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Bernard Madoff Ponzi Scheme: SEC Files More Civil Charges

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The Securities and Exchange Commission (SEC) has filed two civil securities fraud complaints against a brokerage and four individuals who allegedly helped Bernard Madoff raise money from investors.  Once complaint names California-based investment adviser Stanley Chais – who ran three feeder funds that funneled money to Madoff – with securities fraud.  Another names Cohmad Securities Corp.,  its chairman Maurice J. Cohn, chief operating officer Marcia B. Cohn, and registered representative Robert M. Jaffe.

Both SEC complaints seek injunctions, financial penalties and court orders requiring Cohmad, the Cohns, Jaffe and Chais to disgorge their allegedly ill-gotten gains. Both complaints were filed in U.S. District Court for the Southern District of New York.

The SEC’s complaint against Stanley Chais alleges that for the last 40 years, he has held himself out as an “investing wizard” who managed hundreds of millions of dollars of investor funds in three partnerships, the Lambeth, Popham and Brighton Companies. In reality,  the SEC claims Chais was an unsophisticated investor who did nothing more than turn all of the Funds’ assets over to Madoff, while charging the Funds more than $250 million in fees for his purported “services.” Although Madoff managed all of the funds’ assets, many of the his investors had never heard of Madoff before the collapse of his Ponzi scheme, and had not known that Chais invested with Madoff until Chais informed them after Madoff’s arrest.  The SEC also alleges that Chais ignored red flags indicating that Madoff’s reported returns were false.

The Cohmad complaint claims the defendents actively marketed investment opportunities with Madoff while knowingly or recklessly disregarding facts indicating that Madoff was operating a fraud.  The complaint alleges that while bringing investors to Madoff, the Cohmad defendants ignored and even participated in many suspicious practices that the SEC says clearly indicated Madoff was engaged in fraud.
Madoff pleaded guilty to 11 criminal charges last March, including securities fraud, wire fraud, mail fraud, money laundering and making a false filing with the U.S. Securities and Exchange Commission. At the time of his plea, Madoff publicly admitted he had run a Ponzi scheme.

Madoff is being detained at the Manhattan Correctional Center in New York City, where he is awaiting sentencing scheduled for later this month. He faces as much as 150 years in prison.  However, it was recently learned that Madoff’s defense attorney has written the judge scheduled for the sentencing, urging a 12-year-sentence.  According to the Associated Press, attorney Ira Sorkin wrote that such a sentence would acknowledge Madoff’s voluntary surrender late last year.

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