Douglas H. Schulman, prior to his now scandalous reign as the former Commissioner of the IRS Commission, served as the Vice Chairman of the agency that regulated “Bernie” Madoff, who is now serving 150 year prison sentence for embezzling $18 billion from clients in America’s greatest Ponzi scheme.
Shulman testified to the House Oversight and Government Reform Committee that while serving as IRS Commissioner, he had inadvertently ignored 132 letters from members of Congress, was unaware of 42 major press stories on the issue, and never discussed any IRS discrimination against conservatives when he visited the White House on average once every two weeks. When Ohio Republican Rep. Jim Jordan reminded Shulman that he told Congress last year, “I can give you assurances nothing is going on, everything is wonderful, we’re not targeting conservative groups”. Shulman answered: “I am absolutely telling you the truth today.”
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For someone with such a poor memory, Mr. Shulman has an impressive background. He holds a Master of Public Administration degree from Harvard University and graduated magna cum laude from Georgetown University Law Center. In 1997 at the age of 30, he was appointed Chief of Staff to the National Commission on Restructuring the Internal Revenue Service, where he pushed the implementation of mandatory electronic filing of all tax returns. In 2000, he moved to the National Association of Securities Dealers, Inc., the private organization assigned governmental powers to perform regulatory oversight of securities dealers to protect investors from fraud.
As a computer whiz-kid, Shulman made a name for himself modernizing NASD technology to facilitate the explosive growth of commercial bank trading of derivatives and junk bonds. In the NASD’s 2006 Annual Report, Vice Chairman Shulman highlighted his leadership in developing the NASD’s computerized system to monitor for fraudulent trading practices: “We engineered our revolutionary TRACE system to shine light on formerly opaque market.”
Douglas Shulman would also have worked closely with Bernie Madoff, former Chairman of National Association of Securities Dealers Automated Quotations (NASDAQ), who served as Chairman of the powerful NASDAQ Trading Committee and key developer of their computerized trade dissemination technology that allowed NASDAQ firms to compete with NYSE members. With the support of the NASD, on November 1, 2006 NASDAQ merged with the Bond Market Association in 2006 to form SIFMA.
In July 2007, FINRA became the successor to the NASD and took over rulemaking authority for the New York Stock Exchange. As Vice Chairman and in charge of technology, Douglas Shulman would have been directly involved with “professional and contract services” agreement that outsourced “operation of TRACE and the OTC Equities business by NASDAQ on behalf of FINRA.”
The Madoff family dominated SIFMA with multiple Boards seats, donated $56,000 to SIFMA directly and paid tens of thousands of dollars to sponsor SIFMA industry meetings in support of expanding OTC risk trading. Madoff’s niece Shana was a persuasive voice on the Executive Committee of SIFMA’s Compliance & Legal Division.
In 2004 Genevievette Walker-Lightfoot, a lawyer in the SEC’s Office of Compliance Inspections and Examinations, informed her supervisor, Branch Chief Mark Donohue review of Madoff found numerous inconsistencies and recommended further questioning. However, no action was taken. Shortly thereafter Donohue’s boss, Assistant Director of the SEC Eric Swanson, married Shana Madoff.
Given encouragement from FINRA and lax SEC enforcement, Bernard L. Madoff Investment Securities by 2008 was siphoned off 9%, about $740 million, a day of the 2008 daily New York Stock Exchange trading volume by paying rebates to other brokerage firms for their customers’ orders in hopes of profiting from the spread between bid and asked prices.
Despite being a donor to the Democrat National Committee, Douglas Shulman was nominated by Republican President George W. Bush and confirmed by the Senate as IRS Commissioner on Friday March 14, 2008. Four day later, the legendary Bear Stearns Brokerage firm collapsed and the U.S. Federal Reserve was forced to take responsibility for $29 billion of its toxic sub-prime assets. Then Lehman Brothers filed for bankruptcy on September 15, 2008 with another $29 billion in losses. On December 11, 2008, Bernie Madoff notified the FBI that his investment firm was all “one big lie” and a Ponzi scheme. Although Madoff had reported over $65 billion in trading profits to FINRA, he pleaded guilty to 11 felonies and actually embezzling $18 billion for hundreds of investors.
Banks, the federal government and investors suffered horrific losses associated with Douglas Shulman’s tenure as Vice Chairman of FINRA. At a 2010 IRS seminar Shulman said: “To borrow an expression whose roots date back to the Middle Ages, Time and tide wait for no man,” to explain that some things were beyond his control. He continued on that theme this week when he refused to apologize to Congress for IRS wrong-doing. But Shulman did acknowledge that he was “dismayed” and “saddened” after reading the inspector general’s report. For Madoff victims and now IRS victims, “saddened and dismayed” does not make restitution.
CHRISS STREET & PAUL PRESTON
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