Madoff victims want a change in the way their losses are calculated

Posted Jun 8th 2009 7:00PM by Zac Bissonnette
Filed under: Law, Scandals

Imagine this scenario: Let's say that I'm a con-man and you give me $1,000 to invest. I then tell you that the $1,000 has turned into $5,000 -- but then a few years later my scheme collapses and you are wiped out.

Now here's the question: How much money did you lose? Bankruptcy trustee Irving Pickard concluded, quite reasonably, that you only lost $1,000. You can't count the $4,000 that you never had as a loss. But now lawyers for some of Madoff's victims see it differently, and want the losses to be tallied based on the last account statements the investors received from Mr. Madoff -- even though the statements were fraudulent!

This is absolutely insane: How can you possibly draw conclusions about how much people lost based on phony statements? Worse, calculating losses that way would result in greater payouts to Madoff's favored clients, some of whom received higher fake returns. It just doesn't make any sense at all. Why should Bernie Madoff's phony accounting determine how much each victim receives in restitution?

The only fair way to determine losses is to look at how much people lost in the scheme -- if you want to make it calculated, you can also factor in an interest rate so that people whose money was left with the firm longer receive a larger chunk: Someone who gave Madoff $1,000,000 ten years ago lost more than someone who gave him $1,000,000 three days before the scheme collapsed.

But the idea of using the balance on the latest fictitious account statements to determine losses is totally nuts.

Tags: featured, Madoff, ponzi scheme, PonziScheme

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Reader Comments (Page 1 of 1)

6-09-2009 @ 5:22AM

al coholic said...

It doesn't matter how much they claim they lost, it's still all lost. The few remaining crumbs will be snatched up by the lawyers.

6-09-2009 @ 6:28AM

firingsquid said...

Most investors with Madoff were as unscrupulous as he was - they knew something fishy was up but couldn't pass up having a piece of the action. Caveat emptor! And serves most of them right for losing their money.

6-09-2009 @ 7:43AM

Irish said...

Greed lends itself to humility...I love it. Outrageously high returns was the red flag and yet, people dove in. It's their loss. Calculating fictitious earnings as a loss is even more outrageous and some way, some how, they'll justify it!

6-09-2009 @ 9:24AM

Donovan said...

I don't feel sorry for any of these people who lost money dealing with Madoff. These investors trusted one person (Madoff) with their money. Never totally trust anyone, with your personal financial well being.

6-11-2009 @ 1:15PM

Robert Hogan said...

Those fraudulent statements were previously used to show income on these investors’ returns, resulting in them previously paying taxes on money they never actually had. I would say that it is fair for them to break even by using those same numbers to record their losses. Either that, or allow an exception to the 3 year rule on filing amended returns for the investors who were invested with Madoff for longer than the 3 years.