It’s a Cohmad Mad Mad World!

Posted in Madoff by Nina Mehta on February 24, 2009


Following Friday’s announcement by the trustee of Bernard L. Madoff Investment Securities that Madoff apparently hadn’t executed a single trade on behalf of his investment customers for at least 13 years, the operations of Cohmad Securities Corp. may command more scrutiny. Cohmad was just one of many “feeder funds” to Madoff’s investment business, but it was a broker-dealer that Madoff himself co-founded over two decades ago. As such, how Cohmad functioned could shed light on Madoff’s broader operation.

On Feb. 11, the Massachusetts Securities Division suspended Cohmad’s state broker-dealer license. According to Massachusetts regulator, the Cohmad broker and Bernard L. Madoff Investment Securities exhibited a “deeply intertwined relationship.”

Cohmad was co-founded by Madoff and Maurice Jay (Sonny) Cohn in February 1985. Although the documents Cohmad turned over to the Massachusetts securities division were incomplete, according to the complaint, the “limited documents that actually were produced to the Division evidence connections between the two firms that were so pervasive that they acted in many respects as interconnected arms of the same enterprise.”

Cohmad was based in Manhattan and operated out of Madoff’s broker-dealer offices. The firm also had a Boston office that was managed, starting in 1989, by Robert M. Jaffe, the son-in-law of Carl J. Shapiro, Madoff’s first big investor in the 1960s. Shapiro’s foundation, the Carl and Ruth Shapiro Family Foundation, reportedly lost hundreds of millions of dollars when Madoff’s Ponzi scheme collapsed in December.

For over two decades, Cohmad funneled investors’ money to Madoff. The Massachusetts complaint provides no evidence that Cohmad employees knew about Madoff’s Ponzi scheme. Indeed, many Cohmad employees and their families lost money through Madoff Investments. But the complaint noted that the lack of cooperation by executives at Cohmad left large gaps in what Massachusetts officials knew about the broker-dealer and its principal employees.

Massachusetts victims identified Cohmad and Jaffe as “conduits” to the Madoff investment scheme that was exposed as a colossal fraud in December, according to the complaint. Subpoenas requiring the testimony of Jaffe were subject to “delay tactics,” the Massachusetts authorities said. The exasperated securities division wrote that “Jaffe’s multitudinous and often conflicting excuses [for not providing testimony in response to subpoenas] delved deeply into the realm of the absurd.”

On Feb. 4, Jaffe finally invoked his Fifth Amendment right to refuse to testify. Marcia Beth Cohn and her father Maurice Cohn refused to appear to testify. Since January 2004, Marcia Cohn has served as the president, chief operating officer and chief compliance officer of Cohmad. Another executive, Alvin J. Delaire Jr., was a no-show for his testimony, scheduled for Feb. 10, according to the complaint. Delaire was a registered representative at Cohmad.

The Massachusetts securities division took action against Cohmad because, it said, Massachusetts investors were among the victims of Bernard Madoff’s Ponzi scheme. The securities division, which oversees the state securities market and enforces state laws, is part of the Massachusetts Secretary of the Commonwealth William F. Galvin’s office.

The inner circle at Cohmad had personal ties that reached back decades, or were related to one another. Peter Madoff, Bernard Madoff’s brother, was a Cohmad director. So was Milton Cohn, Maurice’s brother. Maurice Cohn and Delaire also went way back. Cohn and Delaire first worked together in the late 1960s when they were in the specialist business. They worked at Cohn & Delaire (which Cohn had established with Delaire’s father in 1963), and at Cohn, Delaire & Kaufman, the successor firm.

Even after Cohmad’s launch, several of the key players entered into another joint business. In June 1986, a company called Cohn, Delaire & Madoff Inc. was formed in New York. The firm, which was not a broker-dealer, is now inactive, and no information is publicly available about what the firm did. According to the New York State Division of Corporations’ web site, the company could be contacted through a law firm called Schizer & Schizer in Manhattan. That estate planning and family law firm, run by attorneys Hazel and Zevie B. Schizer, still exists. (The Schizers’ son, David W. Schizer, is the dean of Columbia Law School.)

Through its investigation into Cohmad’s operations, the Massachusetts securities division has hauled up a bonanza of material. The Feb. 11 complaint and many of the documents gathered are available online. The information includes annual income statements from Cohmad, monthly requests for money from Bernard L. Madoff Investment Securities (BMIS), information about investor accounts, and additional documents detailing activities such as Ruth Madoff’s withdrawal of $5.5 million on Nov. 25 and another $10 million on Dec. 10, the day her husband Bernard told their sons he had been running a giant Ponzi scheme. Ruth Madoff had a brokerage account at Cohmad.

Cohmad’s business was unusual in several ways. The brokerage, which rented space from Madoff’s office at 885 Third Avenue in New York, billed the Madoff firm monthly for rent, the electric bill, market data and exchange fees, a phone lease, long-distance calls and other expenses. BMIS, however, did not have an ownership stake in Cohmad.

The Madoff firm also paid Cohmad $67 million from 2000 through last year. Monthly payments were made for “professional services,” “brokerage services” and “fees for account supervision.” According to the Massachusetts securities division, the payments “appear to have been based on the amount of assets that clients referred by Cohmad’s registered representatives had under management with Madoff Investments.” Those payments represented in excess of 84 percent of Cohmad’s total income over the last eight years. (The Massachusetts securities division requested information from Cohmad only from January 2000 through mid-December 2008.)

The $67 million did not include payments to Jaffe, according to the complaint. The documents indicated that Cohmad paid a total of $526,000 to Sonya Kohn, a Vienna-based private banker who steered European investment clients to Madoff. The complaint said that Sonya Kohn, who is also known as Sonja Kohn, was not associated with Cohmad or employed by the firm. A spokesperson at Bank Medici, which is majority-owned by Kohn, told Reuters on Feb. 12 that Kohn never received any payments from Cohmad.

The commissions that Cohmad’s registered representatives received thus came, indirectly, from BMIS. Cohmad also distributed monthly dividends to Cohmad’s equity owners, according to the complaint. The owners included Bernard Madoff, who controlled approximately 15 percent of the firm, and his brother Peter Madoff, who had a 9 percent stake. Cohmad’s registration with the Financial Industry Regulatory Authority indicates that Maurice Cohn was the largest stakeholder in Cohmad, owning between 25 percent and 50 percent of the firm. Marcia Cohn, Milton Cohn, Jaffe and an employee named Rosalie Buccellato also had Cohmad stakes.

In addition to bringing in investors, Cohmad at times advised clients to consider using a particular accounting firm. One of the complaint’s exhibits includes a letter Jaffe wrote on Nov. 2, 2001, to an investor in Lowell, MA, who was setting up an account with Madoff. He informed the person: “For accounting purposes I suggest that you call Scott Sosnik and Larry Bell of Marder, Sosnik & Co. CPA’s PC. They do the accounting for many Madoff clients and can provide a detailed summary at a very reasonable price.” That accounting firm, and its predecessor Sosnik Bell & Co., provided accounting services to hundreds of Madoff clients, according to the BMIS trustee’s list of Madoff investors.

Although 84 percent of Cohmad’s income came from BMIS for the assets it brought in, Cohmad displayed a mixed reaction to its relationship with Madoff’s firm. It both downplayed its asset management business and, at times, described the activities of Madoff Investments as if they were its own. In a Nov. 21, 1991, letter to a prospective investor in Lexington, Mass., Cohmad’s then-president Maurice Cohn wrote: “Our primary business is not managing client accounts. We do manage accounts for family and friends using a simplistic, and most important, a very conservative strategy in a disciplined manner, always ‘insuring’ the accounts against major loss by using put options.”

Another letter from Maurice Cohn to an investor, dated July 17, 1992, apprised that recipient of Cohmad’s goals. He wrote: “Our ‘mission’ is to protect your investment (and mine!). To accomplish this, we maintain our discipline and stick with the same strategy, by buying a portfolio of ‘blue chip’ equities, selling call (index) options on your portfolio, and buying put (index) options to protect your portfolio against violent bear markets. Once again, we are not economists or security analysts. We are risk managers and our associates are very good at what they know best—namely, trading.”

That letter advised the investor that funds could be withdrawn from “C&M” trading accounts on only one day each quarter. The minimum addition for investments was $25,000.

The Massachusetts securities division’s complaint noted that the “involved parties” at Cohmad are Marcia Beth Cohn, Robert Martin Jaffe, Maurice Jay (Sonny) Cohn, Stanley M. Berman, Alvin James Delaire Jr., Jonathan Barney Greenberg, Cyril David Jalon, Morton David Kurzrok, Linda Schoenheimer McCurdy, Richard George Spring and Rosalie Buccellato.

In addition to the main players already discussed, some of the other individuals had longstanding relationships with Bernard Madoff and his wife Ruth. Linda McCurdy, who was with Cohmad since May 1998, is related to Pierre Schoenheimer, whose wife is Idee German Schoenheimer. Idee Schoenheimer is a co-author with Ruth Madoff of Great Chefs of America Cook Kosher. Ruth Madoff received an M.S. in nutrition from New York University’s School of Education in 1993. The third co-author, Karen MacNeil, is an established food and wine expert. (The Great Chefs publisher, Vital Media Enterprises, was run by the Jewish National Fund, with the book’s sales proceeds benefiting the JNF. Vital Media’s first and only other book was Trees: The Green Testament by cartoonist Ya’akov Kirschen, nee Jerry Kirschen. Perhaps ironically, Kirschen, who was born in Brooklyn and moved to Israel in 1971, has taken inky inspiration from the Madoff scandal.)

Linda McCurdy has been listed as a director at the Schoenheimer Foundation since at least 2001 (the oldest publicly available Form 990). That year, the directors were Pierre L. Schoenheimer, Joyce A. Schoenheimer and Linda McCurdy, all of whom were listed at Pierre’s home address. The fourth director was Robert C. Lapin, who remains a director. Lapin is a trustee of the Robert I. Lappin Charitable Foundation, whose assets were invested in Madoff. Lapin has known the Schoenheimers for many years. Starting in 1981, he was a director at Radix Ventures Inc., an over-the-counter company in the international freight shipping business that was bought by Air Express International Corp. in 1995. Pierre Schoenheimer founded Radix Organization Inc., a private investment bank, in 1970, and became chairman of Radix Ventures in 1979.

Several Cohmad executives also worked at the same firm earlier in their careers. In the early 1980s, Jaffe, Marcia Cohn and Greenberg were all at broker-dealer Cowen & Company. Jaffe, who joined Cohmad in November 1989, had been at Cowen & Co. from April 1980 until he moved to Cohmad. He was at E.F. Hutton & Co. earlier, starting in 1969. (The career history of these registered reps comes from FINRA.)

Marcia Beth Cohn joined Cohmad in July 1988. While registered as a representative at Cohmad, she worked, from November 1992 until August 1998, at M.A. Berman Co., a broker-dealer in Boca Raton (the broker doesn’t appear to be connected to Stanley Berman). Earlier still, from June 1982 until June 1988, she worked at Cowen & Co.

Jonathan Greenberg’s Linkedin profile describes him as a vice president at Cohmad. His profile page states: “I manage equity portfolios for individual investors.” The Greenwich, Conn., resident graduated from Kenyon College in 1977 and from Columbia University’s business school in 1992. He joined Cohmad in October 1986, after four years at MJ Whitman & Co. and an earlier, short stint at Cowen & Co.

Rosalie Buccellato appears to have managed the Cohmad office and administrative work. A principal at the firm, she’s also a notary public in the state of New York. Buccellato has been at Cohmad since at least 1992. Previously, she worked at Bear Stearns and Normura Securities.

Cohmad relied on established brokers to sell access to Madoff Investments, dispelling concerns some customer may otherwise have had. Kurzrok, who is 69, came to Cohmad in April 1992. He was also registered at Hampshire Securities Corp. from January 1992 until April 1998. Prior to that, he worked for four years at Stuart, Coleman & Co., and before that at Fialkov, Scheinman & Co. In the early 1980s, he was at Lehman Brothers Kuhn Loeb Inc. Jalon, who is now 95, started at Cohmad in April 1991. He worked at Brean Murray, Foster Securities Inc. from 1974 until 1991. Earlier, he spent five years at MKI Securities Corp.

The registered reps at Cohmad who brought in the most assets in recent years were Spring and Berman. Spring, who is 73, joined Cohmad in January 1986. He had worked at David J. Green and Company, a brokerage, starting in 1968. Berman, who is 88, became a registered rep at Cohmad in December 1986 and stayed until June 2007. In the mid-1980s, he worked briefly at both Gruntal & Co. and at Bear Stearns. Berman received a $400,000 retirement bonus from Cohmad in October 2007, according to documents published in connection with the Massachusetts complaint.

The documents available online from the Massachusetts securities division also include Cohmad’s P&L statements and annual audited financial statements. Sosnik Bell, in addition to doing to the accounting for many Madoff clients, was the firm responsible for Cohmad’s accounting. Some of the exhibits are faxes of statements sent by Sosnik Bell to Cohmad.

The Massachusetts complaint exhibits also include audited financial statements by Cohmad’s auditor, Kaufmann Gallucci & Grumer LLP, for the year ending June 30, 2007. The firm operated from January 2003 until November 2007. The complaint does not say who audited Cohmad’s books in other years.

Kaufmann Gallucci & Grumer is an accounting practice that was sold to Citrin Cooperman & Company in late 2007. According to the latter’s web site, Citrin Cooperman is the 34th largest accounting firm in the U.S. and one of the top 10 accounting firms in the New York metropolitan area.

KG&G helped establish Cohmad’s bona fides. The partners were Robert Kaufmann, Ronald Gallucci and David Grumer, all of whom now work at Citrin Cooperman. Kaufmann is a past chairman of the New York State Society of Certified Public Accountants’ stock brokerage accounting committee, and a current member of that committee and the organization’s investment companies committee. He is also a member of the Securities Industry and Financial Markets Association’s financial management division and internal auditors division. In mid-2008, the NYSSCPA noted that Grumer was the incoming vice chairman of its stock brokerage accounting committee.

The Cohmad documents unearthed by the Massachusetts securities division do not ascribe guilt to Cohmad’s employees or associates for Madoff’s massive fraud. But the complex web of relationships, and the lack of information about the due diligence conducted about BMIS, clearly raise questions about who knew what, and when. More importantly, they raise questions about who should have known more about Madoff Investments.


2 Responses

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  1. FriendOfTheVictims said, on March 5, 2009 at 8:37 pm

    The documents posted by the Mass. securities division strongly suggest that Cohmad employees knew it was a Ponzi scheme. Exhibit 11 shows mostly positive but some negative amounts for individual client assets under management with each Registered Representative. Negative amounts clearly represent cases of clients who, based on their fictitious account statements, were able to cash out more than their original investments. The RR’s were paid a given percentage of these total negative as well as positive amounts. To continue to be paid, an RR had to continually bring in new clients to offset the cash taken out by clients recruited earlier, the very hallmark of a Ponzi scheme. Compensation obviously had nothing to do with the account values on statements sent to clients. The formula for the compensation paid to Cohmad RR’s should be enough to convict them for fraud.

  2. Ted said, on March 13, 2009 at 11:51 am

    Thanks for your article. It shows more evidence that Peter Madoff can’t use the “I know nothing” excuse, given he was a director at Cohmad Securities

    The way to throw the other Madoffs, in prison, may be through the associates at Cohmad securities, especially if the Feds flip Marcia Cohn or Alvin Delaire.

    It also shows that there was no “chinese wall” between the market making side of the Investment Bank and the Advisory side of Madoff Securities Inc. There was much work for integration of the advisory business, the trading business and Cohmad Securities. What is coming across is the amount of energy to juggle the books and play a shell game with regulators. They did this by downplaying the amount of money they controlled.

    The Feds should focused first on Cohmad principals sans Peter Madoff, and then get indictments on the remaining Madoff family.

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