Wednesday, February 4, 2009

Madoff Investigation in House Subcommittee

As I intimated earlier, whistle-blower Harry Markopolos not only testified that the SEC was incompetent as a regulatory body, but that Madoff's client list included members of organized crime, including the Russian mob and the Latin American drug cartels.

Perhaps that explains why Madoff is wearing a bullet-proof vest, and why his family has body guards. It's not so much they are flight risks--it's for their own protection.

This won't end here. UBS and Credit Suisse clients were not only big investors with Madoff, but they also played the carry trade, where they borrowed money at 0% interest from the Japanese and invested in Icelandic bonds which paid double-digit interest rates. Investors in this trade on Iceland lost everything when Iceland's financial system collapsed last November, much like investors with Madoff have lost everything.

When that carry trade reversed itself and imploded, bankrupting Iceland banks and its economy with it, investors got murdered (no pun intended). Not all their clients are crooks, but people with means and something to hide invest in Swiss banking giants UBS and Credit Suisse, as well as other private Swiss banks.

US Government authorities have been increasing their pressure on UBS to expose their clients' identities. According to Swiss banking laws in place for centuries, it is illegal for banks to "out" their clients. The pressure has intensified with the US government attempting to extradict Raoul Weil from Switzerland, where he is in hiding. Weil, the former UBS bank chair and CEO of global wealth management in the US, has been indicted on charges relating to tax evasion. He is accused of helping 19,000 US taxpayers hide nearly $20 billion in assets from the IRS.

UBS sidestepped their own banking laws by not exposing the identities of their private banking clients, but by returning client funds, or diverting funds to their chosen destinations. Of course, this doesn't expose their identities, but it does create a paper trail, which the IRS can now prosecute against. 19,000 Americans are about to be felonious tax evaders.

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