Cuomo provides CDN regulators another teaching moment

Enough of the inside VC baseball. Back to your regularly-scheduled programming.

New York AG Andrew Cuomo is on the Madoff warpath once again. Having announced his interest in charging Fairfield Greenwich (see prior post “Madoff debacle may pressure Fund of Funds concept part 2” December 22-08), he’s now after New York financier Ezra Merkin. According to the NYT, the allegation is that Mr. Merkin “improperly collected more than $470 million in fees from his clients, who included more than a dozen nonprofit organizations, by “falsely claiming he actively managed their funds” when in fact he simply handed their money over to Mr. Madoff, without adequate investigation or oversight.”

Nothing in the world of finance has ever come close to Madoff, but I can’t help but think about Portus, ABCP, and the 2005 mutual fund timing scandal. Institutions paid fines, or settled with investors, but that was it.

AG Cuomo dinged a bunch of banks (inc. Canadians) for big fines on the Auction Rate Securites mess, but still nothing happened here at home (see prior post “Citigroup fined $100MM for ARS, while ABCP fiasco remains untouched” August 7-08).

As for charges regarding the multi-billion ABCP fiasco, the IDA maintains that they are on top of it according to this undated advisory on their website (which has been posted since at least August 2008):

“our enforcement department is reviewing the complaints which we have received to date. We are reviewing these complaints with regard to a number of issues including, but not limited to, determining if individual clients were provided with adequate and appropriate information about the risk or the suitability of the product which was sold to them and if the firm undertook appropriate due diligence in its product review. Our complaint investigation process includes collecting and reviewing all relevant documentation and conducting interviews with witnesses and others. Based on our findings, we will be able to determine whether regulatory disciplinary action is warranted.

The IDA, among other parties, has been very interested in the development of the Crawford Committee Pan Canadian restructuring initiative in particular as it relates to ABCP note holders who are clients of IDA-regulated firms. We have reviewed the plan of compromise filed with the court with regard to the scope of the release. It is our understanding at this time that the terms and conditions of the proposal will not hinder the IDA’s ability to exercise its regulatory responsibilities as outlined above.”

We all wait. Patiently (see prior post “Cuomo takes action against Citigroup, while ABCP buyers wait in vain” August 2-08).

When did the Madoff first hit the press? December 2008. And AG Cuomo is already on the 3rd tier level of players.

Asset Backed Commercial Paper? Summer of 2007. And investors have yet to hear of a single iota of Canadian enforcement action.

The self-regulating crowd has had 18 months to stew. Seems like enough time to review the files, check the tapes, and interview some brokers and their retail clients.

Here’s a chance for the RCMP’s IMET to make a name for themselves. ABCP was a national event. Is the time not ripe for some national enforcement?

MRM