Associates of convicted fraudster Bernard Madoff and the U.S. Securities and Exchange Commission have agreed to settle civil charges.
The federal regulator announced that Maurice Cohn and his daughter, Marcia Cohn, who ran Cohmad Securities Corp., and former vice president Robert Jaffe have agreed to refrain from violating federal securities rules.
Cohman, now out of business, was a brokerage firm partly owned by Madoff and located in the same Manhattan office building. The agreement is not final until court approval is made. Civil penalties, restitution, and interest will be decided later. The Cohman name is a combination of Cohn and Madoff.
The SEC contends that the Cohns and Cohmad were negligent in statements to possible investors and should have raised “serious questions.” Jaffe, who operated out of Boston, agreed to settle charges of recklessness in referring clients to Madoff.
Hundreds of Cohmad clients invested more than $1 billion with Madoff, who is serving a 150-year sentence for operating a massive Ponzi scheme with losses estimated at $20 billion. The SEC plans to ask the court to permanently ban the two Cohns and Jaffe from working in the securities industry, The Wall Street Journal reported.
A federal judge decided in February that there was no evidence that the three knew of fraud, and none of them have admitted or denied the SEC's allegations. Judge Louis Stanton, in dismissing the SEC’s original June 2009 lawsuit, wrote that "there is nothing inherently fraudulent about referring customers to an investment adviser for fees," and that Madoff might have "fooled the defendants as he did individual investors, financial institutions, and regulators," Reuters reported.
The SEC then amended its complaint earlier this month, alleging negligence rather than fraud.
The Cohns’ attorney, Steven Paradise, told the Journal that they did not knowingly engage in Madoff’s Ponzi scheme. "The Cohns have decided that resolving this matter with the SEC and avoiding lengthy litigation is in the best interest of their family."
Stanley Arkin, a lawyer for Jaffe, said in a statement that his client was relieved to settle after having been "deceived and fooled" by Madoff, Reuters reported.
The Cohns and Jaffe are facing a lawsuit filed by the trustee trying to recoup money for Madoff’s victims.