Legal News

Weekend at Bernie?s: Did the Sons Know? Should They Have Known?

By Dan Slater

There’s a chance, of course, that for the three-plus decades Bernie Madoff is believed to have carried out his alleged Ponzi scheme, no one in his family — his sons, his wife, his brother, his niece — knew what he was up to. If that’s the case, it’s a pretty incredible story.

Mark and Andrew, Bernie Madoff’s offspring who turned him in, have said that they knew nothing about the alleged fraud in their father’s investment business. And neither has been implicated by prosecutors. But the sons, both of whom worked at the brokerage arm of Madoff’s firm, interacted with some who worked in the Madoff investment operation, gave their father some of their own money to manage and defended their father’s investment operation against critics.

A Saturday story in the WSJ notes that, while no evidence has emerged that the sons knew of the alleged scam, some have raised questions about whether, because of their roles at the trading operation, the two knew or should have known that the investment operation was allegedly improperly paying exiting investors with new investors’ money.

Their lawyer, Paul Weiss’s Martin Flumenbaum, told the Journal that Mark (pictured, left) and Andrew (right) didn’t know about the alleged fraud until their father told them about it a day before the arrest and the pair reported it to authorities. The two employees were “victims of this scheme” with “no access to overall financial information about their father’s firm,” Flumenbaum told the Journal. “Their compensation was tied to the proprietary-trading and market-making businesses,” which “have now been destroyed.”

For more on Madoff, see this Investment News story on whether Finra, the Financial Industry Regulatory Authority, had jurisdiction over the Madoff firm. During a hearing this month before the Senate Banking Committee on her nomination to head the SEC, Finra’s CEO, Mary Schapiro, repeatedly said that the self-regulatory organization had no jurisdiction over Madoff’s investment advisory firm.

Full post as published by Law Blog - WSJ.com on January 26, 2009 (boomark / email).