Madoff’s Brother Said to Audit Firm’s Investments, Tipster Says

Madoff’s Brother Said to Audit Firm’s Investments, Tipster Says

By Linda Sandler

Feb. 4 (Bloomberg) -- Bernard Madoff rejected an investment fund demand for an outside audit of his performance, saying only his brother Peter was allowed to do that “for reasons of secrecy,” a certified fraud examiner testified to Congress.

Harry Markopolos, who sought for nine years to persuade U.S. regulators that Bernard Madoff was running a Ponzi scheme, told U.S. lawmakers today that “a fund of funds representing Arab money” had been told by Madoff that it could not have an international accounting firm verify his performance. The tip was contained in documents released as part of Markopolos’s testimony to a House Financial Services Committee panel.

“Amazingly, this London-based fund of funds invested over $200 million of their Arab client’s money anyway because the low volatility of returns was so attractive,” Markopolos told the SEC in 2000, according to a summary of his presentation, which listed the allegation among “hearsay” tips he’d passed on.

Markopolos summarized the allegation in a paragraph titled: “Madoff does not allow outside performance audits.”

Peter Madoff, chief compliance officer of the Bernard L. Madoff Investment Securities LLC brokerage, hasn’t been charged with any wrongdoing. His brother was accused in a federal criminal complaint Dec. 11 with running a $50 billion Ponzi scheme that used new investor money to pay off older customers.

Peter Madoff’s lawyer, John R. Wing, didn’t immediately respond to requests for comment by phone and e-mail. He previously said his client is working with Irving Picard, a trustee for the Securities Investor Protection Corp., to save assets of Madoff investors.

Massachusetts officials, investigating how many state residents invested with Madoff’s firm, subpoenaed documents from Peter Madoff in December, according to a court filing.

The Madoff firm’s official auditing firm was Friehling & Horowitz, a 3-person operation based in a 550-square foot space in New City, a northern suburb of New York City in Rockland County.

The SIPC case, which involves liquidating Madoff’s firm, is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net.

Last Updated: February 4, 2009 15:58 EST