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U.S. Marshals Slammed Over Handling of Madoff Assets
October 4, 2011
A U.S. Justice Department report sharply criticized how one of its agencies managed and sold assets seized in Bernard Madoff's Ponzi investment scheme and other cases between 2005 and last year.
The audit report issued by the department's office of inspector general found the U.S. Marshals Service did not have adequate procedures to manage, supervise, track, and keep records on certain seized and forfeited assets.
The shortcomings resulted in a loss of confidence in the Marshals Service by prosecutors and others involved in the Madoff case, the report said.
The Justice Department may seize and compel forfeiture of assets from illegal activity. Such assets can include cash, bank accounts, vehicles, jewelry, stocks, real estate and businesses.
Since 2005, a Marshals Service unit called the complex asset team, with a small staff ranging between two and four individuals, disposed of more than $130mn in seized assets.
The assets include business and financial interests stemming from several multi-million dollar financial crimes perpetrated by Madoff, investment lawyer Scott Rothstein, banker and political fundraiser Hassan Nemazee and organized crime figure James Galante.
The report said an assistant U.S. attorney questioned whether the Marshals Service could properly manage and dispose of certain Madoff assets.
The assets involved more than one million shares of PetCare Rx, an online pet prescription firm, and a 5% share of the Delta Fund, an investment portfolio of foreign technology companies.
In preparing to dispose of these assets, the Marshals Service did not publicly announce the sales and instead attempted to sell them to existing partners.
The prosecutor objected because the methods for valuing the assets, locating buyers and negotiating sales were not transparent, the report said. The federal government then hired external contractors to start the process all over again.
In general, the audit found numerous instances when a team member valued and sold the same asset by himself, without sufficient supervisory oversight or review.
Also, the Marshals Service's lack of planning exposed the government to unnecessary risk, such as seizing assets with significant liabilities or limited equity, and becoming involved in long litigation with third parties who have interests in the assets. [Reuters, 9/13/11]
The report made 20 recommendations to better manage and account for seized and forfeited assets. The Marshals Service agreed with the recommendations and has begun to change its record, reporting and appraisal procedures.
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