Should Madoff get 12 years or 150?
Remember Bernie Madoff? He's the little fellow who ran a $65 billion Ponzi scheme. Last week the government demanded he pay $170 billion -- which I gather is the amount that prosecutors believe Madoff stole. But with Madoff and his wife forking over $80 million, it's unclear why they aren't giving the government their other $743 million. Nevertheless, compared to what prosecutors demand, Madoff's stake is small potatoes. To collect a bigger chunk of that $170 billion, the U.S. ought to look at the Madoff Eight -- including Jeffry Picower and his alleged $5.1 billion take -- six times that of Madoff.
Meanwhile, 10 Madoff victims will give their sob stories to a court in Manhattan and a judge will decide how many years behind bars Madoff will get. His lawyers argue that given the 71-year-old Madoff's life expectancy, he ought to get 12 years, which would give him a year to live free, assuming he does not get shanked in prison. Then there are those who demand 150 years -- but assuming he can't stay alive that long, it is unclear what happens to the unserved portion of his prison term.
Now there is new ugliness emerging from the Madoff situation. Two classes of Madoff victims are fighting with each other -- you have the ones who invested directly with Madoff because they had so much money to invest fighting with those who invested indirectly -- small fry whose cash was bundled into so-called feeder funds that forked over the money to Madoff. The indirect investors are not protected by the Securities Investor Protection Corp. (SIPC) which can give $500,000 to victims -- the direct investors are covered by SIPC.
The big question that remains unanswered in my mind is this: "Why does the U.S. sustain the conditions for new Madoffs to emerge?" The U.S. allows fund managers to produce account statements for clients -- and, as I posted, unless those account statements are produced by a completely independent organization there is nothing to prevent new Madoffs from popping up in the future.
Then there is the bigger issue of why people allow others to manage their money. If those others get paid on the basis of the number of trades they generate, they will trade clients' accounts rather than meet client financial objectives. And since those so-called financial advisers can't predict the future, it is hard to understand how they justify their fees or why clients pay them.
Whether Madoff gets 12 years or 150, justice will not be served until we change the basic conditions that enabled him to fleece his tens of thousands of victims. Otherwise, it's just a matter of time before a new Madoff surfaces to fleece our children or grandchildren.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book isYou Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing.