’92 Ponzi case missed signals about Madoff

Seventeen years ago,federal investigators questioned for the first time whether Bernard L. Madoff was connected to a Ponzi scheme.

Written by New York Times | New York | Published:January 18, 2009 11:41 pm

Seventeen years ago,federal investigators questioned for the first time whether Bernard L. Madoff was connected to a Ponzi scheme. Their inquiry centered on Frank Avellino,an accountant who had been funneling investors to Madoff since the 1960s.

The investigators did not get far. Within days,Avellino agreed to return to investors the money he and his partner had raised and to pay a small fine to the Securities and Exchange Commission. The inquiry petered out,and Avellino — represented in the case by Ira Lee Sorkin,the same lawyer who now represents Madoff — kept sending money to Madoff. Now questions have again arisen about the ties between Madoff and Avellino. A lawsuit claims that Avellino warned his housekeeper,who had invested with him,that her money was lost 10 days before Madoff’s fraud became public.

Through his new lawyer,a former federal prosecutor,Avellino declined to comment on his relationship with Madoff.

But archived court documents from the 1992 case reveal numerous red flags that raise questions about the SEC’s failure to examine Avellino and Madoff long before Madoff’s apparent Ponzi scheme spread worldwide. The documents show that Avellino and Michael Bienes,his business partner,kept almost no records at Avellino & Bienes,a firm that oversaw $440 million.

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