Another intriguing winner, according to a civil fraud complaint filed by the SEC this week (June 22nd), is Stanley Chais. Chais, an unregistered investment advisor with a long roster of wealthy clients in Beverly Hills, Hollywood and elsewhere, also knew Madoff for some 30 years. He was indeed in such close contact with Madoff that his name came up first on Madoff’s office speed dial. Chais had, or controlled, 60 separate Madoff accounts. Some were for himself, his family members, and his foundations; other were for outside investors he had consolidated into 3 feeder funds The SEC states in the complaint , that "unlike the thousands of investors who lost money in the Madoff scheme, Madoff’s enterprise ultimately proved to be extremely profitable for Chais." The SEC says that Chais, along with his family and foundations, "withdrew approximately a half billion dollars more than they had invested with Madoff." As for the outside investors, Chais levied a heavy performance fee of 25% on their putative profits each year based on Madoff’s performance. which, according the SEC complaint, amounted to $269.7 million. Chais also had impressive access to Madoff, according to the separate complaint filed by the Trustee in bankruptcy court, that alleges that Chais was able to specify the size of the "profits" and "losses" in his different accounts "presumably for tax purposes." In all the entities under his control– which includes his fees on :profits", the Trustee calculates Chais withdrew $1.2 billion.
A third winner, according to another SEC complaint filed this week (June 22nd), is Robert Jaffe. A well-know investor in Palm Beach and Boston, Jaffe is a son-in-law of Carl Shapiro, a 95 year old multi-millionaire philanthropist, who was one of Madoff’s earliest financial backers in 1960. He has known Madoff for over 30 years and his brokerage firm Cohmad, which was partially owned by Madoff, operated out of Madoff’s offices in the Lipstick building. The SEC alleges in the complaint it filed against Jaffe and other members of Cohmad, that Jaffe received hidden side payments directly Madoff of over $100 million for recruiting more than $1 billion of investments from his social circles in Florida and elsewhere for Cohmad (which put 99.7% of its investments in Madoff’s scheme). According to the SEC, Madoff channeled this money to Jaffe by crediting his account with at least three times the "profits" that he was crediting to Cohmad investors, and then allowing Jaffe to redeem between 1996 and 2008 over $150 million. Jaffe also made, according to the SEC, "specific requests" to Madoff for "a specific dollar amount of gains for a given period," including ones for "long term gains." A Madoff employee "would then insert a backdated trade going back days, weeks or even months that afforded Jaffe's account that particular gain." By transforming short term gains into capital gains, these "trades" may have helped reduce Jaffe’s tax bill on the $150 million he withdrew.
Picower, Chais, and Jaffe all deny via their lawyers that they had any knowledge of the Ponzi scheme. If so, they presumably believed that Madoff had been gifted with a Midas touch– indeed one so deft it could produce the precise results for which they wished . Was this willful blindness? Financiers’ capacity for self-deception should never be underestimated, especially when it serves to rationalize hundreds of millions of dollars in profits. But to depict such major redeemers as victims of Madoff’s Ponzi scheme stands on its head Balzac’s dictum that "Behind every great fortune is a crime."
Labels: Picower Chais Madoff Jaffe