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Big pot but not enough to fix Madoff scam damage
By David B. Caruso |
March 23, 2009, Monday
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Print Edition
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A clearer picture is emerging of how much money might be available to pay back victims of the Bernard Madoff fraud, but while the pot is big it is nowhere near enough to repair all the damage.
It includes nearly US$1 billion held by Madoff's company and potentially more than US$100 million in personal assets that include luxury homes, cars and boats.
Several banks, hedge fund managers and others who led clients to Madoff may wind up paying huge settlements to resolve negligence lawsuits. Banco Santander, Spain's largest bank and one of the biggest losers in the scheme, has already offered 1.3 billion euros (US$1.8 billion) to defrauded customers.
Additionally, some United States investors will be able to receive up to US$500,000 from an industry fund for people whose money has vanished in a brokerage failure, the Securities Investor Protection Corp said.
The reality for many victims, though, is that they will be in a long line of investors fighting to recoup a fraction of what they lost.
"Whether the losses are US$30 billion or US$60 billion, there is not enough money out there to satisfy all these victims," said Anthony Paccione, an attorney with the New York law firm Katten Muchin Rosenman LLP.
As of the past week, some 6,700 people have filed claims for a share of whatever is recovered. Thousands more are expected to apply by a July deadline. Many lost US$1 million or more.
For the swindled, the promise of someday recovering a few thousand dollars of their life savings is cold comfort at best.
"You gather up some money in an honest working way, and it's all gone," said Joanne Meerow. Her husband, Burt, invested the proceeds of the sale of his office equipment testing business in a hedge fund that, in turn, gave all its holdings to Madoff.
"We do not have very much of a hope at all of getting anything back," Burt Meerow said. "It is the death of your future. When you are 70 years old, you can't just go out and start over."
An army of lawyers is already out looking for money, but each potential source of cash seems to come with a question mark.
Victims could recover substantial sums from the Internal Revenue Service by claiming their Madoff losses as thefts, a move that would entitle many to a refund on taxes paid in the past five years. Estimates say those refunds could be worth billions.
Relatives to pay
Prosecutors are seizing as much as they can of Madoff's personal fortune, and have begun demanding millions of dollars in payments from his relatives. Madoff's net worth, however, is unclear. He claimed assets of about US$123 million, not counting shares of his own company, which also did legitimate business on Wall Street but whose value is now uncertain.
The Securities Investor Protection Corp, which guarantees brokerage accounts somewhat like the Federal Deposit Insurance Corp guarantees bank deposits, will have strict limits on how many people it can help.
Under fund rules, payouts are limited to US$500,000 per account, and SIPC probably won't cover those who invested with Madoff indirectly through a hedge fund. It could spend as much as US$2.4 billion, if each of Madoff's 4,800 direct investors qualify for the maximum payment.
The simplest pool of refund dollars may come from assets held by Madoff's collapsed company. The court-appointed trustee overseeing its liquidation said that so far he has found about US$943 million that can be distributed to customers.
That total could grow once the trustee begins the task of trying to roll back the Ponzi scheme. The law may now require people who got out before the scheme collapsed to give that money back, and the Madoff trustee, Irving Picard, has said he is planning to initiate several so-called "clawback" lawsuits to recover false profits.
It includes nearly US$1 billion held by Madoff's company and potentially more than US$100 million in personal assets that include luxury homes, cars and boats.
Several banks, hedge fund managers and others who led clients to Madoff may wind up paying huge settlements to resolve negligence lawsuits. Banco Santander, Spain's largest bank and one of the biggest losers in the scheme, has already offered 1.3 billion euros (US$1.8 billion) to defrauded customers.
Additionally, some United States investors will be able to receive up to US$500,000 from an industry fund for people whose money has vanished in a brokerage failure, the Securities Investor Protection Corp said.
The reality for many victims, though, is that they will be in a long line of investors fighting to recoup a fraction of what they lost.
"Whether the losses are US$30 billion or US$60 billion, there is not enough money out there to satisfy all these victims," said Anthony Paccione, an attorney with the New York law firm Katten Muchin Rosenman LLP.
As of the past week, some 6,700 people have filed claims for a share of whatever is recovered. Thousands more are expected to apply by a July deadline. Many lost US$1 million or more.
For the swindled, the promise of someday recovering a few thousand dollars of their life savings is cold comfort at best.
"You gather up some money in an honest working way, and it's all gone," said Joanne Meerow. Her husband, Burt, invested the proceeds of the sale of his office equipment testing business in a hedge fund that, in turn, gave all its holdings to Madoff.
"We do not have very much of a hope at all of getting anything back," Burt Meerow said. "It is the death of your future. When you are 70 years old, you can't just go out and start over."
An army of lawyers is already out looking for money, but each potential source of cash seems to come with a question mark.
Victims could recover substantial sums from the Internal Revenue Service by claiming their Madoff losses as thefts, a move that would entitle many to a refund on taxes paid in the past five years. Estimates say those refunds could be worth billions.
Relatives to pay
Prosecutors are seizing as much as they can of Madoff's personal fortune, and have begun demanding millions of dollars in payments from his relatives. Madoff's net worth, however, is unclear. He claimed assets of about US$123 million, not counting shares of his own company, which also did legitimate business on Wall Street but whose value is now uncertain.
The Securities Investor Protection Corp, which guarantees brokerage accounts somewhat like the Federal Deposit Insurance Corp guarantees bank deposits, will have strict limits on how many people it can help.
Under fund rules, payouts are limited to US$500,000 per account, and SIPC probably won't cover those who invested with Madoff indirectly through a hedge fund. It could spend as much as US$2.4 billion, if each of Madoff's 4,800 direct investors qualify for the maximum payment.
The simplest pool of refund dollars may come from assets held by Madoff's collapsed company. The court-appointed trustee overseeing its liquidation said that so far he has found about US$943 million that can be distributed to customers.
That total could grow once the trustee begins the task of trying to roll back the Ponzi scheme. The law may now require people who got out before the scheme collapsed to give that money back, and the Madoff trustee, Irving Picard, has said he is planning to initiate several so-called "clawback" lawsuits to recover false profits.
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