It won't take long for a flurry of lawsuits to be filed over the massive losses caused by the Madoff Ponzi scheme. Filing complaints is easy. Recovery is far more difficult.There is no doubt that investors who entrusted Madoff with their life savings should be entitled to get them back. I only wish it were that open and shut.
There is a lot we don't yet know, but here's the way it looks to me at present.
Investors who relied on hedge funds ("funds of funds") may have a shot a recovery. These funds represented that they had the ability to select and monitor fund managers. Their recommendation of Madoff to their clients will be difficult to defend given the numerous red flags that have surfaced about his secretive and conflicted operation.
Investors who relied on other referral sources (brokerage firms, accountants, lawyers, advisors) stand on similar footing. These sources of referral may well have liability for not doing more due diligence before recommending Madoff's firm.
Investors who invested directly with Madoff face a more uphill battle. Whatever assets Madoff and his company have will be available (after payment of lawyers' and related fees), but no one knows the amount of the losses or the amount of these assets. Typically, defendants confronted with massive losses and limited assets file for bankruptcy. It is then up to the Courts to locate the assets and distribute them equitably, but you can be sure that lawyer's fees and accounting costs will consume a good part of whatever there is.
Lawyers will search for other "deep pockets," but the options seem limited at present. The accounting firm used by Madoff is small and unlikely to have meaningful malpractice insurance. It is possible that other parties were involved in fraud, in which case their assets will be up for grabs.
If the reported losses of $50 billion turn out to be accurate, it is difficult to imagine any group of defendants being able to respond to a judgment with more than a fraction of that amount.
The fact that Madoff will most likely spend his remaining days in federal prison is small consolation. Investors have been betrayed by him and by the regulatory authorities charged with the responsibility of protecting them.
Dan Solin is the author of Does Your Broker Owe You Money? (Perigee Books 2006), The Smartest Investment Book You'll Ever Read (Perigee Books, 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, 2008).
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Reader Comments (Page 1 of 1)
12-15-2008 @ 6:23PM
tps said...
Since the entire fund was a scam shouldn't any payouts that were made to investors be recoverable. After all anyone who received a payout was receiving money stolen from someone else. I guess they should have to give it back?
12-15-2008 @ 11:47AM
Joe Jelks said...
RE: Bernie Madoff
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Respectfully,
Joe Jelks
Fraud Consultant/ EVP New Business Development
800-830-7617 ext. 240
jjelks@165services.com
12-15-2008 @ 3:31PM
jpm said...
Don't worry, Bat Boy is gonna take him down!
http://www.weeklyworldnews.com/celebs/bat-boy-hunts-madoff
12-16-2008 @ 10:00AM
jimred53 said...
I think this is a travisty when honest hard working people put their hard earned life savings into a so called investment system that rips them off for billions. this man and all of his partners who have proffited from this need to be exposed and all their assets confiscated. I personally think this sould have been caught sooner!!!!
12-17-2008 @ 12:01AM
BERNIE FRIEDMAN said...
HE IS DESERVING IT I HAVE NO PITY FOR HIM. HIS GREAT GRAND
FATHER IS MY GREAT GRAND UNCLE WE GAVE HIM A PHOTO FROM THE CEMETERY ASKING TO HELP OUT TO REBUILD THE CEMETERY FOR HIS UNCLE 10 YEARS AGO IN FRONT OF COURT STREET BROOKLYN, NY. HE WAS SHOOTING SOME MOVIES IN THE AREA HIS ANSWER WAS I HAVE NO RELIGIOUS FAMILY.NOW THAT YOU HAVE TIME CHECK WITH WHAT YOU ARE LEFT AND CHECK WHO YOU ARE AND WHO YOUR GRANDPARENTS WERE WE TOOK CARE OF YOUR GRANDFATHERS CEMETERY BECAUSE HE WAS OUR UNCLE AND A VERY HOLY RESPECTFUL RELIGIOUS MAN.NOW ENJOY LIFE WITH THE REST OF YOUR MONEY AND FAMILY YOU KNOW ABOUT
.FROM YOUR COUSINS
1-29-2009 @ 12:18PM
kennie30 said...
I am one of the victims and we should be able to get our principle back that is our hard earn money if we can't trust the people to invest our money them maybe we should closed the markets I'm losing my house with a small premature daughter teel me if this man should even be in his penthouse I am mad as hell.