About a mile and a half from where I live in North West London is the Great North Road. Once the main coaching route to York and Edinburgh it cuts a wide swathe through residential and shopping districts interspersed with petrol stations and fly-overs. As it nears Barnet there are also many pubs. They are the remnants of scores of coaching inns at which the first change of horses out of London - a ten mile distance - took place. In the golden age of coaching it is said that three hundred coaches a day passed this way. The coaching blue ribbon was the monopoly of the Royal Mail whose time keeping was legendary. In open countryside somewhere near York the down Mail from Edinburgh crossed with the up Mail from Saint Martin’s Le Grand in the City of London within half a mile of the same point every day.
The road, unusually for England, is and has always been very wide and this makes it an ideal location for what we sometimes call a workman’s cafe, and sometimes (no doubt unjustly) “a greasy spoon”. By whatever name known such eateries are always a place for a good fry-up. Any given morning and throughout the day there is a long line of cars, vans, coaches and lorries parked along the curb testifying to the excellence of its fare. The establishment is named (in a manner of speaking onomatopaeically) The Hole in the Wall. It is exactly that.
So what has The Hole in the Wall got to do with Bernie Madoff’s Fifty Billion Dollar Ponzi scam? And since, in my last posting, I promised some helpful information for Madoff’s victims, what is The Hole in the Wall’s particular relevance to them? The answer lies in what seems to be generally very sloppy press coverage since the story broke just under two weeks ago. I say “seems” because it is always possible that I have missed something.
There can be no question that, for those victims who were put into Madoff by a financial adviser or a Fund of Funds, the audit arrangements for the wholly imaginary Madoff cornucopia of cash, are a one stop shop. The news reports talk of “red flags” and “due diligence” but the only red flag that is beyond a lengthy and costly argument between lawyers is the fact that Madoff’s fund was totally un-audited. And could have been seen to be such by anyone who took the trouble to make the journey to the little town of New City in upstate New York and give the alleged auditors, who go by the name of Friehling & Horowitz, a once over.
It does not seem as if anyone who invested their own or other people’s money in the Madoff rip-off ever made the trip to New City. And it does not look as though anyone in the media, other than Bloomberg reporters, made the trip either. One assumes that some of them must have done, but there is little sign of it on the internet. The Bloomberg description has been endlessly quoted or regurgitated on web sites and in newspapers. It reads:
“Friehling & Horowitz operates from a storefront office in the Georgetown Office Plaza in New City, sandwiched between a pediatrician’s office and another medical office. An office for the Rockland County Bar Association is also in the building.
“A woman who works in a nearby office, who didn’t want to be identified, said Friehling doesn’t come to the office regularly. When he does, he is the only person there.
“Another woman in a nearby office, Leslie Cousar, said the man who comes to the auditor’s office does so for 10-to-15 minute periods, and wears tight pants and tie-dyed shirts. Cousar said she never saw anyone else going to the office during the day, but at about 5:30 p.m., another man would show up and use the location.
“He’s in and out of there,” Cousar said.’”
Bloomberg’s article does not provide a picture of the Friehling & Horowitz premises which would be helpful to a Plaintiff seeking a speedy verdict and compensation. A picture is worth a thousand words. In the present instance it is the equivalent of a smoking gun.
I have endlessly googled the words “friehling” and “horowitz” and have not been able to come up with a single pixel of the building in which the yearly signing-off of the billion dollar accounts of their client Bernie Madoff was conducted. Tellingly, googling “friehling & horowitz” brings you 5920 hits (475 if you click news) but if you google “madoff” the resulting hits total 6,990,000 / 54,343. The words “georgetown business plaza” draw five hits, all of them Bloomberg related. It appears that due diligence has lost its meaning not only for financial advisers but for a large section of the media as well.
The google statistics are as of 11.30-11.45 am GMT, Sunday 21 December 2008.
It is clear that a Madoff investor has an open and shut, or slam-dunk if you prefer, case against a financial adviser or fund manager if there is one in the chain. You issue the writ and particulars of claim, wait for the defence to come in and then apply to strike it out and move for summary judgment. (I am probably making a few technical mistakes here because it is more than fifty years since I opened a law book in anger.) An affidavit will be required which need only be a couple of paragraphs long provided it is supported by a photograph of the Friehling & Horowitz premises in the Georgetown Office Plaza in New City NY.
The only problem that I foresee is that there is great urgency here and an investor needs to get his or her claim in and done and dusted before the financial adviser or fund and/or their PI insurers run out of money. Which can be only a matter of weeks. I do not see any government helping the insurers out with an AIG bung. It will take a little while to get a picture of the actual Friehling & Horowitz lair but I think that a picture of the Hole in the Wall cafe in Barnet would act as an effective place holder. The form of words in the affidavit would be along the lines: “I do verily believe that the premises of the alleged auditors of the said Bernard Madoff’s fund known as Friehling & Horowitz were in all material respects indistinguishable from those of the Hole in the Wall Cafe in Barnet, London, England. It follows that to facilitate and/or recommend an investment of [state here the sum of money claimed] 000,000 in reliance of representations made and assurances given by a firm of accountants operating out of such premises must constitute professional negligence of the utmost recklessness.”
It can be put better, I am sure. But the beauty of this is that the only way a defendant can resist the application to strike out and summary judgment is to produce a photograph of the actual premises in the Georgetown Office Plaza. Any judge (other than perhaps Judge Ito if he is still going) would throw such a defence out as being frivolous and an abuse of the process of the Court.
I hope this helps.
STOP PRESS – MONDAY 22 DECEMBER 2008
There is an article in today’s Times by William Rees-Mogg headlined Bad news for investors, good news for lawyers. Fifty years from now, the grandchildren of Madoff investors will still be suing the grandchildren of hedge fund managers.
In it he says:
The key legal question is one of duty of care, and this will vary from case to case and contract to contract. Hedge funds, funds of funds and feeder funds bought Madoff securities for their funds or for their clients. These investments are now worthless, or nearly worthless. Did the intermediate funds promise to exercise “due diligence” in satisfying themselves that the Madoff investments were sound securities? If they failed to exercise due diligence, are these intermediate funds liable for the losses which may have resulted from their negligence?
There is no mention in the article of any visit to New City NY to check up on the audit arrangements. Ignoring this angle will no doubt have the consequences which the article forecasts. But does it have to be this way? One successful action that establishes that any sort of diligence that ignores audit arrangements is not due diligence and they will “all fall down.” In America, where civil litigation is before a jury, the Jury will have to visit New City to see the Friehling & Horowitz premises with their own eyes. Can you imagine the expressions on the accompanying defence attorneys as the Jury disembarks from the coach?
The Times article will be found here.