Commissioner, Internal Revenue Service
1111 Constitution Avenue, N.W.
Department of Treasury
Washington, DC 20224
Dear Commissioner Shulman:
do not know whether you are aware that in July of 2004, in the midst
of Harry Markopolos’ revelations to the SEC that Bernard Madoff
was operating a Ponzi scheme, the Internal Revenue Service placed
its imprimatur on Madoff by approving his company as a non-bank
custodian for IRAs. I am writing to request that you inquire into,
inform me, and make public how this happened.
As you may know, when it enacted
the Employment Retirement Income Security Act of 1974, Congress
was deeply concerned over the safety of citizens’ retirement savings.
It wished to insure that those who “participate in [retirement]
plans actually receive benefits.” To insure that Americans’ retirement
monies were safeguarded, Congress put the IRS in charge of insuring
that fiduciary standards were met by custodians of retirement plans,
IRAs and similar monies. Congress felt the IRS had previously done
well in overseeing fiduciary standards, and this experience would
aid it in future. To assist the IRS in doing this job in future,
Congress authorized appropriations of 70 million dollars per year.
Congress further provided that
the IRS could authorize non banks to be the custodian of IRAs and
similar accounts if the non bank provided “substantial evidence”
that “the way in which he will administer” accounts will be “within
accepted rules of fiduciary conduct with respect to the handling
of other people’s money.”
To carry out Congress’ intent,
the IRS has regulations requiring that, to be an approved non-bank
custodian of IRAs, a company has to have a separate trust department;
the assets of different accounts cannot be commingled; continuity
of the company has to be insured by diversified ownership under
which no one individual can own more than fifty percent of its shares;
the company has to keep customers’ assets in a vault; and the company’s
fiduciary records have to be kept separate from other records. The
IRS also ruled that, in order to carry out its function of safeguarding
the owners of IRAs, pension funds and similar monies, it has a right
to inspect the books and records of any company that wishes to become
or already is an approved non-bank custodian.
Despite Congress’ intent that
it safeguard retirement monies, and despite its own regulations,
in 2004 the IRS approved Madoff as a non-bank custodian of IRAs
even though he was fraudulently stealing retirement monies from
IRAs and even though he was in violation of the IRS’ own regulations.
Among the violations of the IRS’ regulations were these: Madoff
had no separate trust department. One man, Bernard Madoff, owned
90 to 100 percent of the company rather than less than fifty percent.
(The Trustee, Irving Picard, has said in a complaint that Bernard
Madoff’s company was “wholly owned” by him.) There was no vault
- and an inspection would have shown there also were no securities
to put in a vault. All the customers’ assets were commingled since
Madoff stole them all for his own use instead of keeping securities
in separate accounts. And had the IRS done its job, it also would
have learned that, for at least fifteen years or so, Madoff
had previously operated as a non-approved non-bank custodian
for tens or scores of IRAs and as a non-approved non-bank subcustodian
for hundreds of others. These discoveries would have necessarily
caused the IRS to uncover and blow the whistle on Madoff’s fraudulent
conduct instead of approving him as a non-bank custodian of IRAs
question which arises, of course, is how did this occur. How did
the IRS come to approve Madoff in 2004? Did it conduct no investigation,
but simply rubber stamp his application to be a non-bank custodian?
Were there bribes or other criminal conduct involved? Was the IRS
influenced somehow or other by the SEC. It seems inconceivable that
the IRS could have approved Madoff. Yet it did. How did this happen?
As said, I request that you
conduct an investigation of this, let me know the answer(s), and
make the answer(s) public. It is no trifling matter when the Internal
Revenue Service seems to have abetted the largest fraud in history
by approving Madoff to be a non-bank custodian of retirement monies.
It is no trifling matter when the IRS did this in violation of the
intent of Congress and its own regulations. Those who lost money,
the Congress, and the entire country have a right to be told the
answer(s) to the question of how did this awful thing happen.
R. Velvel, JD, is the Dean of Massachusetts
School of Law. He is the author of Blogs From the Liberal Standpoint: 2004-2005
(Doukathsan Press, 2006). Click here
to contact Dean Velvel, or you may, post your comment on his website,