NEW YORK – Epic Ponzi scheme mastermind Bernard Madoff has died. But efforts are on to unravel the web of his deceit.
More than 12 years after Madoff perpetrated one of the biggest financial frauds in Wall Street history, a team of lawyers is still working on a comprehensive effort to recover money for the thousands of victims of his scandal. .
His workers, who have already secured $14.5 billion from investors worth an estimated $17.5 billion, did not invest in Madoff’s counterfeit investment business with the financier’s death in prison in April.
The ongoing lawsuit by Irving Picard, the court-appointed trustee for the liquidation of Bernard L. Madoff Investment Securities, and his lead attorney, David Sheehan, could potentially pull in billions of dollars more.
“You don’t like to see someone die. But in this case, it wasn’t going to have any effect on what we’re doing,” Picard told the Associated Press. “We’re doing it.”
where did it start
The painstaking process of trying to uncover Madoff’s fraud began shortly after the money manager’s arrest in December 2008.
Panicked investors also began to withdraw from Madoff’s investment fund, but they did not have the money to pay them. While his books stated that his fund was worth $60 billion, most of that money did not exist. He never actually invested the cash given by the customers.
When customers cashed out the fraudulent profits, Madoff stole it from other customers to cover the withdrawals.
Picard was given the task of separating “net losers” – Madoff clients who did not take cash out of their accounts – from those who did.
Over time, net losers with accepted claims have quietly seen back an average of 70% of their investments. Net winners were subjected to so-called “clawbacks.” Not only did they lose money they thought was in their accounts, they also had to pay back profits they’d withdrawn over the years.
Sheehan said, “Those people felt, and rightly so, that they’ve been harmed twice—first by Madoff and then by this trustee of ‘Give me your profit.
The process was difficult for everyone. Some Madoff investors had retired early. Some had bought good houses in expensive areas. Some had made large charitable donations, believing their nest egg was safe.
pain hits home
Gordon Bennett, thinking that his account with Madoff was worth $3 million, underwent a massive renovation on a house in Marin County, north of San Francisco.
When he learned that Madoff had been arrested, he told his wife, “Kate, we just lost the house.”
The financial blow got worse months later when he learned that an annual withdrawal of up to 10% for 25 years meant he had withdrawn more than he had invested.
Picard’s collectors wanted his profit. Suddenly, Bennett was in danger of being added to the bucket of wealthy individuals and institutions suing the trustee, claiming they knew or should have known that their returns were fraudulent.
He said, ‘It was quite scary. “We eventually made an arrangement with the trustee and we sent him all our documents and said: ‘Look, you know, we don’t have any money.’ So he finally said: ‘Okay, I’ll go after the big fish.'”
And Picard did it with some help from federal prosecutors. The biggest single share came in late 2010 when the widow of a Florida philanthropist agreed to return $7.2 billion from the pocket of her husband, businessman Jeffrey Pikovar. Months later, another $1 billion was secured from one of several feeder funds, which the trustees accused of ignoring red flags about Madoff.
These days, Bennett, 74, finds comfort in the same house after a friend buys it and rents it back.
“So now we don’t have $3 million dollars, but you know we don’t need $3 million dollars,” he said.
Some victims contacted by The AP said the news of Madoff dying at the age of 83 while serving a 150-year prison sentence is only a sad reminder of the crimes that changed his life.
Richard Shapiro, 68, of Hidden Hills, California, said he had lost a “very significant” amount of his net worth. In a panic, he put his house up for sale and retired to make money again as a commercial real estate development manager.
Picard’s quick success in recovering some of the money gave rise to a mini-industry of firms that offered immediate cash to Madoff victims in exchange for the trustee’s rights to whatever was recovered.
Shapiro rose to the occasion, selling one of his Madoff funds for far less than it was worth, and the other closer to what Picard could eventually bring, enabling him to save his home and begin rebuilding his life. .
“I have my life back together now,” he said. “And I’m sure the same thing happens to every Madoff victim. I don’t think anyone got away safely from it.”
Another victim who lost money, 59-year-old Charles Gewirtz, recalled that the payout formula was a raw deal.
“I was furious at the trustee,” said Gerwitz, a Detroit engineer. “He didn’t even try to come up with a more appropriate solution.”
Still, Gerwitz found a great lesson in pain: “You get nothing for nothing. Basically, if it’s too good to be true, it is.”
looking back and forth
Picard and Sheehan keep their own memories of the Madoff saga. Sheehan recalled how there was one person who had been of no help over the years: a delusional Madoff.
“He actually used to complain to me that the people who got false benefits were making money, so why were they complaining? He was doing them a favor,” Sheehan said, describing his interactions with the disgraced financier, including prison visits. “It was stolen money. It wasn’t much of a favor.”
Artwork was then recovered from Madoff’s office and sold at auction, including an infamous 4-foot sculpture depicting a screw – “The Soft Screw” – and a bull lithograph by Roy Lichtenstein. All brought in more cash through auctions.
“There were a lot of properties that we could have sold that you wouldn’t find in the normal case,” Picard said. “Here he had other people’s money to spend, and he did.”
Asked whether the recovery effort was paying off, lawyers predicted it would go on for at least two to three more years – something they have been saying for a decade.
The trustees still have the financial backing of the non-profit Securities Investor Protection Corporation (SIPC), which continues its global litigation against the remaining clawback holdouts – including feeder funds and other sophisticated money managers who fail to detect fraud. are.
But Picard assured, “someday it will end.”