On 17 March 2008, while the carers were seeing to Carol, I sat down at my computer and logged-on to Robert Peston’s blog. Peston is the distinguised financial editor of the BBC who would later become notorious for almost single handedly wiping out the British Banking Industry by publishing confidential government information revealing that the situation was much more serious than anyone realised.

Google it if you don’t believe me, but this is what the record shows;

At 09:41 AM on 17 Mar 2008, Anthony Samuelson wrote:

What seems to escape notice is that the Bear Stearns of this world, and the hedge funds, don’t just do sub-prime and AAA mortgages. They also engage in the derivatives and futures markets where there is always a counterparty.

Supposing you get it right and are making a pile of money but the counterparty goes broke. What happens then?

Addendum (posted 26 December 2008)

Seen on Bloomberg: Lehman Roils Muni Swaps as Collapse Forces Payments

Six years after embarking on an effort to lower borrowing costs using derivatives, New York is watching those savings evaporate.

The state says it paid bankrupt Lehman Brothers Holdings Inc. and other Wall Street banks at least $75.9 million since March to end interest-rate swap contracts that were supposed to lock in below-market rates. That money and the costs of issuing new debt to replace bonds linked to swaps gone awry are eroding the $207 million in savings New York budget officials say the derivatives produced since 2002.

New York isn’t alone. Lehman’s bankruptcy filing on Sept. 15 triggered the termination of similar contracts across the country, forcing state and local governments and other borrowers in the $2.67 trillion municipal-debt market to buy out the agreements. They suddenly find themselves making unexpected payments at a time when their revenue is already under pressure from the worst recession since World War II.

There is more, for which go to Bloomberg, here

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.

I have neglected this web site for nearly a year. There is a very sad explanation. My wife Carol, who I loved like crazy, died on 9 May. Some of the story is told in a little memorial video that can found on YouTube here. Carol was very poorly throughout 2006 and 2007. The chemo treatment for her brain tumour made her very tired. She was due to start a third lot of chemo in February 2008 but just after the new year she collapsed and was rushed in to the Royal Free Hospital in Hampstead.

I got her home on 28 February but by that time it was clear that she would only live for another few weeks. The National Health Service suppled a hospital type bed, a hoist, a wheelchair, medication, nurses and carers. My role was as chief carer. I counted out the pills and measured out the medicines in the bottles and gave it to her four times a day. I did all the cooking and fed Carol’s meals to her spoon by spoon. I looked after Carol through the night. All this was exhausting but not something that I would have ever wanted to hand over to any other person in the world. I slept in a bed next to Carol’s, which I had raised by adding an extra mattress. By pushing the beds together I was able to hold her hand. I slept with my mobile alarm under my pillow so that I could make sure she was ok in the middle of the night. One of the hardest things to deal with was having to sometimes sit in with visitors and make conversation with them. Carol was so out of it that she could not respond to shows of affection let alone talk to them and someone needed to be there to protect her while making the visitors feel that they had been decently treated. Anyone who has been in the same situation will, I would imagine, have had the same experience. The hardest thing of all was towards the end - when it became apparent that Carol was in great discomfort and, for all anyone knew, in pain - getting the painkilling medicine in the quantity needed as quickly as needed. She could not tell us what she was going through, we could only guess. When she came home from hospital she could indicate yes and no with a thumbs up and down. Eventually all she could do was wince and groan and jerk-up the one knee that she could move when she was being washed and something hurt her. Which sometimes happened however gently the carers handled her. (During the entire eight weeks Carol never had a single bed sore.)

For obvious reasons there have to be very strict controls on painkillers and the home environment is less able than a hospital or a hospice to react in real time. Eventually I told the doctor and the nurses that I felt that I was out of my depth. Things then moved very quickly and within a few hours a bed was found for Carol in the North London Hospice where, over a period of a day or two, the diamorphine dosage was increased several fold. Carol died eight days later.

Throughout all this Carol’s three daughters were very supportive. I used to say that whenever I opened the door children and grandchildren fell in. The last sign that behind Carol’s gaunt face there was still a loving mind was when a baby’s lips would be pressed against hers and she would make a sort of kiss in response.

In the Spring of 2005, before Carol’s brain tumour got going again, we both made what are called living wills. In the event, the fact that Carol had made a living will made no difference. No one thought for a moment that it would make any sense to prolong her life. To do so would have required a peg to be inserted in the wall of her stomach, removed every so often to allow a pipe to be inserted and nutrient to be pumped in, the peg then replaced like a stopper in a sink. I am almost ashamed to say, however, that short of a peg I did everything I could to keep her going. Not just me but the doctor and the nurses and the carers. When Carol started to refuse solid food the Doctor prescribed fortified drinks. These come in half a dozen flavours and contain everything necessary to keep body and soul together. While still in hospital Carol had developed a problem with her swallow and I used to spend hours at a time getting her to drink small amounts via a 100mg syringe pushed through her lips. Eventually, for whatever reason, she began to clamp her teeth together and the procedure became even more prolonged. Near the end she would take only water and I would sometimes spend around an hour and a half in the middle of the night getting her to sip 200 to 300 mg from the end of a syringe. I used to say to myself, thinking of the living will which says that she was not to be kept alive by artificially provided food or drink: “I ought not to be doing this.” But I kept on doing it all the same.

One of the provisions of Carol’s and my living wills is that everything necessary should be done to make available any organs or tissues that would help some living person. I was informed by the hospital that under European protocols the organs of patients who had received chemotherapy treatment for cancer could not be used in transplants. The exception was the cornea of the eyes. The day before Carol died I telephoned the Moorfields Eye Hospital and asked them if they wanted corneas. They replied saying that they were desperate for them. I passed this information on to the doctors at the hospice but after Carol had died I was told that the cornea could not, in the event, be used. This would have made Carol very sad. I have subsequently discovered that the risk to a recipient is very small and doctors are less picky in the United States. If I had my time over again I would have gone down this avenue. If anyone who is reading this is confronted with the same situation I hope that they will find a home somewhere in the world for whatever can be harvested in good time. It is too late to do anything after someone has died. And if they do manage to find a recipient Carol’s eyes will not have perished along with the rest of her in vain.

I would also say to anyone who is reading this: If you have not made out a living will you are downright stupid. And if you have not donated your organs after your death for the benefit of some living person in need of them you are not just plain selfish, like as though someone had given you a box of chocolates and you had eaten them all on your own, but guilty of selfishness of the highest possible order. In one single crass act of inhumanity you will have shown that you never deserved to live in the first place. Of course, in between these actions there is forgetfulness and putting off to tomorrow and so on. But, if you have read this posting, these excuses will no longer avail you. Particularly as you will find the Form of Living Will, that I cobbled together from various versions on the Internet, here.

I had no inclination to blog about all this while it was all going on, or about anything else, and so this website was left to its own devices. After Carol died there was the funeral to attend to, which was adjudged by everyone to have been a great success as funerals go, and doing the video took all of eight weeks - the learning curve for Final Cut Express being very steep. From being someone who could happily work far into the night I became very listless, and took to reading the newspapers for three hours every morning, watching terrible movies one after the other on television and going to bed early and endlessly surfing the internet far into the night for news with a lap top resting on my chest. My resolution for 2009 is to snap out of it and getting this web site going again is in advance of lots of other things that I am minded to do.

My next posting will be about the Bernard Madoff Ponzi scam with some proposals that I hope will be of assistance to the victims. I shall also be putting my long dark mornings spent with the Times and the Daily Mail to use and my aim, here also, will be to assist the victims. Which, as Pogo might have said, is us.

LIVING WILL

I, [your name here], by this document voluntarily make known my desire that my dying shall not be artificially prolonged under the circumstances set forth below, and do hereby declare:

If at any time I should have a terminal condition and my attending physician has determined that there is no reasonable medical expectation of recovery and which, as a medical probability, will result in my death or severe mental or physical disability regardless of the use or discontinuance of medical treatment implemented for the purpose of sustaining life, or the life process, I direct that medical care be withheld or withdrawn, and that I be permitted to die naturally with only the administration of medications or the performance of any medical procedure deemed necessary to provide me with comfortable care or to alleviate pain.

ARTIFICIALLY PROVIDED NOURISHMENT AND FLUIDS:

I specifically authorize the withholding or withdrawal
of artificially provided food, water, or other nourishment or fluids.

ORGAN DONOR CERTIFICATION

Notwithstanding my previous declaration relative to the
withholding or withdrawal of life-prolonging procedures, if as indicated below I have expressed my desire to donate my organs and/or tissues for transplantation. I do direct my attending physician, if I have been determined dead according to standard British medical practice, to maintain me on artificial support systems only for the period of time required to maintain the viability of and to remove such organs and/or tissues.

I specifically desire to donate my organs and/or tissues for transplantation.

In the absence of my ability to give directions regarding my medical care, it is my intention that this declaration shall be honoured by my family and physician as the final expression of my wish to refuse medical care and accept the consequences of such refusal.

I understand the full import of this declaration, and I am emotionally and mentally competent to make this declaration.

In witness whereof, I do hereinafter affix my signature on this the day of 200-

In the presence of

Note: This Form of Living Will is discussed in the posting IT’S BEEN QUITE A WHILE .. which can be found here.

Make sure that your Living Will is properly witnessed. The original signed document should preferably be placed in the safe-keeping of a solicitor. Typically this will be the same solicitor who has safe-keeping of your Last Will and Testament. A copy or copies of the Living Will should be available or easily accessible to your Next of Kin and to other members of the family who will be involved in the event that you become seriously ill. Family members are apt to have different views on keeping their dear ones alive as long as possible, and on allowing doctors to remove organs and on keeping the heart and lungs functioning until they are ready. You need to ensure, therefor, that no one is in any doubt of your wishes and that those seeking to carry them out are armed with the necessary ammunition!