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Few believe that Bernard Madoff acted alone in building and maintaining his $65 billion scheme. Now some of that dirty laundry is getting aired. On Monday, a brokerage firm and four individuals connected to Ponzi schemer Madoff were charged by the Securities and Exchange Commission with securities fraud. The SEC filed civil fraud charges in federal court in Manhattan against brokerage firm Cohmad Securities Corp., its co-founder Maurice Cohn, and Cohmad executives Marcia Cohn (Maurice's daughter and the firm's chief operating officer) and Robert Jaffe (a Cohmad broker and the son-in-law of Carl Shapiro, the 95-year-old Palm Beach, Fla., philanthropist who was one of Madoff's earliest and largest investors). The SEC also filed civil fraud charges against Los Angeles-based investment adviser Stanley Chais, who the agency claims brought as much as $1 billion to Madoff's operations. In its complaint, the SEC alleges that Cohn, his daughter and Jaffe actively marketed Madoff investments while "knowingly or recklessly disregarding facts indicating that Madoff was operating a fraud." Stanley S. Arkin, Howard J. Kaplan and Peter B. Pope, attorneys at Arkin Kaplan Rice LLP who are representing Robert Jaffe said: "The complaint filed today by the Securities and Exchange Commission, which we learned about only from the press, smacks of impulsiveness and efforts at self-justification. It is unfair, baseless in the law, and is inaccurate in its understanding of the facts and of Mr. Jaffe." In a separate civil complaint filed in the same court, the regulators filed similar charges against Chais, an investment adviser and prominent philanthropist who oversaw three funds that invested all of their assets with Madoff. Chais also had an arrangement with the Madoff firm in which he wouldn't lose money on a single trade. The SEC alleges he sent false account statement to his clients. When the Ponzi scheme collapsed, the Chais investors' accounts were valued at nearly $1 billion. "Madoff cultivated an air of exclusivity by pretending that he was too successful to trouble himself with marketing to new investors," said Robert Khuzami, director of the SEC's Division of Enforcement, in a statement announcing the charges. "In fact, he needed a constant in-flow of funds to sustain his fraud, and used his secret control of Cohmad to obtain them." James Clarkson, acting director of the SEC's New York Regional Office, added, "These Madoff solicitors collectively received several hundred million dollars in fees over the past few decades while Madoff ruined the finances of countless investors." The Securities Investor Protection Corp. also filed a lawsuit against the individuals and Cohmad. And no sooner did the SEC announce its charges than Irving H. Picard, the trustee charged with liquidating Madoff's businesses and recouping funds for investors, filed a complaint against Cohmad Securities and a number of its principals -- including the Cohns and Jaffe. Picard's complaint in U.S. Bankruptcy Court alleges Cohmad and related people reaped more than $100 million in exchange for sending clients to Madoff. At least 90% of the income to Cohmad and the related people came from referrals to Madoff. David Sheehan, counsel for the trustee and a partner at Baker & Hostetler, the court appointed counsel for Picard, said: "Although Madoff stated he was operating alone, our investigation has yielded significant evidence that, in fact, a variety of other people helped Madoff prey on innocent victims. We are bringing this lawsuit to help recover, at the very least, the commissions that Madoff's enablers generated for knowingly introducing unsuspecting investors to Madoff." According to the complaint, Madoff shrouded himself with an unapproachable "Wizard of Oz-like aura eschewing unknown investors," while Cohn, Jaffe and others actively recruited more than 1,000 customer accounts "and infusing the Ponzi scheme with billions of dollars." - Donna Block
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