A Digression for Bernie M.

A Digression for Bernie M.

Convicted swindler Bernie Madoff has relevance to the small and midcap worlds because this is where he lived mostly - in the penny stock world of small cap stocks. He was Chairman of the Nasdaq in its early years long before Microsoft was a household name. Apparently the narcissism never stops as BM has given an interview where I can imagine his devilish smile as he suggests that major banks and hedge funds had to know about his incredibly successful Ponzi scheme (of course he doesn't name which ones). Forget that the SEC had only a minimal reaction to at least 6 formal complaints, never issuing subpoenas or showing at his offices unannounced but rather simply requesting information so he could fabricate whatever he needed to.

But I have a few questions. His wife (he and she met at New York's Far Rockaway High School, my parents' alma mater), sons and niece, who were all very involved in the business. Bernie says the banks must have known but not his kin who were there every day? Are they using the defense the Clinton Administration used to cover up the travel office scandal - this all happened not because of some evil scheme but because we were simply inept? So said our President, a Rhodes Scholar, and his Yale Law wife, who was personally involved in the situation (sorry always fun to travel back to the 90s).  So was Bernie's family that dumb?  I feel bad for the suicide of son Mark, but if they didn't know, it seems to me they should have.

It is apparently true that a number of banks, including JP Morgan, were seriously questioning things internally for months before the scandal broke, and yet did nothing to reduce their exposure or that of their clients to the scam. Where does Mets owner Fred Wilpon fit in? Not well, apparently. The Madoff trustee is suing him for over $1 billion. Not sure about that case though - is "he should have known" enough to strip a guy of the return of money he invested when it's his own money? Let's also hope it doesn't further damage the already beleaguered Mets!

The move from 12.5 cent spreads on every OTC trade to pennies is what killed Madoff's apparently otherwise then legitimate business. Before the change he was making a penny a share as a broker and living it up. Books on the subject suggest this is when the swindle began, intended of course only to be short term with everyone getting their money back. But I am only a frustrated armchair analyst of Mr. M (thankfully not personally effected, but too many folks I know were). I hope the trustee's success in recovering funds for the victims continues, and that the SEC does not abandon its serious review of why their normally determined, vigilant and observant enforcement staff missed this one.

For additional insights on reverse mergers, SPACs, other alternatives to traditional initial public offerings, the small and microcap markets and the economy, visit the Reverse Merger and SPAC Blog  by David N. Feldman, Esq., Partner of Richardson & Patel LLP.