But the news just keeps coming. Today Caroline Waxler, lamentedly late of Blodget’s electronic rag and now with Fortune, reports on Fairfield Greenwich Group’s use of low-scrutiny auditors to keep investors fat, dumb and happy.
When Madoff whistleblower Harry Markopolos testified before Congress today, he blasted the Securities and Exchange Commission, gave gripping testimony about his nine-year quest to reveal Bernard Madoff’s alleged $50 billion scheme, and predicted that more of Madoff’s web would be uncovered soon. But one of his most damaging accusations was about the auditing practices of Madoff’s biggest feeder fund, Fairfield Greenwich Group.
Markopolos is the Cassandra-like investigator who tried in vain to get the SEC to pay attention to what he was saying about Bernard Madoff. Few people paid attention, even though he laid the whole thing out with uncanny accuracy over the years. Now people are listening. And buried in his prepared remarks to the House Financial Services subcommittee are telling and potentially damaging accusations – page 20 on the original document – about Fairfield Greenwich and its accounting of its accounting, specifically its choice of auditors and the frequency with which it switched them, which has the appearances of “auditor shopping.”
[In] 2004, Fairfield Greenwich appeared to embark on a three-year auditing shopping spree, according to Markopolos, in which it first entrusted its auditing needs to Berkow, Schecter & Co. of Stamford, Conn. According to its site today, the firm is remarkably small to be handling multibillion-dollar accounting jobs: two partners, four accountants, two paraprofessionals, and two secretarial and support staff. In size, the firm is reminiscent of Madoff’s accounting firm, situated in a strip mall.
Next up for 2005 was PricewaterhouseCoopers in the Netherlands. Then in 2006 it was still PricewaterhouseCoopers, but in Canada. This apparent auditor shopping is not an encouraging sign.
What could possibly be the purpose for this kind of hop-scotching? What customer service was performed?
“To change your auditor like that is highly unusual,” says Pornsit Jiraporn, assistant professor of finance at Pennsylvania State University, who co-wrote the 2004 study, “Causes and Consequences of Audit Shopping.” “Sometimes there is a legitimate reason for switching once, but this is very suspicious.”
Read the whole thing – fascinating. Walt, yesterday I tried diverting attention from you to Bruce McMahan and his daughter/wife, but that can only hold the crowd’s attention for so long. But I was thinking, maybe your Fabulous Girls, Andy and Mark Madoff and McMahan’s daughter could all start a tee shirt company picturing a picture of all three of you financial wizards and the slogan, “I got screwed by my Dad!”. Sure to be a best seller – in fact, put me down for a dozen.