California's Own Bernie Madoff

Some called Beverly Hills financial adviser Stanley Chais an investment wizard, but in reality he was nothing more than a glorified middleman, channeling hundreds of millions of dollars in investors' funds to Bernie Madoff in New York.

Chais claimed to generate 20 to 25 percent returns for his clients through superior skill and experience, use of cutting-edge technology and connections to sophisticated East Coast brokers. The truth is much more mundane -- Chais simply turned over his clients' investments to Madoff, who relied on one group of investors to pay other investors, thereby propping up his massive Ponzi scheme.

For his so-called expertise, Chais charged his clients a whopping 25 percent of their annual profits -- pocketing some $270 million over the decades -- and he was careful to conceal his connection with Madoff. So when Madoff's empire collapsed late last year, Chais's clients were shocked to find that their life savings had vanished virtually overnight.

When this information came to light, investigators from the California attorney general's office jumped in immediately. Seven months later, we are now able to file legal action in Los Angeles Superior Court against Chais for securities fraud, unfair business practices and making misleading statements. The suit seeks an injunction, restitution for victims, disgorgement of profits and at least $25 million in civil penalties.

Sadly, the rise of super-sized swindlers like Madoff and Chais was inevitable given the mindless deregulation-mania of the last decade -- abetted and made possible by a complicit Congress, SEC, and inattentive White House.

There were clear warning signs. Chais had only three months of negative returns between 1996 and 2007. Madoff's balance sheet did not reflect the normal fluctuations of the market, nor did he report a loss on a single trade made on behalf of the Chais funds between 1999 and 2008.

But regulators and federal officials were lulled to sleep by a pervasive ideology that private vice on Wall Street would always be transmogrified into public virtue. America is paying the price for this noxious doctrine in unprecedented job losses and an avalanche of foreclosures.

Let's not wait for the next Chais or Madoff to be exposed.

Washington must put in place real oversight of the financial industry. (And by the way, the people who got us into this mess are not likely to be the ones who will get us out.)

One obvious reform would be to strip away Washington's preemption of state regulatory authority. This would allow the attorneys general of the 50 states to act as true guardians of the public trust and bring to justice the rip-off artists and malefactors who even today enjoy virtual immunity.

Jerry Brown is California's Attorney General. Visit his website here. Become a supporter of Jerry on Facebook and follow him on Twitter.

 

Follow Jerry Brown on Twitter: www.twitter.com/JerryBrown2010

Comments

[vascopyjama]

10:59 PM on 10/13/2009

Sounds like he should be called a co-conspirator, but what would I know.

[VermontGirl]

01:04 PM on 10/13/2009

Good job AG Brown!
Although I no longer live in CA and cannot vote for you, best wishes on your gubernatorial campaign!
Appears you are the right man for the job...and oh what a job it is!

GO JERRY BROWN!

[Decidedvoter08]

06:34 AM on 09/30/2009

I'd vote for Jerry Brown over Gavin Newsom any day!

Don't expect the gay community to rally around Newsom. His "Whether you like it or not" comment cost more than any effort he made and the court case that gave gays the right to marry was a private suit not a city suit. In other words he didn't do anything but cost gays the right to marry!

I like Brown.

[Winning09]

09:14 AM on 09/27/2009

Right on. It's important to keep the pressure on these financial ne'erdowells.

[Mark Mack]

10:52 PM on 09/23/2009

Seems like all these swindlers shape shifted into advisers, wizards and glorified investors when their interests were concerned. The question is how they reassured their followers. The answer appears that the followers and the shape shifters all share the same principles.

[Dink]

04:08 PM on 09/23/2009

Back in the 1970s when Jerry was governor -- he upset state workers when they were fighting over how big of a raise they were going to get..... The big guys wanted their 7%..... I was a janitor. I would have got $17 per month if they went with the percentage.

Jerry put his foot down and said "$70 for everyone." The top mucky-mucks didn't get their $300 and $400 raise per month. Me? I could finally put food on my table for my three boys. Before then, my wife's parents were bringing over dinner once a week.

Jerry put food on my boy's table. It upset the mucky-mucks because they couldn't buy Season Ticket to the 49er games.

All three of my sons live in California, and all three of them -- one a police officer -- said they will vote for Jerry if he runs again.

Just look at this piece. He works for the middle class ... you and me...the ones reading this website....... Jerry is working for people now and he did it in the past....... With Jerry this is NOT a political stunt....it's a PASSION!!

[TurnToTheLeft]

02:29 PM on 09/23/2009

Jerry Brown was my hero as a kid. He is still a hero. I look forward to voting for him to become the next Governor of California.

[californiadreamer]

02:18 PM on 09/23/2009

I certainly applaud the AG's comments regarding swindlers like Chais, but I hope he is doing more than just writing words of outrage. The settlement agreement he worked so hard on with Countrywide is essentially toothless and BofA has been using loopholes in the settlement to avoid following the stipulations of the court decree. Essentially that BofA as the new owner of Countrywide agreed to modify Pay Option ARM loans that were considered predatory lending instruments. This would include reducing the principal of the loans to reflect current housing values which would enable owners to regain equity and reduce foreclosures by owners underwater in their loans. I applauded AG Brown for the agreement, but evidently the settlement was simply a paper dragon used to make the electorate feel that he was on their side. I am becoming increasingly nauseated by the feeling that our public servants are more often servants of the big campaign contributors and that they believe that they can "fool most of the people all of the time" with false promises and toothless settlements. I am sure Mr. Brown hopes to be our governor again and needs the financial industry to support his campaign. I know his sister Kathy Brown is very well connected with that industry as a VP at Goldman-Sachs who makes well over $1,000,000 a year in salary.

[mtracy9]

04:55 AM on 09/23/2009

"America has a strong economy and a surplus.... Now is the time to reform the tax code and share some of the surplus with the people who pay the bills."
--George W. Bush, nomination acceptance speech, 3 August 2000

After the election of 2000, Bush and a Republican-led Congress reduced income taxes, with the majority of the tax cuts going to America's wealthiest individuals. With the introduction of Bush's tax cuts, the budget surplus immediately disappeared and deficits resumed. By the end of Bush's eight-year term, the national debt stood at $10 trillion -- double its level when Bush assumed office. And, as for the strong economy Bush talked about when he assumed the Presidency­..........

"This is an impressive crowd -- the haves and the have-mores. Some people call you the elite. I call you my base."
--George W. Bush, at the annual Al Smith Memorial Foundation Dinner, 19 October 2000

[Ping]

04:23 AM on 09/23/2009

"the people who got us into this mess are not likely to be the ones who will get us out"

Please run Jerry. You were California's last real Governor.

[socalcde]

11:03 AM on 09/23/2009

Very much agree.

[TurnToTheLeft]

02:31 PM on 09/23/2009

I agree. If we had pursued his push toward solor and wind power 35 years ago - California would be in a lot better shape now.

[Chipher]

12:35 AM on 09/23/2009

"...inattentive White House..." is hardly accurate! Come on!!

Gingrich's Contract On America held a smoking Lewinsky to Clinton's head to sign FSMA 1999.

http://www.wsws.org/articles/1999/nov1999/bank-n01.shtml

[cloudminder]

11:54 PM on 09/22/2009

i would really like to vote for Jerry Brown for Gov

but i need to know where he stands on University of California and current legislation requiring the governor's signature

SB 218, SB 219, Bringing Public Oversight, Transparency, Access, and Accountability to the UC

and

SB 217SB 786 and SCA 21

http://www.reformtheuc.com

[structurequity]

10:53 PM on 09/22/2009

Won't tap into the others to get a leg up... so wait in line with all the other hoi polloi. That Jerry Brown still has a beacon shining through the years is a testament to his core integrity, and my own history, for I remember him as a community college board member in Los Angeles, debating the rising cost of student union fees from $6.50 per semester to some higher rate ungodly at the time, and even then I was godless. Now, he raises his phoenix wings to align himself with the criers of "foul". Rightly so, but too late. Too late, for the hapless investors lured to godlike returns for blind faith is like greed a man made thing. We are asked to decentralize and trust in local state AGs, a godlike trust in those who drive us bust. Enough, write the rules to allow for the common good not the bottom line.

[1laingirl]

10:05 PM on 09/22/2009

I lived in California for almost 35 years. Governor Brown was known to be a straight shooter. He has not been in politics to get rich and never lived in grand style. He was not the usual politician who looks out for himself, rather than the people he was elected to serve. I hope he gets elected again.

[TMcKeon]

01:05 AM on 09/23/2009

You're right. Jerry Brown has always been there for us and I'm 99% sure I'm going to vote for him. I've lived in California most of my life, since 1965. I don't know how much more of this state government our family can take. My daughter started Cal State this fall. Last spring, it was $1800 per semester. When she graduated high school it was $2000. By the time she started two months later it was $2400 and she almost didn't get enough credits to qualify as a full-time student due to class cuts. Okay. So she gets a job at a local school district at the after-school program (she wants to be a teacher), and today she brought home a letter stating her state taxes were going up 10% to offset the federal tax breaks and to pay off California's deficit. She cried. All she wants to do is get a college education and every time she turns around she gets a door slammed in her face. And she MUST be a full-time student to be eligible for health insurance. Am I the only person on the planet who thinks this is an absolute outrage?

[Awakenedcitizen]

01:33 AM on 09/23/2009

I agree. frugal personal lifestyle. no big ego.

[Arnold Hernandez]

06:24 PM on 09/22/2009

Can't do the time, don't do the crime. The ONLY regulation these gluttons should of followed would be their very own humble self control. I see no need, for RICH people, to steal, unless AnYONE of you can enlighten me.

Let the light begin to shine upon the darkness concentrated within the shadows!