The Madoff Legacy: Suicide, Despair, Poverty, Lawsuits
The Wall Street Journal has a great roundup of the Madoff Ponzi scheme casualties, two years on. In what can only be called "appropriate timing" (the phrase "good timing" seems insensitive) the article coincides with the suicide of Madoff's oldest son, Mark, who was found dead this morning in his apartment in Manhattan.
It's a complicated mess.
The court-appointed trustee, Irving Picard, is busy suing everybody, including Madoff investors who got out early. They're called "net winners," according to the trustee, and he wants some of those winnings back:
In the years before Bernard Madoff was exposed, December 11 was the day Harry Pech celebrated his granddaughter's birthday. Now, he calls it "the day I lost my life."
The account Mr. Pech had in Bernard Madoff Investment Securities with his son held $874,000 at the time of the Ponzi scheme's collapse, they thought. But Mr. Picard denied their claim.
Instead, in a lawsuit filed on Dec. 2, Mr. Picard demanded that the Pechs repay other victims $642,000, the amount he says they withdrew from the Ponzi scheme above their initial investments.
That makes them "net winners," says Mr. Picard. He has demanded that such investors must repay what they earned in "fictitious profits," instead of having their final account balances honored.
"Here is a guy who lost everything two years ago," said Mr. Pech's lawyer, Barry Lax. "And on the two-year anniversary of the money that was stolen from him, he is being sued by the trustee. It's just insult to injury."
Mr. Picard's stance toward net winners has been approved by a federal bankruptcy judge. That decision is on appeal.
Two years down and what looks like many years to come, at least in courtrooms and judges' chambers. Those who knew about the fraud have yet to be brought to justice. Those who profited from it are in the trustee's crosshairs. Those who were "net winners" are being forced to give back their gains. And Bernie Madoff sits in a North Carolina jail:
As for the imprisoned Mr. Madoff, says his lawyer, Ike Sorkin: "Under the circumstances, he's O.K."
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Dec '10
Re: The Madoff Legacy: Suicide, Despair, Poverty, Lawsuits
Mark Madoff was found in his apartment with his two-year-old son toddling around. That sounds awfully suspicious -- it seems highly unlikely that a father would commit suicide without seeing to the care and safety of his very young child.
Regardless of whether it was suicide or another form of foul play, it seems the sins of the father have been visited on the son.
Jun '10
Re: The Madoff Legacy: Suicide, Despair, Poverty, Lawsuits
In bankruptcy law they have a precise term, but essentially it prohibits payments to preferred creditors previously, even, to declaring bankruptcy. A person or entity could be fully aware of their imminent downfall and work special deals with certain purveyors, knowing they would unfairly harm others who were unaware of the pending financial doom. So the courts go back and force those preferred creditors to pay back into the kitty, so to speak, any funds they received up to a certain legal period previous to the bankruptcy. That allows, sometimes, for the unknowing creditors to get something back. I once gave a contractor more merchandise on the condition that he pay me previous monies owed. I had to give that money to the court several years later, when the contractor declared bankruptcy. I can tell you I was pretty darn unhappy about it, as that contractor never paid me for the extra merchandise he received. I got burned twice...just like the very unfortunate man in this story. What's the term they always use...DIVERSIFICATION.
Jun '10
Re: The Madoff Legacy: Suicide, Despair, Poverty, Lawsuits
The folks ripped off by Madoff had a big problem. They weren't the UAW who had a President tucked away in their back pocket. The actual law DOES apply to the gold boom chasers in the Madoff scam. Secured creditors and bondholders of Chrysler and GM...not so much.
Jul '10
Re: The Madoff Legacy: Suicide, Despair, Poverty, Lawsuits
I honestly don't have much sympathy for the people who lost to Madoff.
Anytime some investment guy tells you he can consistently deliver returns well above historic market norms, chances are he's a hustler.
Madoff's victims congratulated themselves that they were smart investors, garnering out-sized returns.
Pigs get fed. Hogs get slaughtered.
Jun '10
Re: The Madoff Legacy: Suicide, Despair, Poverty, Lawsuits
cdor, in your experience, is it possible to walk back a prudent trade. For example, an investor withdraws money from a Madoff scheme because he needs to pay for a college education. After he gets the money, say some months latter, the firm goes bankrupt. Do you have a sense for how the US courts might respond to such a decision? Would it vary from state to state? Also, how would simple prudence be treated by the courts? What if an investor has second thought and decides that he doesn't trust the management of a firm and withdraws without knowing any insider information? Is such a transaction subject to a walk back? I can see in your particular situation that, rightly or wrongly, the court may have decided that by your extension of trade credit you made it possible for other creditors to suffer, but that's as close as I can get to an answer there. Any comments or input, cdor, would be appreciated.
Re: The Madoff Legacy: Suicide, Despair, Poverty, Lawsuits
Who is paying the court-appointed trustee, Irving Picard? And how is he being paid? Is he getting a cut from every ounce of flesh he brings in from the likes of Harry Pech? Does Picard have any incentive--any whatsoever--to go easy on legal fees? Or to wrap this up quickly?
Just wonderin'.
Jul '10
Re: The Madoff Legacy: Suicide, Despair, Poverty, Lawsuits
Jul '10
Re: The Madoff Legacy: Suicide, Despair, Poverty, Lawsuits
Kenneth
Peter Robinson: Who is paying the court-appointed trustee, Irving Picard? And how is he being paid? Is he getting a cut from every ounce of flesh he brings in from the likes of Harry Pech? Does Picard have any incentive--any whatsoever--to go easy on legal fees? Or to wrap this up quickly?
Just wonderin'. · Dec 11 at 1:37pm
Peter, having once been a court-appointed trustee for a large bankruptcy, I can tell you that he's paid from residual assets of the Madoff funds.
Typically, a trustee negotiates a salary with the judge and often, he is also eligible for bonuses based upon the ultimate returns to the creditors. I believe a trustee must have an arms-length relationship with any attorneys or others who bill by the hour.
Bankruptcy courts are that rare thing - a very efficient arm of government. The judges are fully aware of the potential for plunder, so they keep a tight rein.
Sep '10
Re: The Madoff Legacy: Suicide, Despair, Poverty, Lawsuits
I am unable to see how this could be called efficient. Our legal system grind very slowly and there is no incentive for lawyers to expedite anything. Many times intangible assets are destroyed by the slowness of the system.
Jul '10
Re: The Madoff Legacy: Suicide, Despair, Poverty, Lawsuits
Well, in a typical bankruptcy, you don't have the trustee using lawsuits as the primary way of recovering assets - they're just selling assets and collecting debts. So the Madoff case is certainly different: the only way to recover assets is to go to court.
But bankruptcy judges are pretty crusty characters - they take extreme offense when they smell plunder. They have the power to reject or reduce lawyers' fees - and lawyers know it.
Edited on Dec 11, 2010 at 2:41pmRe: The Madoff Legacy: Suicide, Despair, Poverty, Lawsuits
I am told that a great many Jewish charities lost large parts of their assets in the Madoff scam. The story about his son Mark -- the one who committed suicide after seeing today's Wall Street Journal article -- is truly terrible.
Re: The Madoff Legacy: Suicide, Despair, Poverty, Lawsuits
It is truly terrible, Paul, I agree. This, I think, is going to be one of those events that keeps rippling out for years.
Jun '10
Re: The Madoff Legacy: Suicide, Despair, Poverty, Lawsuits
Cas, firstly I am only assuming, as others here are also, that this is a bankruptcy proceeding. I assume this because it appears that it is being adjudicated as such from the demand for payback. In any normal investment environment, one cashes out however much and whenever one wants. The only repercussions are with the IRS. All of the points you mentioned are valid and many came to my mind as well. What if, as nearly happened, and actually did happen in 2008, a major investment firm goes bankrupt (Lehman Bros, Bear Sterns). Were stock holders who sold or traded those firms forced to pay back their takings? I never heard of any issues with that. Perhaps Kenneth can enlighten us. This seems very strange to me as well. I always thought Madoff's investors just believed he knew which stocks to buy and when to sell them better than anyone else. There must have been some contractual relationship between him and his investors.
Dec '10
Re: The Madoff Legacy: Suicide, Despair, Poverty, Lawsuits
Here is an example:
"Hadassah was introduced to Bernard Madoff Securities in 1988 by a French donor, through a $7M gift. In addition to the gift, between 1988 and 1996, we deposited $33M in our accounts, and by April 2007 had withdrawn $137M. The last account statement showed approximately $90M at the time the fraud was discovered.
"Like so many, for those who withdrew more than they had invested, we faced a 'clawback.' After many months of negotiation, and as a direct result of good faith cooperation of Irving Picard, the Madoff Trustee, and his counsel, we arrived at an agreement, allowing us to continue our commitment to Israel. According to that agreement, subject to approval of the bankruptcy court, Hadassah will pay back $45M."
So Hadassah's $40 million between 1988 and 2007 turned into not $227 million but only $92 million.