More Missed Signals on Madoff

Date: Tuesday, January 20, 2009
Author: HFN Daily Report

A housekeeper's lawsuit against an accountant may be an indicator that the Securities and Exchange Commission blew another chance to uncover the alleged fraud at Bernard Madoff's business.

It may also indicate that others knew that Madoff's alleged scam was about to blow up, before the FBI found out about it.

Housekeeper Nevena Ivanova, filed a lawsuit in Nantucket, Mass. district court against her former employer Frank Avellino, saying he lost her life savings, $124,000, by investing in a fictitious investment firm, according to a report in The Inquirer and Mirror. Ivanova had been hired to clean Avellino's $10 million Nantucket home.

When Ivanova asked for her money back this year, Avellino said it was gone, The Inquirer said. The date she found out she had lost it all was Dec. 1.

Ten days later, on Dec. 11, Bernard Madoff was arrested and charged with running what could turn out to be a $50 billion Ponzi scheme.

Ordinarily, the story of the housekeeper's loss of her nest egg and an alleged scam that has taken in big, institutional money managers and banks might have nothing to do with one another. Except for one thing.

In 1992, the SEC investigated a New York accounting firm for raising money without being registered and licensed. The accountants settled with the SEC and had to return all the money to investors. That firm was Avellino & Bienes; the same Frank Avellino who has been sued by Ivanova.

At the time of the settlement, Avellino and his partner Michael Bienes were raising money for Madoff. However, the SEC was content with curtailing the accountants' fundraising effort without looking into where the money was going, according to The New York Times.

One investor told HedgeFund.net that, after Avellino and his partner settled with the SEC, his money was returned. But the same investor later talked to Madoff who persuaded him to invest his money directly in Madoff's company.

It is still not known whether Ivanova's money was lost in a Madoff investment or in some other kind of investment that Avellino made for her. Her attorney, Michael Wilson, said he would not comment on the case until there was a resolution.

HedgeFund.net was unable to reach Avellino's attorney by press time.