It May Take SIPC 5 Years to Sort Out Madoff Mess & Pay Investors
Bernard Madoff’s alleged $50 billion Ponzi scheme run under the guise of a hedge fund is the most complex financial web the Securities Investor Protection Corp. has ever had to untangle in its 40-year history.
So figuring out what, exactly, has been going on at Bernard L. Madoff Investment Securities, and, as much as possible, repaying investors in the brokerage arm of his business, is likely to take attorney Irving Picard and his Cleveland-based law firm, Baker Hostetler, at least five years, Bloomberg reports.
Madoff’s multiple homes, as well as alleged multiple sets of books and false documents, are some of the reasons why liquidating the brokerage and tracing its assets are expected to be a daunting task. Thus far, in a little over a month on the job, Picard and the law firm have located $830 million in assets and contacted 8,000 potential claimants, the news agency writes.
“I expect distributions to go out well into the future, because it will involve litigation, and that takes time,” says Michael Goldberg, a Florida lawyer who apparently is not involved in the SIPC matter. “You will be talking about this case in 2015.”
The SIPC, at least in theory, may be able to reimburse Madoff brokerage customers (and other brokerages through which individuals invested in the Madoff hedge fund) up to $500,000 each. That is the maximum amount in investment thefts covered by the nonprofit organization, but its funding, which is provided by brokerages registered with the U.S. Securities and Exchange Commission, reportedly falls significantly short of the total amount likely to be needed to reimburse brokerage customers for Madoff losses.
However, there may be some gray areas for Madoff brokerage customers, as far as SIPC coverage is concerned, and SIPC protection doesn’t apply to those who invested directly in Madoff’s hedge fund or through another hedge fund, rather than through a securities brokerage, as discussed in an earlier ABAJournal.com post.
Hence, the most likely means of redress for nonbrokerage investors in Madoff’s hedge fund is any assets that that can be recovered and litigation. And for this group of investors, the eventual payout could well be “pennies on the dollar, if that,” according to what attorney Stuart Gerson of Epstein Becker & Green tells the Associated Press. Gerson formerly headed the Justice Department’s civil division and was the acting U.S. attorney general during President Bill Clinton’s administration.
Meanwhile, the Madoff situation is providing impetus for efforts in Congress and in the executive branch to impose more regulation and accountability on financial advisers who work at securities brokerages, as another Bloomberg article discusses.
Related coverage:
Bloomberg: “Madoff Investors May Recover More From IRS Than From His Firm “
ABAJournal.com: “Lawyers’ Full Employment Act: Alleged $50B Madoff Fraud”
Updated at 2:45 p.m. to add links to related coverage.
