Madoff's money makers: Half who profited in Ponzi scheme face 'clawbacks'
In a court filing, Madoff prosecutors said, "Nearly 50 percent of the active customers sustained a net loss. Approximately 50 percent of the active customers did not sustain a net loss, in that they withdrew more from their BLMIS [Bernard L. Madoff Investment Securities] accounts than they contributed."
Now that the dust has settled and prosecutors have reviewed the records, they have found that from 2000 to Dec. 11, 2008, Madoff Securities had approximately 8,094 customer accounts, with 4,902 active accounts on the day of Madoff's arrest. Picard found that a total of $12 billion was withdrawn by clients from Madoff's firm in 2008, including about $6 billion in the 90 days before Madoff declared bankruptcy, according to David Sheehan, an attorney representing Picard. He added that these withdrawn funds were a potential source for Madoff's victims to recover some of their lost investments.
Some clawback lawsuits have already been filed against Madoff's cash-positive investors:
• Jeffry Picower, a longtime Madoff investor and philanthropist was sued in May for allegedly taking fake profits of $6.7 billion for himself and his affiliates over a 20-year period. His charity, which is now closed, is also being sued.
• Philanthropist Stanley Chais, another longtime investor with Madoff, is being sued by Picard for about $1 billion in damages. Chais says Madoff almost wiped him out and claims he can't afford to defend himself. His charity, the Chais Family Foundation, is also closed. On Tuesday, the California attorney general filed suit in Los Angeles County Superior Court accusing Chais of securities fraud, unfair compensation and other state business violations. That suit seeks at least $25 million in fines plus restitution and a court injunction baring him from future operations. The SEC has filed civil fraud charges against him in New York, and several investor lawsuits are pending against him as well. Chais now lives in New York, where he is undergoing treatment for the blood disorder myelodysplasia. His attorney says he's too fragile to return to Los Angeles to face trial.
Another major charity that may face a clawback lawsuit is Hadassah, which invested $40 million with Madoff and took out $130 million. Under Picard's clawback formula, Hadassah's fake profit of $90 million could become a clawback target.
One piece of good news for Madoff investors who lost money is that the prosecutors are thinking about hiring Picard to help distribute forfeited assets. Picard has identified 2,336 Madoff account holders who collectively lost more than $13 billion.
In a recent court filing, prosecutors stated, "The government is committed to the distribution of forfeited assets to victims in this case as soon as possible." By using forfeiture law rather than restitution statutes, prosecutors can increase the amount of seized property to be returned to victims who lost money. Working closely with Picard will allow prosecutors to avoid duplicating their efforts, conserve resources and be more efficient. Ultimately, this should get more money back into the pockets of the victims of Madoff's Ponzi scheme.
Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies and Trading for Dummies.