SEC “Office of One” Ignores Massive Fraud

Some of you may recall previous posts regarding the SEC’s office of risk management that contained only one staffer for many years.  Well, according to the Wall Street Journal, the one person office was notified earlier this year about Bernard Madoff’s massive Ponzi scheme and did nothing to investigate.  The article details the many attempts of Harry Markopolos to alert the SEC to the fraud.  Mr. Markopolos final attempt was made to the head of risk management at the SEC, Jonathan Sokobin.   Here is the account of that attempt:

Early this year, Mr. Markopolos made one last major effort after receiving an email from Jonathan Sokobin, an official in the SEC’s Washington, D.C., office whose job was to search for big market risks. Mr. Sokobin had heard about Mr. Markopolos and asked him to give him a call, according to an email exchange between them.  

Mr. Markopolos also sent Mr. Sokobin an email — with the stark subject line “$30 billion Equity Derivative Hedge Fund Fraud in New York” — saying an unnamed Wall Street pro recently pulled money from Mr. Madoff’s firm after trying to confirm trades supposedly done in his account, but discovering that no such trades had been made.  It was his last try.  He never heard back about his allegations regarding Mr. Madoff.  “I felt pretty low,” Mr. Markopolos recalls.  Mr. Sokobin, through an SEC spokesman, declined to comment.

To Mr. Sokobin’s credit, he did reach out to Mr. Markopolos to investigate.  However, given the size of his office, it is not surprising he could not act quicker to bring the fraud to an end.  Greater evidence is not needed to justify more investment in risk management.


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One Response to SEC “Office of One” Ignores Massive Fraud


    It was no surprise to me that Wall St. would eventually implode. It also came as no shock to be that a International CPA firm would collapse.

    My name is William V Marino and I am a CPA. I brought a lawsuit in 1980 regarding my wrongful dismissal from NY Life Insurance. I was terminated with 3 months pay and told that the second VP in the tax department, my supervisor, would make up any story I wanted. The reason – I had discovered that NY Life Insurance Co was filing an erroneous tax return and the second VP saw me talking to an IRS agent who had offices in NY Life’s building. My case did not go to court since the NY courts adhered to the EMPLOYMENT AT WILL DOCTRINE.

    I was dismissed and brought my analysis to the attention of the IRS who then brought a lawsuit on the information I provided and won their case in the tax courts. I sent a letter to the President of the AICPA requesting that my professional association stand behind CPAs when they are terminated for following the professional code of ethics and the answer I got back in a letter that I still have is that if the AICPA would seek to protect CPAs when they are terminated for following the code of ethics of the profession – NO ONE IN INDUSTRY WOULD SEEK TO HIRE THEM!
    I knew then that CPA firmS would eventually take a hit. Now CPAs in industry can bring a lawsuit but it had to take the downfall of Arthur Andersen and Enron for the bought and paid for political representatives to see the light.

    I gained valuable knowledge as to how Wall St works from my lawsuit against Merrill Lynch that was arbitrated before the NASD. In 1986, Newsday published a story of my complaint against Merrill Lynch titled “Hot Tip was Bum Steer.” That story depicted me as some fool who was looking for a hot tip when that was far from the truth. In fact, Merrill Lynch herded its 5000 customers nationwide, in which I was one of them, into Ranger Oil in December 1980 when it had knowledge of a material negative unknown that couldn’t be quantified that would negatively impact Ranger Oil’s earnings. Merrill Lynch invested the money of pension accounts and gifts to minors in Ranger Oil. They did this when their key accounts, those who invested over 100,000 with Merrill Lynch, and their brokers were selling out their positions. Merrill Lynch also published an internal document that was not distributed to their customers and that was rated “HIGH RISK.” I also discovered from gaining access to Merrill Lynch’s trading run and its customer stock records that instead of 1,000,000 shares of Ranger Oil recorded by the American Stock Exchange as purchased my Merrill Lynch, there were 2.5 million shares. Instead of 400,000 as sold, there were one million shares. Of the one million shares, 400,000 were shorts. The shares that were being sold were from key accounts and brokers trading through Merrill Lynch. One broker in the Garden City office of Merrill Lynch had an investment of 800,000 dollars in Ranger Oil. He sold out his position before the market price declined while getting his customers into it. One of his customers was a 68 year old widow who use to work for Merrill Lynch in the wire room. She lost half of her savings.

    The NASD arbitration was the most corrupt system that could have been devised by Wall St. I wrote to the SEC many times and received an internal memo written by Ira Sorkin to Chairman Shad with a copy to Senator D’Amato that said – Marino has a substantive complaint but decided that the SEC had budgetary constraints and considered the fact that Merrill Lynch did their own extensive internal investigation. Merrill Lynch did their investigation alright – they destroyed their work papers that projected a 70 percent increase in earnings in 1981 for Ranger Oil when the actual earnings was a 30 percent drop from 1980 actual earnings.

    I won my lawsuit in 1988 and was contacted by the SEC for input in drafting the 1988 Congressional Arbitration Reform Bill. I drafted a list of recommendations one of which requested that class action lawsuits should be entertained and that the NASD arbitrators should not be representatives from industry as was in my case. Of the 5 arbitrators that heard my case, 2 were lawyers from brokerage firms. Having Mr. Franko Esq form Pershing and Co (that also invested in Ranger Oil), was like having another Merrill Lynch attorney defending them.

    After I won my case in 1988, I reached out to the SEC and offered to sit down with them to review my findings. I was told it was too old to look into. I knew then that there would be financial hardship of monumental proportions. There was and is no doubt in my mind that America’s financial system has been and continues to be criminalized. The mission of our government representatives has been and continues to be the preservation of the public’s confidence in the marketplace even if it means the cover-up of major financial frauds.

    How is it possible that the former Chairman Merrill Lynch and the Chief of Staff of the Whitehouse – Don Regan – stated before the Senate Finance Committee in 1988, that the SEC was not the watch dog but the lap dog of Wall St and nobody from the Media paid any attention? How is it possible that Ira Sorkin who now represents Wall St as their defense attorney stated to the Press in 1986 that self regulation never worked and nobody from the Media paid any attention?

    I appeared on Lou Dobbs Money Line in July 1990 when the topic was investors concerns about the stock market. I also spoke on a Texas radio talk show that year. I traveled down to Washington DC and met with Reid Stuntz the then counsel for the Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce. I also met with Michael Burnett, the then Assistant Director of the U.S. General Accounting Office. I tried many times to shed light on the calamity that would befall America but unfortunately for our country, the people that control Wall St. have only their interest at heart. Their interest often conflicts with the interest of the average American that has and will continue to bring untold suffering for a majority of Americans.

    I submitted a series of letters to the SEC in August of 1998 that was published on their web site. My submission was in response to Arthur Levitt’s, the former Chairman of the SEC, requests that CPAs should do more to uncover fraud. I responded under the title “You Have Got To Be Kidding.” In my letter I stated that the stock market would soon crash. It was obvious to me that Wall St was pumping the market in technology the same way it was doing in the last few years with Real Estate. In 2002, I wrote a letter that I circulated by e:mail to various media outlets titled “Around and around we go who will do something about white collar crime, nobody knows.”

    The Peter Peterson Foundation has been attempting to draw attention to the financial crisis that is looming. The debt our nation, states, cities, corporations and individuals have assumed is not sustainable. It is not unfathomable to consider the prospect of America going the way of the Weimar Republic. Remember, when wealth is concentrated in the hands of a few – Democracy is at risk. The Federal Reserve Bank is in the hands of private bankers who continue to print money with no thought as to the economic upheaval it will create. Some Congressman such as Ron Paul have been speaking the truth and have called for the demise of the Federal Reserve Bank as have Jim Rogers.

    Read the attached files.

    William V Marino, CPA, MBA

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