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This Week in Scandals: Merrill Probes and Madoff’s Plea

Every week, we take stock of how the week unfolded for the stories we're tracking in Scandal Watch (see the right sidebar). Here is how we do it. And, as always, feel free to suggest new scandals.

Mario Tama/Getty Images 1. Market Crisis

Last week, the Federal Reserve's vice chairman stayed mum as senators demanded to know who AIG's counterparties were, but various reporters managed to dig up an answer anyway. The Wall Street Journal names 15 financial institutions that have been paid since the Fed first came to AIG's rescue, and Fortune has a slightly different list.

Meanwhile, the Washington Post reports that AIG threatened "potentially catastrophic" consequences if it didn't get a fourth bailout, and the Los Angeles Times explains why AIG is "too big to fail."

Bailout watchdog Neil Barofsky told Congress on Wednesday that he's investigating whether political interference affected how bailout funds were doled out. The next day, the Journalreported that Rep. Maxine Waters (D-CA) pulled some strings for a bank in which her husband held stock as recently as last year. Later that day, the New York Timesreported that she had actually helped out the bank twice.

And finally, a letter Merrill Lynch sent to Congress on Nov. 24 saying "incentive compensation decisions for 2008 have not yet been made" was "misleading," says New York Attorney General Andrew Cuomo. The firm had actually voted two weeks before to give bonuses to employees in December, Cuomo says. Cuomo is also investigating "whether the early payments encouraged Merrill traders to mark down their portfolios -- which would make it easier for them to post gains fresh out of the gate in January."

According to the Orlando Sentinel, Merrill is also under investigation by Barofsky over whether it "ran afoul of the law when it sent employees on expensive trips to the Ritz Carlton Orlando even as it was angling for billions of dollars in bailout money."

2. Madoff's Long Con

Bernard Madoff was finally ejected from penthouse purgatory and jailed yesterday after pleading guilty to all charges in federal court. (Here's the full plea (PDF).) Now prosecutors are fixing their sights on potential "aiders and abettors." Possible suspects are family members, "solicitors, accountants, and others in London" who might have helped Madoff, various employees in the New York office and Madoff's auditor.

3. House of Murtha

More information trickled out this week about ties between defense lobbying firm PMA Group and House members in charge of doling out Pentagon cash, particularly Rep. John Murtha (D-PA). Politico reported that Murtha used the Electro-Optics Center at Penn State University as a "front" to funnel earmarks to clients of PMA Group, which was raided by the FBI in November.

And CQ Today reported that PMA founder Paul Magliocchetti and his family have donated $1.5 million to lawmakers’ campaigns since 2000. According to CQ, "a select group of Democratic members of the Defense Appropriations Subcommittee" were "top beneficiaries."

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