New York, NY, United States (AHN) – Two funds have filed a lawsuit against British bank Hong Kong and Shanghai Banking Corporation for profiting from hedge fund Bernard Madoff’s Ponzi scheme.

Alpha Prime Fund and Senator Fund filed a claim against HSBC before a New York bankruptcy court on Friday. The two funds said HSBC served as custodian of Madoff’s funds and failed in its duty to monitor the discredited banker.

It is the second claim filed against HSBC after Madoff trustee, lawyer Irving Picard, filed a lawsuit against HSBC and several feeder funds for $9 billion in December. Picard charged that the bank and funds should have spotted Madoff’s fraud.

Irving claimed that HSBC asked accountancy firm KPMG twice to investigate the bank’s suspicion that Madoff’s investment company was involved in fraud, but the bank had a strong financial incentive to take part in the scheme by being silent about it.

HSBC previously said that KPMG did not conclude in its two reports that fraud was being committed by Madoff’s firm. The bank claimed lack of knowledge about the Ponzi scheme and cited a $1 billion loss as proof that it , too, was a victim of Madoff. HSBC previously asked a New York district court judge to dismiss Picard’s lawsuit.

Madoff, who is serving a 150-year sentence in a North Carolina federal prison, confirmed that HSBC went over his company’s books twice, but missed things.

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Washington, DC, United States (AHN) – U.S. Securities and Exchange Commission Inspector General H. David Kotz initiated over the weekend a probe into the regulator because of potential conflicts of interest in the latter’s investigation of the Bernard Madoff Ponzi scheme.

Kotz cited the recent lawsuit brought by Madoff trustee Irving Picard against SEC general counsel David Becker, whose deceased mother left Becker and his brothers a $2 million inheritance in a Madoff account several years before the discovery of the hedge fund’s scheme. When Becker liquidated the money, he was not connected with SEC, but rejoined the agency in 2009 and resigned again last week.

Kotz’s investigation comes a day after Rep. Darrell Issa, chairman of the House Oversight and Government Reform Committee, and Sen. Charles Grassley, member of the Senate Judiciary Committee, said that SEC Chair Mary Schapiro allowed Becker to represent the agency on Madoff issues without a full proper examination of his financial interests in the case.

The house committee’s lawyer said legislators are determining if a criminal laws were violated by Becker because of a prohibition for federal officers from participating in proceedings where they have a financial interest.

The legislators also demanded that Schapiro explain why an SEC ethics official advised Becker that the general counsel did not have to recuse himself from matters involving Madoff.

Before he resigned from the SEC, Becker wrote to the House Republicans that he informed Schapiro of his inheritance and handled the Madoff case on advise of the ethics counsel. Becker helped craft the SEC’s position on how much money investors should be entitled to recover in the Madoff scheme under the clawback lawsuits filed by Picard.

Many investors want the full, bogus amount based on their last account statements, but the SEC sided with Picard that investors’ claim should be limited to what they put in, less what they withdrew. But the SEC favored an inflation adjustment on money deposited with Madoff, which the trustee disagreed with.

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Ponzi schemes such as the one Madoff perpetrated are named after a 1920′s fraudster named Charles Ponzi. It is a “rob Peter to pay Paul” scheme whereby unsuspecting investors are sucked in by a fraudster making promises of unbelievable interest rate returns. Meanwhile he is just using that new money to payoff earlier investors. Once no new recruits can be found, the house of cards collapses, much like Madoff’s did when he could not meet $7 Billion of payouts to his investors.
In reading about this fraud, several very important lessons stand out:

1. Even rich people get duped. Lot’s of very wealthy people and institutions are going to take a bath on this one, so don’t be naïve to think that just because you have money you are smart enough to not be a victim;
2. If it’s too good to be true… Yeah, I know it’s cliché, but if this doesn’t prove it I don’t know what does;
3. Understand what you’re investing in. I’ve read dozens of books, free reports and emails on stocks, puts, calls, options, credit default swaps, CDO’s, etc.. Why does it always seem like these are just games of musical chairs in which the average American always get caught without a seat?
4. Don’t go in “naked.” This is a term used in the equities market for people that invest in stocks without putting stop orders in place to protect against losses. If you’re going to invest in something, make sure you’re principal is secure and you can control your losses.
5. The SEC can’t protect you. Will someone please explain how there could be no oversight of $17 Billion of asset holdings at a stock trading office? Will anyone get fired over this or will this be excused because of “poorly drafted regulations” and “understaffing?”

Bottom line to this outrage? If you don’t take control of or understand your investments, you risk losing your shirt to a guy like Madoff. Given the current state of affairs on Wall Street, it may be time to consider a different type of secure, high yielding investment – hard money / private mortgage loans.

A hard money loan is simply a private loan given to a property owner at a pre-determined interest rate (12%%2B). The lender’s money is protected not just by a promissory note, but also by a “mortgage” on the property, usually at a very conservative “loan-to-value.”
There are many benefits to hard money lending over equity investing:

* Safety – Your money is secured by a mortgage lien that is never more than 65% of the “quick-sale” value of the property. This leaves a lot of equity in the property as a safety cushion in the event of default by the borrower (remember, don’t go in naked);
* Completely Hands-Off – No need to check your portfolio or trade stocks every day. Once you write a mortgage loan, you simply sit back collect a check every month at a pre-determined interest rate;
* Easy to Understand – You don’t need a PhD from the Wharton School of Business to understand this investment model. Example: property owner has building worth 200K and needs a loan. You write a loan for 100K to the owner. You are protected by 100K of equity. It’s that simple;
* Predictable – You won’t have to gulp down antacids every day watching your stocks fluctuate wildly up and down like a carnival ride. Your returns are determined in advance at the time the loan is written;
* Proven – This type of investing has been around longer than Wall Street, longer than the United States – even longer than paper currency!

So what is the trick to being a successful hard money lender? i) Getting access to good private mortgage deals; ii) properly underwriting them; and iii) having a professional team of legal and mortgage experts to help you close them legally and profitably.

If you don’t want your money to fall into a $50 Billion black hole, consider hard money / private mortgage loans to supplement or replace your current portfolio. If you need help identifying and closing on these types of deals, or would like to inquire further about these types of investments, feel free to contact me. Our hard money company specializes in private mortgage note investing and provides a full spectrum of services related to private/hard money transactions including loan placement; underwriting, title and closing, and loan document production and servicing.

Jeffrey Shiller is a Maryland based attorney specializing in real estate. He is a principal of Jeffrey P. Shiller, P.A. and Hard Money Bankers, LLC. His real estate services include contracts, settlements, loan document production, pre-foreclosure consultation, and structuring creative real estate transactions and hard money deals.

Mr. Shiller can be reached at: Jeff@VIPrealestatelaw.com

On the web at: http://www.viprealestatelaw.com or http://www.hardmoneybankers.com