Plausible Deniability

"At least 11 of the nearly two dozen investor lawsuits filed since Mr. Madoff was arrested on December 11 name the national branches of PWC, Ernst & Young, KPMG or BDO as co-defendants. Among the top five, only Deloitte so far appears to have escaped a Madoff-related lawsuit. ... Auditing experts said it would have been very unusual for a hedge fund's auditors to be given access to the books of the fund's broker dealer", my emphasis, Brooke Masters, Stanley Pignal and Joanna Chung at the FT, 6 February 2009.

"The [SEC] reached a partial settlement with money manager Bernard Madoff, but the main question--what kind of criminla case the government will bring remains up in the air. ... Federal prosecutors in New York have until Wednesday to file a criminal indictment against Mr. Madoff, reach a plea deal or seek an extension of time to give them more time to build a case. ... Madoff settled the civil case without admitting or denying wrongdoing, which is customary for SEC cases", my emphasis, Kara Scannel at the WSJ, 10 February 2009.

"If Ms. Schapiro seeks to learn from the SEC's recent history, she might start by considering the most basic lesson from the Madoff incident. Private market participants spotted the fraud, while SEC lawyers couldn't seem to grasp it. Rather than giving her staff lawyers still more automony, she should instead be supervising them more closely, while trying to harness the intelligence of the marketplace. Meantime, investors should remember that their own skepticism and diversified investing remain their best defenses against fraudsters", Editorial at the WSJ, 10 February 2009.

Yes, it would have been unusual. Which raises this equestion: why did Madoff have Freihling & Horowitz do its audit? Was it to give the Big 87654 plausible deniability as to each's knowledge of Madoff's fraud?

Quoted without comment.

SEC lawyers can't understand the economics that drives frauds. Most SEC lawyers, in my experienence, are glorified clerks.