manhattan). To contact the reporter on this story: David Glovin in U.S. District Court in New York at dglovin@bloomberg.net. Last Updated: December 17, 2008 12:36 EST
AG recuses himself in Madoff probe
AG recuses himself in Madoff probe
The Associated Press by LARA JAKES JORDAN – 1 hour ago
WASHINGTON (AP) — Attorney General Michael Mukasey has recused himself from the Justice Department's investigation into Bernard L. Madoff, accused of running one of the largest Ponzi schemes ever. Mukasey's son, Marc Mukasey, is representing Frank DiPascali, a Madoff firm official, in the probe. Justice Department spokesman Peter Carr said Wednesday that the attorney general would not oversee or otherwise be involved in any aspect of the investigation, which is being run out of the U.S. attorney's office in Manhattan. The SEC also is investigating. Losses in the alleged scheme could reach $50 billion.
The Associated Press by LARA JAKES JORDAN – 1 hour ago
WASHINGTON (AP) — Attorney General Michael Mukasey has recused himself from the Justice Department's investigation into Bernard L. Madoff, accused of running one of the largest Ponzi schemes ever. Mukasey's son, Marc Mukasey, is representing Frank DiPascali, a Madoff firm official, in the probe. Justice Department spokesman Peter Carr said Wednesday that the attorney general would not oversee or otherwise be involved in any aspect of the investigation, which is being run out of the U.S. attorney's office in Manhattan. The SEC also is investigating. Losses in the alleged scheme could reach $50 billion.
Tuesday, December 16, 2008
Tammany Hall 2009: Madoff Implicates Schumer, Paterson to Pick 2 US Senators
BREAKING NEWS: Tammany Hall 2009: Madoff Implicates Schumer, Paterson to Pick 2 U.S. Senators.
Federal Government sources have revealed that New York Governor David Paterson was formally advised last week that interviews in the Bernard Madoff $50 billion fraud implicate the Empire State's senior U.S. Senator, Charles E. Schumer. "The problem is what Schumer knew, and how long he knew it," says the source. "The federal government had an obligation to brief New York's Governor... few believe Senator Schumer will be able to finesse his way out of this." Paterson insiders say the Governor was initially stunned by the allegations but has since embraced the challenge, becoming empowered by the "golden opportunity to restore integrity and the glory that all New Yorkers deserve." New York's Corruption Scandal is everything a fiction thriller would promise: unimaginable greed, widespread corruption and, of course, sex. It may even end with a global financial crisis, a crazy idea led by Wall Street bankers and lawyers in a system void of oversight. Affectionately called 'Tamanny Hall II" since late 2007, you are welcomed to New York- The Big Rotten Apple, an unimaginable cesspool of corruption.
.....More on Tammany Hall 2009 on Wednesday, December 17, 2008...........
.....More on Tammany Hall 2009 on Wednesday, December 17, 2008...........
Corrupt NY Surrogate Advised of Pending Suspension
High Court Eyes Suspension for Indicted NY Judge-Elect
The New York Law Journal by Daniel Wise - December 15, 2008
The New York Court of Appeals has notified Nora S. Anderson, the surrogate-elect in Manhattan who was indicted last week on campaign-finance related charges, that it is considering whether she should be suspended until the criminal charges against her are resolved. In a letter dated Thursday, the Court invited Ms. Anderson to submit a brief opposing suspension no later than Dec. 22. The Court also authorized the Commission on Judicial Conduct to make a submission on the question by Dec. 22. The Court usually suspends judges who have been indicted with pay until the charges are resolved, but experts could not recall an instance of someone who had been elected as a judge being charged with a crime before taking office. Ms. Anderson, who won a three-way race in November, is slated to begin her term on Jan. 1. The Court could take up the question of her suspension before then, but any order would not take effect until Jan. 1, according to David Bookstaver, a court system spokesman. Ms. Anderson's lawyer in the criminal case, Gustave H. Newman, said Ms. Anderson is seeking to retain a lawyer to represent her before the Court. She "does not plan to resign," he added.
The New York Law Journal by Daniel Wise - December 15, 2008
The New York Court of Appeals has notified Nora S. Anderson, the surrogate-elect in Manhattan who was indicted last week on campaign-finance related charges, that it is considering whether she should be suspended until the criminal charges against her are resolved. In a letter dated Thursday, the Court invited Ms. Anderson to submit a brief opposing suspension no later than Dec. 22. The Court also authorized the Commission on Judicial Conduct to make a submission on the question by Dec. 22. The Court usually suspends judges who have been indicted with pay until the charges are resolved, but experts could not recall an instance of someone who had been elected as a judge being charged with a crime before taking office. Ms. Anderson, who won a three-way race in November, is slated to begin her term on Jan. 1. The Court could take up the question of her suspension before then, but any order would not take effect until Jan. 1, according to David Bookstaver, a court system spokesman. Ms. Anderson's lawyer in the criminal case, Gustave H. Newman, said Ms. Anderson is seeking to retain a lawyer to represent her before the Court. She "does not plan to resign," he added.
Lawyers at Center of Financial Crisis
Lawyers, Lawyers Everywhere in Wall Street's Latest Scandal
The New York Law Journal by Brian Baxter - December 15, 2008
The ramifications from the arrest of Bernard "Bernie" Madoff, former chairman and CEO of New York-based Bernard L. Madoff Investment Securities (BMIS), continued to unravel over the weekend as investigators worked to unwind the hedge-fund-cum-Ponzi-scheme, and as individuals and institutions sought to assess their exposure. As reported by The Am Law Daily on Friday, Madoff has retained Ira "Ike" Sorkin, cohead of the securities litigation and white-collar defense practice at Dickstein Shapiro, to represent him in the criminal case, which so far only includes one securities fraud charge. Sorkin is being assisted by Dickstein Shapiro litigation partners Daniel Horwitz and Mauro Wolfe. Also on Friday, U.S. district court judge Louis Stanton in Manhattan appointed Lee Richards III of New York's Richards Kibbe & Orbe to be receiver for BMIS. The firm's funds were frozen as regulators worked to unwind details of an estimated $50 billion fraud that some claim could be the largest in Wall Street's history. Two European banking giants detailed their exposure over the weekend. Madrid-based Grupo Santander said that it's Optimal Strategic U.S. Equity Fund had roughly $3.1 billion invested in Madoff's firm. Paris-based BNP Paribas estimated its potential exposure is in excess of $460 million. Japan's Nomura Holdings announced that it stands to lose roughly $302 million. (The growing scandal even had some commentators wondering whether Madoff's downfall means the end of hedge funds.) U.S. Attorney for the District of Columbia Jeffrey Taylor and acting assistant U.S. attorney of the criminal division Matthew Friedrich will speak at a Justice Department press conference this afternoon in Washington, D.C. Assistant U.S. attorney Marc Litt in Manhattan is serving as the line prosecutor in the Madoff case. Other lawyers retained as the scandal unfolds:
For Individuals
Bernie Madoff's sons, Mark and Andrew, who reportedly blew the whistle on their father last week, have retained Paul, Weiss, Rifkind, Wharton & Garrison senior litigation partner Martin Flumenbaum. Frank DiPascali, an official with BMIS, has retained Marc Mukasey, head of the white-collar defense and special investigations practice at Bracewell & Giuliani. (Mukasey is the son of current U.S. Attorney General Michael Mukasey.) According to The Wall Street Journal, wealthy investors like Boston Properties chairman and media magnate Mortimer Zuckerman, New York Mets owner and Sterling Equities cofounder Fred Wilpon, GMAC chairman J. Ezra Merkin, and Bed Bath & Beyond cofounder Leonard "Lenny" Feinstein have significant investments in BMIS. (We'll update their legal representation as we learn of it.)
For Institutions
The Wall Street Journal reports that two investment management funds with significant investments in BMIS--Fairfield, Conn.-based Fairfield Greenwich Advisors and Rye, N.Y.-based Tremont Capital Management--have retained Scott Berman of New York's Friedman Kaplan Seiler & Adelman to determine how to recover lost assets and examine due diligence procedures. (The Journal reports that Marc Kasowitz of New York's Kasowitz, Benson, Torres & Friedman represents Fairfield Sentry, a fund thought to have the most exposure to BMIS.) Two renowned plaintiffs firms also have jumped into the fray. Milberg's Brad Friedman and Seeger Weiss cofounder Stephen Weiss announced on Friday that they have been retained by dozens of individual investors--including a senior citizens center, corporate executives, banks, and hedge funds--thought to have lost hundreds of millions of dollars in BMIS. Milberg partners Sanford Dumain and Matthew Gluck also will work on the matter. There's plenty to go around. Regional firms like Long Island's Ruskin Moscou Faltischek and Fort Lauderdale's Sonn & Erez are representing a well-known MarketWatch economist and several South Florida investors, among others. Seattle's Hagens Berman Sobol Shapiro, New York's Rich & Intelisano, and Boca Raton, Fla.-based securities litigation firm Klayman & Toskes are investigating possible claims on behalf of clients they represent. The Am Law Litigation Daily's Andrew Longstreth has learned that Steptoe & Johnson litigation partner Michael Miller, a former prosecutor familiar with Ponzi-style schemes, is representing a New York-based investor group.
Charities and Foundations
The Wall Street Journal reports that in addition to individual investors and financial institutions, many prominent Jewish charities and foundations are thought to have significant exposures to BMIS, given Madoff's philanthropic activities. BMIS had about $17 billion in assets under management, Newsday reports, with about half of the firm's clients being hedge funds. Jerome "Jerry" Reisman, a lawyer with Garden City's Reisman Peirez & Reisman, told the Long Island newspaper that Madoff used his social connections to solicit new investors. "[Madoff's] returns far exceeded the market," said Reisman, noting that his firm represents several individuals with investments in BMIS. Now Reisman claims that many of them, including "one of the wealthiest real estate families on Long Island," have been wiped out.
The New York Law Journal by Brian Baxter - December 15, 2008
The ramifications from the arrest of Bernard "Bernie" Madoff, former chairman and CEO of New York-based Bernard L. Madoff Investment Securities (BMIS), continued to unravel over the weekend as investigators worked to unwind the hedge-fund-cum-Ponzi-scheme, and as individuals and institutions sought to assess their exposure. As reported by The Am Law Daily on Friday, Madoff has retained Ira "Ike" Sorkin, cohead of the securities litigation and white-collar defense practice at Dickstein Shapiro, to represent him in the criminal case, which so far only includes one securities fraud charge. Sorkin is being assisted by Dickstein Shapiro litigation partners Daniel Horwitz and Mauro Wolfe. Also on Friday, U.S. district court judge Louis Stanton in Manhattan appointed Lee Richards III of New York's Richards Kibbe & Orbe to be receiver for BMIS. The firm's funds were frozen as regulators worked to unwind details of an estimated $50 billion fraud that some claim could be the largest in Wall Street's history. Two European banking giants detailed their exposure over the weekend. Madrid-based Grupo Santander said that it's Optimal Strategic U.S. Equity Fund had roughly $3.1 billion invested in Madoff's firm. Paris-based BNP Paribas estimated its potential exposure is in excess of $460 million. Japan's Nomura Holdings announced that it stands to lose roughly $302 million. (The growing scandal even had some commentators wondering whether Madoff's downfall means the end of hedge funds.) U.S. Attorney for the District of Columbia Jeffrey Taylor and acting assistant U.S. attorney of the criminal division Matthew Friedrich will speak at a Justice Department press conference this afternoon in Washington, D.C. Assistant U.S. attorney Marc Litt in Manhattan is serving as the line prosecutor in the Madoff case. Other lawyers retained as the scandal unfolds:
For Individuals
Bernie Madoff's sons, Mark and Andrew, who reportedly blew the whistle on their father last week, have retained Paul, Weiss, Rifkind, Wharton & Garrison senior litigation partner Martin Flumenbaum. Frank DiPascali, an official with BMIS, has retained Marc Mukasey, head of the white-collar defense and special investigations practice at Bracewell & Giuliani. (Mukasey is the son of current U.S. Attorney General Michael Mukasey.) According to The Wall Street Journal, wealthy investors like Boston Properties chairman and media magnate Mortimer Zuckerman, New York Mets owner and Sterling Equities cofounder Fred Wilpon, GMAC chairman J. Ezra Merkin, and Bed Bath & Beyond cofounder Leonard "Lenny" Feinstein have significant investments in BMIS. (We'll update their legal representation as we learn of it.)
For Institutions
The Wall Street Journal reports that two investment management funds with significant investments in BMIS--Fairfield, Conn.-based Fairfield Greenwich Advisors and Rye, N.Y.-based Tremont Capital Management--have retained Scott Berman of New York's Friedman Kaplan Seiler & Adelman to determine how to recover lost assets and examine due diligence procedures. (The Journal reports that Marc Kasowitz of New York's Kasowitz, Benson, Torres & Friedman represents Fairfield Sentry, a fund thought to have the most exposure to BMIS.) Two renowned plaintiffs firms also have jumped into the fray. Milberg's Brad Friedman and Seeger Weiss cofounder Stephen Weiss announced on Friday that they have been retained by dozens of individual investors--including a senior citizens center, corporate executives, banks, and hedge funds--thought to have lost hundreds of millions of dollars in BMIS. Milberg partners Sanford Dumain and Matthew Gluck also will work on the matter. There's plenty to go around. Regional firms like Long Island's Ruskin Moscou Faltischek and Fort Lauderdale's Sonn & Erez are representing a well-known MarketWatch economist and several South Florida investors, among others. Seattle's Hagens Berman Sobol Shapiro, New York's Rich & Intelisano, and Boca Raton, Fla.-based securities litigation firm Klayman & Toskes are investigating possible claims on behalf of clients they represent. The Am Law Litigation Daily's Andrew Longstreth has learned that Steptoe & Johnson litigation partner Michael Miller, a former prosecutor familiar with Ponzi-style schemes, is representing a New York-based investor group.
Charities and Foundations
The Wall Street Journal reports that in addition to individual investors and financial institutions, many prominent Jewish charities and foundations are thought to have significant exposures to BMIS, given Madoff's philanthropic activities. BMIS had about $17 billion in assets under management, Newsday reports, with about half of the firm's clients being hedge funds. Jerome "Jerry" Reisman, a lawyer with Garden City's Reisman Peirez & Reisman, told the Long Island newspaper that Madoff used his social connections to solicit new investors. "[Madoff's] returns far exceeded the market," said Reisman, noting that his firm represents several individuals with investments in BMIS. Now Reisman claims that many of them, including "one of the wealthiest real estate families on Long Island," have been wiped out.
Sources: Madoff Implicates Schumer, Says Chuck Knew
SEC Didn't Act on Madoff Tips
Regulator Was Warned About Possible Fraud as Early as 1999
The Washington Post by Binyamin Appelbaum and David S. Hilzenrath - December 16, 2008
The Securities and Exchange Commission learned about what it describes as one of the largest securities frauds in history when Bernard L. Madoff volunteered his confession, raising questions about the agency's ability to police the financial marketplace. The SEC had the authority to investigate Madoff's investment business, which managed billions of dollars for wealthy investors and philanthropies. Financial analysts raised concerns about Madoff's practices repeatedly over the past decade, including a 1999 letter to the SEC that accused Madoff of running a Ponzi scheme. But the agency did not conduct even a routine examination of the investment business until last week. On Thursday, Madoff was charged with securities fraud after telling his sons that he had taken $50 billion from investors. The list of victims ranges from some of the world's largest banks to small charities. The Securities Investor Protection Corp., which offers limited protection to brokerage customers in cases of fraud, said yesterday that it would liquidate the company, Bernard L. Madoff Investment Securities. Multiple investigations are just beginning. Investigators have not said when they believe Madoff began the fraudulent practice of using new investments to pay existing investors. It is not clear how much money was lost or how many people were involved. But there is the beginning of an explanation as to how so many people failed to spot the alleged fraud.
Madoff may have avoided scrutiny, regulatory experts said, in part because he simultaneously operated a legitimate, regulated and high-profile business as one of the largest middlemen between the buyers and sellers of stock. In that role, he helped to create Nasdaq, the first electronic stock exchange, and advised the SEC on electronic trading issues. He was a large campaign contributor and a familiar of senior regulators. "Bernie had a good reputation at the SEC with a lot of highly placed people as an innovator as somebody who speaks his mind and knows what's going on in the industry. I think he was seen as a valuable resource to the commission in its deliberations on things like market data," said Donald C. Langevoort, a Georgetown University law professor who specializes in securities regulation and served with Madoff on an SEC advisory committee. At the same time, Madoff's separate investment business operated on the outskirts of regulation, during a period when the government has intentionally allowed private, unregulated transactions. Private investment pools, such as hedge funds, are subject to limited oversight, and Madoff constructed his investment business to avoid most of it. The SEC said Madoff did not register with it as an investment adviser until September 2006.
Finally, experts say the Madoff case may simply point to the inherent limits of regulation. "The SEC going back to its formation, and the Justice Department going back to its formation, are never adequate to crime at its time. It's simplistic to look back and say that this was the SEC's fault," said former SEC chairman Arthur Levitt, who knew Madoff when both worked on Wall Street and consulted with him while at the SEC. "A very skillful criminal can almost always outfox the regulator or the overseer." Ira Lee Sorkin, an attorney for Madoff, has said Madoff's firm is cooperating fully with the government in its investigation. Madoff has been released on bail. Madoff's business as a middleman, or broker-dealer, was subject to regular scrutiny by the SEC, including a routine examination in 2005 that identified some problems and a 2007 investigation that was closed without any further action. But Madoff's investment advisory business was never the primary subject of an SEC examination, according to people familiar with the case.
Regulators now suspect that he may have run a second investment advisory business that was never registered with regulators, according to people familiar with the investigation. The SEC does not have the resources to examine investment advisers on a regular schedule. Instead, the agency prioritizes examinations of companies based on their risk profile, which is basically a process of judging books by their covers. People familiar with the process said the SEC tends to focus on high-risk investment strategies, such as trading in derivatives. Lori A. Richards, director of the SEC's Office of Compliance Inspections and Examinations, said that only 10 percent of the 11,300 investment advisers registered with the SEC are examined on a regular basis -- those with high-risk characteristics. They are examined every three years. Others might be examined randomly or where there is cause, Richards said. From 1998 to 2002, the SEC aimed to examine every adviser at least once every five years and to examine newly registered advisers during their first year, but a 50 percent increase in the number of advisers since 2002 ended that practice, Richards said. Richards declined to comment on Madoff's firm.
Some experts said that the SEC's criteria made sense and that the fraud Madoff allegedly constructed was successful in part because it avoided the appearance of risk. It avoided the scrutiny of investors and regulators by claiming to engage in vanilla trading and reporting steady but unspectacular returns. "I think the SEC is going to have a PR issue to deal with, but I'm not sure you'd find that the SEC staff did anything wrong," said Barry Barbash, a partner at Willkie Farr & Gallagher and a director of the SEC's Division of Investment Management during the Clinton administration. "They've had to make judgments, and they decided to look at derivatives, short sales, insider trading, all the things that Madoff never had." Others said that the SEC should have flagged Madoff for examination no later than the moment he registered as an investment adviser, in 2006, because of the history of complaints against his firm and because of its unusual characteristics. These included Madoff's history of smooth earnings -- above 10 percent a year, every year -- and his company's reliance on a small auditing firm that had no other large Wall Street clients. Aksia, a New York-based consulting firm that advises institutional investors about hedge funds, found that Madoff's auditor worked out of a 13-foot-by-18-foot office in Rockland County, N.Y., with only three employees. The employees of the firm, which had only Madoff as a client, included a 78-year-old living in Florida and a secretary, Aksia said it discovered. The auditor, Friehling and Horowitz, did not respond to a request for comment. "If it's true that the SEC had begun receiving warnings in 1999, then even if they did nothing before then, surely when he registered with them in 2006, he should have gone to the top of their list," said Barbara Roper of the Consumer Federation of America.
Madoff avoided scrutiny despite the dogged bell-ringing of a Boston accountant, employed by another investment firm, who repeatedly accused Madoff of breaking the law in a series of letters to the SEC that began in 1999. The accountant, Harry Markopolos, said he sent his most recent letter in April. A former SEC enforcement official said the letters should have raised red flags for regulators. "It is not common to get complaints about somebody who's running a large amount of money that it's a Ponzi scheme," said the former official, speaking on condition of anonymity. He said that investigating a Ponzi scheme is not difficult: The agency can simply demand proof that the investment adviser holds the amount of money he claims to hold. And he added that regulators also should have noticed that Madoff was audited by a tiny company with no reputation. He said there are only a few accounting firms with the sophistication to audit an investment adviser that, at the time of registration with the SEC, reported $17 billion on assets. Regulators should have noticed instantly, he said, that Madoff's auditor was not on the list. Staff researcher Meg Smith contributed to this story.
Regulator Was Warned About Possible Fraud as Early as 1999
The Washington Post by Binyamin Appelbaum and David S. Hilzenrath - December 16, 2008
The Securities and Exchange Commission learned about what it describes as one of the largest securities frauds in history when Bernard L. Madoff volunteered his confession, raising questions about the agency's ability to police the financial marketplace. The SEC had the authority to investigate Madoff's investment business, which managed billions of dollars for wealthy investors and philanthropies. Financial analysts raised concerns about Madoff's practices repeatedly over the past decade, including a 1999 letter to the SEC that accused Madoff of running a Ponzi scheme. But the agency did not conduct even a routine examination of the investment business until last week. On Thursday, Madoff was charged with securities fraud after telling his sons that he had taken $50 billion from investors. The list of victims ranges from some of the world's largest banks to small charities. The Securities Investor Protection Corp., which offers limited protection to brokerage customers in cases of fraud, said yesterday that it would liquidate the company, Bernard L. Madoff Investment Securities. Multiple investigations are just beginning. Investigators have not said when they believe Madoff began the fraudulent practice of using new investments to pay existing investors. It is not clear how much money was lost or how many people were involved. But there is the beginning of an explanation as to how so many people failed to spot the alleged fraud.
Madoff may have avoided scrutiny, regulatory experts said, in part because he simultaneously operated a legitimate, regulated and high-profile business as one of the largest middlemen between the buyers and sellers of stock. In that role, he helped to create Nasdaq, the first electronic stock exchange, and advised the SEC on electronic trading issues. He was a large campaign contributor and a familiar of senior regulators. "Bernie had a good reputation at the SEC with a lot of highly placed people as an innovator as somebody who speaks his mind and knows what's going on in the industry. I think he was seen as a valuable resource to the commission in its deliberations on things like market data," said Donald C. Langevoort, a Georgetown University law professor who specializes in securities regulation and served with Madoff on an SEC advisory committee. At the same time, Madoff's separate investment business operated on the outskirts of regulation, during a period when the government has intentionally allowed private, unregulated transactions. Private investment pools, such as hedge funds, are subject to limited oversight, and Madoff constructed his investment business to avoid most of it. The SEC said Madoff did not register with it as an investment adviser until September 2006.
Finally, experts say the Madoff case may simply point to the inherent limits of regulation. "The SEC going back to its formation, and the Justice Department going back to its formation, are never adequate to crime at its time. It's simplistic to look back and say that this was the SEC's fault," said former SEC chairman Arthur Levitt, who knew Madoff when both worked on Wall Street and consulted with him while at the SEC. "A very skillful criminal can almost always outfox the regulator or the overseer." Ira Lee Sorkin, an attorney for Madoff, has said Madoff's firm is cooperating fully with the government in its investigation. Madoff has been released on bail. Madoff's business as a middleman, or broker-dealer, was subject to regular scrutiny by the SEC, including a routine examination in 2005 that identified some problems and a 2007 investigation that was closed without any further action. But Madoff's investment advisory business was never the primary subject of an SEC examination, according to people familiar with the case.
Regulators now suspect that he may have run a second investment advisory business that was never registered with regulators, according to people familiar with the investigation. The SEC does not have the resources to examine investment advisers on a regular schedule. Instead, the agency prioritizes examinations of companies based on their risk profile, which is basically a process of judging books by their covers. People familiar with the process said the SEC tends to focus on high-risk investment strategies, such as trading in derivatives. Lori A. Richards, director of the SEC's Office of Compliance Inspections and Examinations, said that only 10 percent of the 11,300 investment advisers registered with the SEC are examined on a regular basis -- those with high-risk characteristics. They are examined every three years. Others might be examined randomly or where there is cause, Richards said. From 1998 to 2002, the SEC aimed to examine every adviser at least once every five years and to examine newly registered advisers during their first year, but a 50 percent increase in the number of advisers since 2002 ended that practice, Richards said. Richards declined to comment on Madoff's firm.
Some experts said that the SEC's criteria made sense and that the fraud Madoff allegedly constructed was successful in part because it avoided the appearance of risk. It avoided the scrutiny of investors and regulators by claiming to engage in vanilla trading and reporting steady but unspectacular returns. "I think the SEC is going to have a PR issue to deal with, but I'm not sure you'd find that the SEC staff did anything wrong," said Barry Barbash, a partner at Willkie Farr & Gallagher and a director of the SEC's Division of Investment Management during the Clinton administration. "They've had to make judgments, and they decided to look at derivatives, short sales, insider trading, all the things that Madoff never had." Others said that the SEC should have flagged Madoff for examination no later than the moment he registered as an investment adviser, in 2006, because of the history of complaints against his firm and because of its unusual characteristics. These included Madoff's history of smooth earnings -- above 10 percent a year, every year -- and his company's reliance on a small auditing firm that had no other large Wall Street clients. Aksia, a New York-based consulting firm that advises institutional investors about hedge funds, found that Madoff's auditor worked out of a 13-foot-by-18-foot office in Rockland County, N.Y., with only three employees. The employees of the firm, which had only Madoff as a client, included a 78-year-old living in Florida and a secretary, Aksia said it discovered. The auditor, Friehling and Horowitz, did not respond to a request for comment. "If it's true that the SEC had begun receiving warnings in 1999, then even if they did nothing before then, surely when he registered with them in 2006, he should have gone to the top of their list," said Barbara Roper of the Consumer Federation of America.
Madoff avoided scrutiny despite the dogged bell-ringing of a Boston accountant, employed by another investment firm, who repeatedly accused Madoff of breaking the law in a series of letters to the SEC that began in 1999. The accountant, Harry Markopolos, said he sent his most recent letter in April. A former SEC enforcement official said the letters should have raised red flags for regulators. "It is not common to get complaints about somebody who's running a large amount of money that it's a Ponzi scheme," said the former official, speaking on condition of anonymity. He said that investigating a Ponzi scheme is not difficult: The agency can simply demand proof that the investment adviser holds the amount of money he claims to hold. And he added that regulators also should have noticed that Madoff was audited by a tiny company with no reputation. He said there are only a few accounting firms with the sophistication to audit an investment adviser that, at the time of registration with the SEC, reported $17 billion on assets. Regulators should have noticed instantly, he said, that Madoff's auditor was not on the list. Staff researcher Meg Smith contributed to this story.
Monday, December 15, 2008
New York's Widening Net of Corruption
THE RECKONING
A Champion of Wall Street Reaps Benefits
The New York Times by ERIC LIPTON and RAYMOND HERNANDEZ - December 14, 2008
“We are not going to rest until we change the rules, change the laws and make sure New York remains No. 1 for decades on into the future.”
— Senator Charles E. Schumer, referring to financial regulations, Jan. 22, 2007
WASHINGTON — As the financial crisis jolted the nation in September, Senator Charles E. Schumer was consumed. He traded telephone calls with bankers, then became one of the first officials to promote a Wall Street bailout. He spent hours in closed-door briefings and a weekend helping Congressional leaders nail down details of the $700 billion rescue package. The next day, Mr. Schumer appeared at a breakfast fund-raiser in Midtown Manhattan for Senate Democrats. Addressing Henry R. Kravis, the buyout billionaire, and about 20 other finance industry executives, he warned that a bailout would be a hard sell on Capitol Hill. Then he offered some reassurance: The businessmen could count on the Democrats to help steer the nation through the financial turmoil. “We are not going to be a bunch of crazy, anti-business liberals,” one executive said, summarizing Mr. Schumer’s remarks. “We are going to be effective, moderate advocates for sound economic policies, good responsible stewards you can trust.” The message clearly resonated. The next week, executives at firms represented at the breakfast sent in more than $135,000 in campaign donations.
Senator Schumer plays an unrivaled role in Washington as beneficiary, advocate and overseer of an industry that is his hometown’s most important business. An exceptional fund raiser — a “jackhammer,” someone who knows him says, for whom “ ‘no’ is the first step to ‘yes,’ ” — Mr. Schumer led the Democratic Senatorial Campaign Committee for the last four years, raising a record $240 million while increasing donations from Wall Street by 50 percent. That money helped the Democrats gain power in Congress, elevated Mr. Schumer’s standing in his party and increased the industry’s clout in the capital. But in building support, he has embraced the industry’s free-market, deregulatory agenda more than almost any other Democrat in Congress, even backing some measures now blamed for contributing to the financial crisis.
Other lawmakers took the lead on efforts like deregulating the complicated financial instruments called derivatives, which are widely seen as catalysts to the crisis. But Mr. Schumer, a member of the Banking and Finance Committees, repeatedly took other steps to protect industry players from government oversight and tougher rules, a review of his record shows. Over the years, he has also helped save financial institutions billions of dollars in higher taxes or fees. He succeeded in limiting efforts to regulate credit-rating agencies, for example, sponsored legislation that cut fees paid by Wall Street firms to finance government oversight, pushed to allow banks to have lower capital reserves and called for the revision of regulations to make corporations’ balance sheets more transparent.
“Since the financial meltdown, people have been asking, ‘Where was Congress? Why didn’t they see this coming? Why didn’t they provide better oversight?’ ” said Barbara Roper, director of investor protection for the Consumer Federation of America. “And the answer for some, including Senator Schumer, is that they were actually too busy pursuing a deregulatory agenda. Their focus was on how we have to lighten up regulation on Wall Street.” In recent weeks, Mr. Schumer has worked closely with the Bush administration to try to mitigate the damage to New York’s financial institutions. And as members of Congress and President-elect Barack Obama have called for new regulations to prevent future upheavals, Mr. Schumer has endorsed the need for reforms while still trying to make them palatable for Wall Street. Calling himself “an almost obsessive defender of New York jobs,” Mr. Schumer has often talked of the need to avoid excessive regulation of an industry that is increasingly threatened by global competition. At the same time, Mr. Schumer has cast himself as a populist who looks out for the middle class.
In an interview, Mr. Schumer said that until the recent market turmoil, he did not fully appreciate how much risk Wall Street had assumed and how much damage its practices could inflict on ordinary Americans. “It is a learning process, no question about it, an evolution,” he said, adding that he now believed that investors and homeowners must be better protected. But he defended his record. “Wall Street and Main Street are tied together,” he said. “Often times, they are not in conflict. When they are in conflict, I tend to side with Main Street.” While Mr. Schumer has taken some pro-consumer stances, his critics fault him for tilting too far toward Wall Street in balancing his responsibilities. “He is serving the parochial interest of a very small group of financial people, bankers, investment bankers, fund managers, private equity firms, rather than serving the general public,” said John C. Bogle, the founder and former chairman of the Vanguard Group, the giant mutual fund house. “It has hurt the American investor first and the average American taxpayer.”
Navigating the Street
Brash and brainy (perfect SATs and double Harvard degrees), Chuck Schumer, now 58, learned early in his career how to talk to the financiers and chief executives who would become a vital constituency for him. Though he did not grow up in that world — his father owned a small exterminating business in Brooklyn — he quickly showed a keen grasp of complex financial issues. And, recognizing how central Wall Street is to the city’s economy, he committed himself to keeping it strong. “So much of what happens in this town is because we are the world financial center,” Mr. Schumer said at City Hall in January 2007. “It helps support our museums, it provides the tax base for schools and health care. If we lose being the financial center, the rest goes down the drain.” Soon after arriving in Congress in 1981, Mr. Schumer snared a seat on the Financial Services Committee, which he viewed as the best way to help New York. While reliably liberal on many social issues, he established himself as a pragmatic Democrat willing to align with powerful business interests. Mr. Schumer’s political rise — he moved in 1999 to the Senate, where he now has a party leadership post — paralleled Wall Street’s growing influence in Washington. As more Americans invested in the markets and financial institutions had a greater global reach, the industry came to rival the manufacturing sector as a driving force of the United States economy. And in the 1990s, Democratic officials developed close links to a new generation of Wall Street leaders — labeled “New Moneycrats” by one author — who shared a free-market agenda.
Mr. Schumer became a magnet for campaign donations from wealthy industry executives, including Jamie Dimon, now the chief executive of JPMorgan Chase; John J. Mack, the chief executive at Morgan Stanley; and Charles O. Prince III, the former chief executive of Citigroup. And he was not at all reluctant to ask them for more. Donors describe the Schumer pitch as unusually aggressive: He calls repeatedly to suggest breakfast or dinner, coffee or cocktails. He enlists intermediaries to invite prospects to events and recruits several senators to tag along. And he presses for the maximum contribution — “I need you to max out,” he is known to say — then follows up by asking that a donor’s spouse and four or five friends write checks, too. “He was probably the kid that sold the most candy in grade school,” said Julie Domenick, a Democratic lobbyist who has given to the senatorial campaign committee. “He is not shy.” Mr. Schumer, in the interview, acknowledged his full-speed-ahead approach. “Any job I do, I work hard at and I try to succeed at,” he said. As a result, he has collected over his career more in campaign contributions from the securities and investment industry than any of his peers in Congress, with the exception of Senator John F. Kerry of Massachusetts, the Democratic nominee for president in 2004, according to the Center for Responsive Politics, which analyzed federal data. (By 2005, Mr. Schumer had so much cash in reserve that he shut down his fund-raising efforts.)
In the last two-year election cycle, he helped raise more than $120 million for the Democrats’ Senate campaign committee, drawing nearly four times as much money from Wall Street as the National Republican Senatorial Committee. Donors often mention his “pro-business message” and record of addressing their concerns. John A. Kanas, the former chief executive of North Fork Bank, said: “He would solicit my opinion, listen to my advice and he appeared to take it into consideration.” Lee A. Pickard, a lawyer representing clients including the Bank of New York, whose employees have been significant donors to Mr. Schumer and other Senate Democrats, turned to Mr. Schumer last year to successfully beat back a regulatory initiative by the Securities and Exchange Commission. “If you get Chuck Schumer on your side, you are O.K.,” he said. That may help explain why some of the wealthiest financiers in Manhattan attended the Sept. 22 breakfast hosted by Mr. Kravis at his office overlooking Central Park. A Republican with long ties to the Bush family, Mr. Kravis spent much of this year trying to help Senator John McCain, the eventual Republican nominee for president.
But last year, Mr. Kravis went to Capitol Hill to oppose a proposal that would have more than doubled taxes for executives at hedge funds and private equity firms like his, costing them up to $25 billion over 10 years. Mr. Schumer had said publicly he would support the measure only if it also applied to executives at energy, venture capital and real estate partnerships, and he introduced alternative legislation that would do just that. His position was identical to that of lobbyists for a group paid by Mr. Kravis and other finance industry executives.
The Schumer bill, called a “poison pill” by the leading Republican advocate of the tax increase, went nowhere after provoking opposition from an array of industries. At the breakfast meeting, Mr. Schumer, accompanied by fellow Senate Democrats Kent Conrad of North Dakota and Maria Cantwell of Washington, assessed the political landscape as debate over the bailout was beginning. “On the right, you have those who view any government intervention as a threat to free markets,” one executive recalled Mr. Schumer explaining. “On the left, you have people who choose to view this as a government handout to the rich. In the middle, you have everyone who knows and takes the Treasury secretary seriously and recognizes that if something is not done here, we could be staring into an abyss.” Within days, the businessmen sent out checks to the Senate campaign committee.
‘Their Go-To Guy’
To Christopher Cox, the Republican chairman of the Securities and Exchange Commission, the need for action was obvious in the spring of 2006. His agency, which would later be criticized for a 2004 ruling that let banks pile up debt, had grown deeply concerned about lack of oversight of the nation’s largest credit-rating agencies, like Standard & Poor’s and Moody’s Investors Service. Linchpins of the financial system, their ratings are vital to safeguarding investors by evaluating the risks of bonds and other debt. After the collapse of Enron and WorldCom, which had repeatedly been awarded favorable ratings, the agencies had agreed to meet voluntary standards.
But the S.E.C. concluded that those agreements were inadequate, so Mr. Cox urged Congress to give his agency oversight powers. “Without additional legislative authority, the S.E.C. will not be able to regulate in a thoroughgoing way,” he told the Senate banking committee at an April 2006 hearing. The plan drew broad, bipartisan support on Capitol Hill. But executives at the credit-rating agencies soon began pressing Mr. Schumer and other allies in Congress to block the proposal or at least limit its reach, according to current and former employees. “They knew Schumer would support them,” said one former Moody’s executive, who asked not to be named because he still works in the industry. “He was their go-to guy,” the executive said. While the Manhattan-based agencies were not significant campaign donors to Mr. Schumer or the Senate campaign committee, their lobbyists and many of their clients were.
At that time, revenues for the agencies were skyrocketing. The housing market was robust, and Wall Street investment firms were paying the agencies to rate various mortgage-backed securities after first advising the firms — and also collecting fees — on how to package them to get high credit ratings. It was an obvious conflict of interest, financial experts now say. Despite their high ratings, many of those securities, based on risky loans, would prove worthless, roiling markets and threatening financial institutions worldwide. But Mr. Schumer argued that the companies voluntarily met requirements to eliminate such possible conflicts. He suggested that regulators simply encourage competition and disclosure of agencies’ ratings methods. There was perhaps no need for an intrusive new law, he said in the spring of 2006. “They’ve implemented their codes of conduct,” Mr. Schumer told Mr. Cox at a Senate hearing. “They’re making good-faith efforts.”
Mr. Schumer could not stop the legislation from passing, but he managed to get the measure amended so that it explicitly prohibited the S.E.C. from regulating the procedures and methods the agencies use to determine ratings. Richard Y. Roberts, a former S.E.C. commissioner, said the amendment Mr. Schumer won was troubling, adding that it could block the S.E.C. from punishing a credit-rating agency that consistently issued unreliable ratings. Sean J. Egan, managing director of a small Pennsylvania agency, Egan-Jones Ratings, and a proponent of the tougher regulations, was more blunt. “The bill was eviscerated,” he said. “You have stripped away basic safeguards for the investors.” At times in Congress, Mr. Schumer has teamed up with Republicans, like former Senator Phil Gramm of Texas, who aggressively promoted a free-market agenda. Mr. Schumer pushed for the Gramm-Leach-Bliley law, passed in November 1999, which knocked down the walls between investment banks and commercial banks and allowed financial supermarkets to flourish. The law also weakened regulatory oversight by fracturing it among different agencies.
A Champion of Wall Street Reaps Benefits
The New York Times by ERIC LIPTON and RAYMOND HERNANDEZ - December 14, 2008
“We are not going to rest until we change the rules, change the laws and make sure New York remains No. 1 for decades on into the future.”
— Senator Charles E. Schumer, referring to financial regulations, Jan. 22, 2007
WASHINGTON — As the financial crisis jolted the nation in September, Senator Charles E. Schumer was consumed. He traded telephone calls with bankers, then became one of the first officials to promote a Wall Street bailout. He spent hours in closed-door briefings and a weekend helping Congressional leaders nail down details of the $700 billion rescue package. The next day, Mr. Schumer appeared at a breakfast fund-raiser in Midtown Manhattan for Senate Democrats. Addressing Henry R. Kravis, the buyout billionaire, and about 20 other finance industry executives, he warned that a bailout would be a hard sell on Capitol Hill. Then he offered some reassurance: The businessmen could count on the Democrats to help steer the nation through the financial turmoil. “We are not going to be a bunch of crazy, anti-business liberals,” one executive said, summarizing Mr. Schumer’s remarks. “We are going to be effective, moderate advocates for sound economic policies, good responsible stewards you can trust.” The message clearly resonated. The next week, executives at firms represented at the breakfast sent in more than $135,000 in campaign donations.
Senator Schumer plays an unrivaled role in Washington as beneficiary, advocate and overseer of an industry that is his hometown’s most important business. An exceptional fund raiser — a “jackhammer,” someone who knows him says, for whom “ ‘no’ is the first step to ‘yes,’ ” — Mr. Schumer led the Democratic Senatorial Campaign Committee for the last four years, raising a record $240 million while increasing donations from Wall Street by 50 percent. That money helped the Democrats gain power in Congress, elevated Mr. Schumer’s standing in his party and increased the industry’s clout in the capital. But in building support, he has embraced the industry’s free-market, deregulatory agenda more than almost any other Democrat in Congress, even backing some measures now blamed for contributing to the financial crisis.
Other lawmakers took the lead on efforts like deregulating the complicated financial instruments called derivatives, which are widely seen as catalysts to the crisis. But Mr. Schumer, a member of the Banking and Finance Committees, repeatedly took other steps to protect industry players from government oversight and tougher rules, a review of his record shows. Over the years, he has also helped save financial institutions billions of dollars in higher taxes or fees. He succeeded in limiting efforts to regulate credit-rating agencies, for example, sponsored legislation that cut fees paid by Wall Street firms to finance government oversight, pushed to allow banks to have lower capital reserves and called for the revision of regulations to make corporations’ balance sheets more transparent.
“Since the financial meltdown, people have been asking, ‘Where was Congress? Why didn’t they see this coming? Why didn’t they provide better oversight?’ ” said Barbara Roper, director of investor protection for the Consumer Federation of America. “And the answer for some, including Senator Schumer, is that they were actually too busy pursuing a deregulatory agenda. Their focus was on how we have to lighten up regulation on Wall Street.” In recent weeks, Mr. Schumer has worked closely with the Bush administration to try to mitigate the damage to New York’s financial institutions. And as members of Congress and President-elect Barack Obama have called for new regulations to prevent future upheavals, Mr. Schumer has endorsed the need for reforms while still trying to make them palatable for Wall Street. Calling himself “an almost obsessive defender of New York jobs,” Mr. Schumer has often talked of the need to avoid excessive regulation of an industry that is increasingly threatened by global competition. At the same time, Mr. Schumer has cast himself as a populist who looks out for the middle class.
In an interview, Mr. Schumer said that until the recent market turmoil, he did not fully appreciate how much risk Wall Street had assumed and how much damage its practices could inflict on ordinary Americans. “It is a learning process, no question about it, an evolution,” he said, adding that he now believed that investors and homeowners must be better protected. But he defended his record. “Wall Street and Main Street are tied together,” he said. “Often times, they are not in conflict. When they are in conflict, I tend to side with Main Street.” While Mr. Schumer has taken some pro-consumer stances, his critics fault him for tilting too far toward Wall Street in balancing his responsibilities. “He is serving the parochial interest of a very small group of financial people, bankers, investment bankers, fund managers, private equity firms, rather than serving the general public,” said John C. Bogle, the founder and former chairman of the Vanguard Group, the giant mutual fund house. “It has hurt the American investor first and the average American taxpayer.”
Navigating the Street
Brash and brainy (perfect SATs and double Harvard degrees), Chuck Schumer, now 58, learned early in his career how to talk to the financiers and chief executives who would become a vital constituency for him. Though he did not grow up in that world — his father owned a small exterminating business in Brooklyn — he quickly showed a keen grasp of complex financial issues. And, recognizing how central Wall Street is to the city’s economy, he committed himself to keeping it strong. “So much of what happens in this town is because we are the world financial center,” Mr. Schumer said at City Hall in January 2007. “It helps support our museums, it provides the tax base for schools and health care. If we lose being the financial center, the rest goes down the drain.” Soon after arriving in Congress in 1981, Mr. Schumer snared a seat on the Financial Services Committee, which he viewed as the best way to help New York. While reliably liberal on many social issues, he established himself as a pragmatic Democrat willing to align with powerful business interests. Mr. Schumer’s political rise — he moved in 1999 to the Senate, where he now has a party leadership post — paralleled Wall Street’s growing influence in Washington. As more Americans invested in the markets and financial institutions had a greater global reach, the industry came to rival the manufacturing sector as a driving force of the United States economy. And in the 1990s, Democratic officials developed close links to a new generation of Wall Street leaders — labeled “New Moneycrats” by one author — who shared a free-market agenda.
Mr. Schumer became a magnet for campaign donations from wealthy industry executives, including Jamie Dimon, now the chief executive of JPMorgan Chase; John J. Mack, the chief executive at Morgan Stanley; and Charles O. Prince III, the former chief executive of Citigroup. And he was not at all reluctant to ask them for more. Donors describe the Schumer pitch as unusually aggressive: He calls repeatedly to suggest breakfast or dinner, coffee or cocktails. He enlists intermediaries to invite prospects to events and recruits several senators to tag along. And he presses for the maximum contribution — “I need you to max out,” he is known to say — then follows up by asking that a donor’s spouse and four or five friends write checks, too. “He was probably the kid that sold the most candy in grade school,” said Julie Domenick, a Democratic lobbyist who has given to the senatorial campaign committee. “He is not shy.” Mr. Schumer, in the interview, acknowledged his full-speed-ahead approach. “Any job I do, I work hard at and I try to succeed at,” he said. As a result, he has collected over his career more in campaign contributions from the securities and investment industry than any of his peers in Congress, with the exception of Senator John F. Kerry of Massachusetts, the Democratic nominee for president in 2004, according to the Center for Responsive Politics, which analyzed federal data. (By 2005, Mr. Schumer had so much cash in reserve that he shut down his fund-raising efforts.)
In the last two-year election cycle, he helped raise more than $120 million for the Democrats’ Senate campaign committee, drawing nearly four times as much money from Wall Street as the National Republican Senatorial Committee. Donors often mention his “pro-business message” and record of addressing their concerns. John A. Kanas, the former chief executive of North Fork Bank, said: “He would solicit my opinion, listen to my advice and he appeared to take it into consideration.” Lee A. Pickard, a lawyer representing clients including the Bank of New York, whose employees have been significant donors to Mr. Schumer and other Senate Democrats, turned to Mr. Schumer last year to successfully beat back a regulatory initiative by the Securities and Exchange Commission. “If you get Chuck Schumer on your side, you are O.K.,” he said. That may help explain why some of the wealthiest financiers in Manhattan attended the Sept. 22 breakfast hosted by Mr. Kravis at his office overlooking Central Park. A Republican with long ties to the Bush family, Mr. Kravis spent much of this year trying to help Senator John McCain, the eventual Republican nominee for president.
But last year, Mr. Kravis went to Capitol Hill to oppose a proposal that would have more than doubled taxes for executives at hedge funds and private equity firms like his, costing them up to $25 billion over 10 years. Mr. Schumer had said publicly he would support the measure only if it also applied to executives at energy, venture capital and real estate partnerships, and he introduced alternative legislation that would do just that. His position was identical to that of lobbyists for a group paid by Mr. Kravis and other finance industry executives.
The Schumer bill, called a “poison pill” by the leading Republican advocate of the tax increase, went nowhere after provoking opposition from an array of industries. At the breakfast meeting, Mr. Schumer, accompanied by fellow Senate Democrats Kent Conrad of North Dakota and Maria Cantwell of Washington, assessed the political landscape as debate over the bailout was beginning. “On the right, you have those who view any government intervention as a threat to free markets,” one executive recalled Mr. Schumer explaining. “On the left, you have people who choose to view this as a government handout to the rich. In the middle, you have everyone who knows and takes the Treasury secretary seriously and recognizes that if something is not done here, we could be staring into an abyss.” Within days, the businessmen sent out checks to the Senate campaign committee.
‘Their Go-To Guy’
To Christopher Cox, the Republican chairman of the Securities and Exchange Commission, the need for action was obvious in the spring of 2006. His agency, which would later be criticized for a 2004 ruling that let banks pile up debt, had grown deeply concerned about lack of oversight of the nation’s largest credit-rating agencies, like Standard & Poor’s and Moody’s Investors Service. Linchpins of the financial system, their ratings are vital to safeguarding investors by evaluating the risks of bonds and other debt. After the collapse of Enron and WorldCom, which had repeatedly been awarded favorable ratings, the agencies had agreed to meet voluntary standards.
But the S.E.C. concluded that those agreements were inadequate, so Mr. Cox urged Congress to give his agency oversight powers. “Without additional legislative authority, the S.E.C. will not be able to regulate in a thoroughgoing way,” he told the Senate banking committee at an April 2006 hearing. The plan drew broad, bipartisan support on Capitol Hill. But executives at the credit-rating agencies soon began pressing Mr. Schumer and other allies in Congress to block the proposal or at least limit its reach, according to current and former employees. “They knew Schumer would support them,” said one former Moody’s executive, who asked not to be named because he still works in the industry. “He was their go-to guy,” the executive said. While the Manhattan-based agencies were not significant campaign donors to Mr. Schumer or the Senate campaign committee, their lobbyists and many of their clients were.
At that time, revenues for the agencies were skyrocketing. The housing market was robust, and Wall Street investment firms were paying the agencies to rate various mortgage-backed securities after first advising the firms — and also collecting fees — on how to package them to get high credit ratings. It was an obvious conflict of interest, financial experts now say. Despite their high ratings, many of those securities, based on risky loans, would prove worthless, roiling markets and threatening financial institutions worldwide. But Mr. Schumer argued that the companies voluntarily met requirements to eliminate such possible conflicts. He suggested that regulators simply encourage competition and disclosure of agencies’ ratings methods. There was perhaps no need for an intrusive new law, he said in the spring of 2006. “They’ve implemented their codes of conduct,” Mr. Schumer told Mr. Cox at a Senate hearing. “They’re making good-faith efforts.”
Mr. Schumer could not stop the legislation from passing, but he managed to get the measure amended so that it explicitly prohibited the S.E.C. from regulating the procedures and methods the agencies use to determine ratings. Richard Y. Roberts, a former S.E.C. commissioner, said the amendment Mr. Schumer won was troubling, adding that it could block the S.E.C. from punishing a credit-rating agency that consistently issued unreliable ratings. Sean J. Egan, managing director of a small Pennsylvania agency, Egan-Jones Ratings, and a proponent of the tougher regulations, was more blunt. “The bill was eviscerated,” he said. “You have stripped away basic safeguards for the investors.” At times in Congress, Mr. Schumer has teamed up with Republicans, like former Senator Phil Gramm of Texas, who aggressively promoted a free-market agenda. Mr. Schumer pushed for the Gramm-Leach-Bliley law, passed in November 1999, which knocked down the walls between investment banks and commercial banks and allowed financial supermarkets to flourish. The law also weakened regulatory oversight by fracturing it among different agencies.
In 2001, Mr. Schumer and Mr. Gramm jointly proposed legislation that would cut fees paid by Wall Street firms and others to the S.E.C. in half, or by $14 billion, over the coming decade. Their proposal included some extra money for salaries of commission employees. But with trading volumes high, Mr. Schumer argued, the government was collecting far too much money from those fees and using it to subsidize other government operations. “It is a tax, an unintended but very real tax, on all sorts of investors,” he said at the time. But some Democrats, pointing to the recent corporate accounting scandals, argued that the S.E.C. budget should be doubled or tripled so it could more effectively combat fraud that could lead to a major economic collapse. “We are making a tragic mistake,” Representative John J. LaFalce, Democrat of New York, warned in arguing for a much smaller reduction in S.E.C. fees. “We give the industry what it asks for unwittingly.” Mr. Schumer’s argument prevailed, and the fee cut passed overwhelmingly. Some consumer advocates laud Mr. Schumer for his stances on consumer finance issues, including combating high interest rates on credit cards, challenging predatory lending practices and advocating legislation to allow bankruptcy courts to force banks to accept lower interest rates so that families facing foreclosure could stay in their homes. “He is a strong advocate for families and homeowners to make sure they are not taken advantage of,” said Eric Stein, senior vice president at the Center for Responsible Lending, a nonprofit group that combats abusive lending practices.
But those efforts mostly affect commercial banks and mortgage lending operations around the country and in New York, not the securities and investment businesses in Manhattan. “He built his career in large part based on his ties to Wall Street,” said Christopher Whalen, managing director of Institutional Risk Analytics, which advises investors on the regulatory system. “And he has given the Street what it wanted.” Mr. Schumer, though, has a surprising defender in Alfonse M. D’Amato, the onetime Republican senator he ousted. “Don’t take someone to task simply because a group has supported him politically and now he supports legislation that helps them,” Mr. D’Amato said. “The question is, is the legislation good or bad? With Chuck, it is clear he tries to do what is best for the state and city as a whole.”
Doling Out Criticism
For Mr. Schumer, Wall Street’s crisis has been especially painful to watch. “It is horrible, just awful,” he said in the interview. “And it affects everybody.” And he has already begun identifying those he faults for the devastation. Subprime lenders top the list, but he has lashed out with particular fury at the credit-rating industry, which he once defended but now says misled him and the investing public. “The work at these ratings firms was severely compromised, and the companies were some of the biggest contributors to the current financial crisis,” Mr. Schumer said earlier this month in response to an S.E.C. move that same day to tighten control over the agencies. “The lesson from this is that the three major firms’ stranglehold on the ratings industry must be loosened.” Mr. Schumer has also blamed the Bush administration for its push to ease rules. “After eight years of deregulatory zeal by the Bush administration, an attitude of ‘the market can do no wrong’ has led it down a short path to economic recession,” Mr. Schumer said on the Senate floor in September. He has not assigned responsibility to himself or fellow Democrats, saying he had no way of knowing of the misdeeds going on on Wall Street. “I wish I was omniscient,” he said. “I’m not.”
Since the economy began to fall apart, Mr. Schumer has joined others in calling for new regulations to combat abuses. He has proposed tougher rules for credit-rating agencies, even changing the way they are paid so they are compensated by investors, not by the companies they are evaluating. He has said he is open to imposing regulations on hedge funds, which currently operate with limited government oversight. And while he previously succeeded in limiting consumers’ rights to sue financial institutions, he says he now favors offering that remedy in certain circumstances. But he is also warning that any new rules must be carefully crafted so they don’t impose excessive burdens. “You need to provide safety and security to investors in order to attract them to the markets,” Mr. Schumer told Wall Street executives in a speech last month. “On the other hand, you must be sure that regulation does not snuff out the entrepreneurial vigor and financial innovation that drives economic growth and makes financial institutions successful and profitable.” And he is seeking some regulatory concessions for some Wall Street supporters. He has proposed, for example, that the government lift a cap on how big the giant banks can get, an issue important to institutions like JPMorgan Chase. Lifting the cap would allow the biggest banks to absorb weaker ones, but it would also limit competition and increase the risks to the financial system posed by failure of one of the giants.
Mr. Schumer is also calling for the adoption of European-style regulations that impose far fewer rules and instead require banks to meet certain performance standards, a system institutions generally prefer but some banking experts criticize as not rigorous enough. In recent weeks, Mr. Schumer has listened to Wall Street leaders for advice on what should come next. At a dinner at Morgan Stanley’s headquarters the night before the presidential election, John Mack, the chief executive, and a dozen top hedge fund officials talked with Mr. Schumer about possible changes affecting their industry. “People feel like he is going to be fair and reasonable,” said one Morgan Stanley executive, who asked not to be identified because the session was private. “He is mindful that this is a very big part of his constituency — Wall Street.” Griff Palmer contributed reporting from New York.
But those efforts mostly affect commercial banks and mortgage lending operations around the country and in New York, not the securities and investment businesses in Manhattan. “He built his career in large part based on his ties to Wall Street,” said Christopher Whalen, managing director of Institutional Risk Analytics, which advises investors on the regulatory system. “And he has given the Street what it wanted.” Mr. Schumer, though, has a surprising defender in Alfonse M. D’Amato, the onetime Republican senator he ousted. “Don’t take someone to task simply because a group has supported him politically and now he supports legislation that helps them,” Mr. D’Amato said. “The question is, is the legislation good or bad? With Chuck, it is clear he tries to do what is best for the state and city as a whole.”
Doling Out Criticism
For Mr. Schumer, Wall Street’s crisis has been especially painful to watch. “It is horrible, just awful,” he said in the interview. “And it affects everybody.” And he has already begun identifying those he faults for the devastation. Subprime lenders top the list, but he has lashed out with particular fury at the credit-rating industry, which he once defended but now says misled him and the investing public. “The work at these ratings firms was severely compromised, and the companies were some of the biggest contributors to the current financial crisis,” Mr. Schumer said earlier this month in response to an S.E.C. move that same day to tighten control over the agencies. “The lesson from this is that the three major firms’ stranglehold on the ratings industry must be loosened.” Mr. Schumer has also blamed the Bush administration for its push to ease rules. “After eight years of deregulatory zeal by the Bush administration, an attitude of ‘the market can do no wrong’ has led it down a short path to economic recession,” Mr. Schumer said on the Senate floor in September. He has not assigned responsibility to himself or fellow Democrats, saying he had no way of knowing of the misdeeds going on on Wall Street. “I wish I was omniscient,” he said. “I’m not.”
Since the economy began to fall apart, Mr. Schumer has joined others in calling for new regulations to combat abuses. He has proposed tougher rules for credit-rating agencies, even changing the way they are paid so they are compensated by investors, not by the companies they are evaluating. He has said he is open to imposing regulations on hedge funds, which currently operate with limited government oversight. And while he previously succeeded in limiting consumers’ rights to sue financial institutions, he says he now favors offering that remedy in certain circumstances. But he is also warning that any new rules must be carefully crafted so they don’t impose excessive burdens. “You need to provide safety and security to investors in order to attract them to the markets,” Mr. Schumer told Wall Street executives in a speech last month. “On the other hand, you must be sure that regulation does not snuff out the entrepreneurial vigor and financial innovation that drives economic growth and makes financial institutions successful and profitable.” And he is seeking some regulatory concessions for some Wall Street supporters. He has proposed, for example, that the government lift a cap on how big the giant banks can get, an issue important to institutions like JPMorgan Chase. Lifting the cap would allow the biggest banks to absorb weaker ones, but it would also limit competition and increase the risks to the financial system posed by failure of one of the giants.
Mr. Schumer is also calling for the adoption of European-style regulations that impose far fewer rules and instead require banks to meet certain performance standards, a system institutions generally prefer but some banking experts criticize as not rigorous enough. In recent weeks, Mr. Schumer has listened to Wall Street leaders for advice on what should come next. At a dinner at Morgan Stanley’s headquarters the night before the presidential election, John Mack, the chief executive, and a dozen top hedge fund officials talked with Mr. Schumer about possible changes affecting their industry. “People feel like he is going to be fair and reasonable,” said one Morgan Stanley executive, who asked not to be identified because the session was private. “He is mindful that this is a very big part of his constituency — Wall Street.” Griff Palmer contributed reporting from New York.
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