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Should the government bail out Madoff's victims?

Posted 9 years.

12 Comments

  • bill eilers - 9 years ago

    Certainly It will be up to the courts to ultimately decide. An independent trier of fact should have the decision making power.Whatever the court’s decision, it will no doubt occasion long, protracted and costly appeals by one, or more probably, both sides. I do know that many amicus briefs have been filed and others are being prepared for filing by the brokerage/trading community in support of three main positions: 1) That the net amount of money deposited and money withdrawn from the Madoff accounts should be the ONLY determiner of a victim’s actual loss, 2) Investors who took out more than they deposited in fact received other victims money, not profits.These fortunate investors should be aggressively pursued for claw backs prior to SIPC’s furtherence of paying claims, and 3) That the mandated payout liability amount that SIPC will ultimately be reconsidered and should be no greater than $100k per account. The fact that numerous fraudulent statements were sent purporting to represent the purchase and sale of securities does not magically make the non-existent purchases and sales bona fide. Indeed vast numbers of transactions were reported at prices that never existed on the so called trade date. They couldn’t possibly have been real trades. Elevating a criminal like Madoff’s trading scam to the level of actual executed trades is an insult to the many honest brokerage firms, market makers, and money managers worldwide. This will be vigorously argued prior to further payouts being made to Madoff victims. I absolutely agree that the taxes paid on the fictitious gains should be refunded. That is area that the victims counsel should spend their time and their clients money.
    Former SEC guy, FYI “Misprison of a Felony” requires actual knowledge and concealment of a felony.

  • RSMB - 9 years ago

    Mr. Eilers - Thank you for your comments, but certainly you know that a few words on a website are not intended to convey the law. Since you seem sophisiticated, please read SIPA and the applicable case law (easily found online) and I believe that you will fully agree as to how the courts (and SIPC) have historically interpreted and applied the $100K reimbursement. It is to be used for reimbursement for cash deposits with brokers that were intended by the customer to be cash deposits - not money in the hands of the broker-dealers who were entrusted to purchase securities for their clients. And I am sure that you appreciate as a member of the industry, that SIPA was enacted, not to protect against risk, but to protect against fraud. Madoff investors (who had no inside dealing) were the unqualified victims of fraud.

  • bill eilers - 9 years ago

    RSMB the following is taken directly from the SIPC web site:
    " It is important to understand that SIPC is not the securities world equivalent of FDIC–the Federal Deposit Insurance Corporation. Congress specifically considered creating a Federal Broker-Dealer Insurance Corporation, but lawmakers wisely concluded that such a designation would be both misleading and out of step in the risk-based investment marketplace that is so different from the world of banking."
    The $100K per account is what the Madoff losers are entitled to and no more. As a member of the brokerage industry I can assure you that at the highest levels pressure is being put on SIPC to limit the amount of any recovery for the Madoff investors to the NET of what they put in and took out. In no case should any payment exceed $100K.

  • Jean Tarr - 9 years ago

    Why should the government bail out the investors? Everyone that has invested money in stock and CD's are losing money, so should the government bail us all out? Our arms were not twisted saying invest your money or else. We all invested trying to make a dime. It was a bad investment, so get on with your life.

  • RSMB - 9 years ago

    Mr. Eilers & Others:
    The 1978 enactment of the SIPC reimbursement of $500,000 is specifically for reimbursement on Madoff-type Ponzi frauds. The $100,000 provision was intended only for those situations where the investor deposited cash and intended it to stay that as cash with the broker, much as the FDIC covers cash deposits in banking institutions. All of the Madoff investors received detailed monthly statements listing the stocks they thought Madoff was buying/selling on their behalf; reimbursing for those transactions that were never made is exactly what SIPC was intended to cover.

    In 1978, $500,000 was realistic; but it has never been cost adjusted to present day dollars. The Madoff losses are in present day dollars. Congress should amend SIPA to increase the $500,000 reimbursement to 2009 dollars. These reimbursements not paid by the taxpayers. THEY ARE PAID BY THE BROKER DEALERS WHO WERE CONTRIBUTING A PALTRY $150 PER YEAR. The SEC looked the other way too many times. None of this would have occurred had the SEC been doing its job.

  • lbsherman - 9 years ago

    Bill Eilers and others who continue to distort the facts, please re-read the SIPA act. Because our accounts showed trades and there were trade confirmations issued, the SIPC advances are legally to be $500,000. The very fact that the account trades were never done is what makes this a fraud. The amounts paid are to be based on the account balance. That is what is written and also has been decided in court cases. Please get your facts straight before making comments.

  • bill eilers - 9 years ago

    Why are the investors entitle to $500k. Madoff never bought any equities for his clients, therefore the clients only had cash in their accounts which SIPC covers only up to $100k. The costs associated with paying the Madoff investors will ultimately be borne by future inventors in the form of higher commissions and fees. Take what you can get and quit whining.

  • nes - 9 years ago

    By now you should know that what you are writing is inflamatory and untrue.
    I can only conclude that you want to sell papers and profit from the misery of many financially destitute crime victims. SIPC is investor protection.SIPC is funded by Brokers who now do not want to anti up and pay. It's the Brokers money.Taxpayers do not foot the bill. We did not suffer market loses like other IRA or 401K we were ROBBED and have no chance of our phantom stocks making a rebound, they don't exist. AIG, GM,CITI they got your money and mine because they were too big to fail; we are the little guys and expendable.

  • Too good? - 9 years ago

    People who love to criticize Madoff investors for not seeing an investment that was "too good to be true" are idiots. They are simply using this comment to make themselves feel smart for having not lost their money in this fraud. The 8-10% annual returns were not extraordinary by any means. Although this was not a hedge fund, many many funds were returning 15-20 and even greater returns on an inconsistent basis. Generating lower, but smoothed and consistent returns, was a strategy of other funds that tried to even out the wide swings of the market. In fact, had he executed all the trades that he purported to execute, his returns would have been realized. The fraud occurred and was masked by the fact that he generated trade confirms 3-4 days after the trades were supposed to occur. So, in essence, he used 3-4 day "hindsight" to find the trades he needed to generate 8-10% returns. This is easily done, obviously. Not auditing the fact that trades never occurred is a factual and legal responsibility of the SEC, since an average investor has no way to audit that part of a broker's business. The SEC is supposed to do this, and didn't do it. That's a fact. And Madoff depended on and facilitated the SEC's negligence in this basic compliance function several times. Those are the facts....

  • crime victim - 9 years ago

    By the way - I was a 20 year BMIS investor. My average return was 10.5% over 20 years. Fidelity Magellan has a lifetime average return of 16.42% - do you think that is a fraud too?

  • crime victim - 9 years ago

    Be careful what you wish for. What happened to Madoff investors could just as easily happen to any investor in our markets. Madoff had something like 50,000 investors. These included some famous names that, unfortunately, indicated that madoff investors were the rich and famous and took advantage of a system not available to all Americans. Did you know that it also included pension plans, IRAs, insurance annuities, banks (both foreign and domestic)? Did you know that the SEC investigated BMIS seven times over a period of 15 years and found nothing? Did you know that the IRS investigated BMIS in 2004 and approved the firm as a non-bank IRA custodian? Did you know that the IRS investigation that found nothing cost thousands their entire retirement fund? Did you know that ALL brokerage firms in our country pay only $150 a YEAR to become a member of SIPC and that paltry amount covers every one on their brokerage accounts? Do you wonder why it is so difficult to collect from SIPC and why they appear to want to limit payments to investors and protect the industry? BMIS investors will never get back the money from Madoff. They will never see ANY of the "gains" they obtained over decades? Many paid taxes on these phantom "profits" over the decades. Do you think that the IRS should return these taxes that were paid on gains that never existed? If you think that the IRS should keep these taxes then ask yourself this one '-- Madoff was a criminal that stole from his victims - the government collected taxes on the pieces of paper called 1099's that Madoff fraudulently produced. Do you think that the government should keep the proceeds (read that taxes) that were obtained as a result of a criminal enterprise? By the way - BMIS stands for Bernard Madoff Investment Securities - it could just as easily have been MLIS (Merrill Lynch Investment Securities). Just remember this - most Madoff investors are average Americans - just like you.

  • My gifted son is not a crook - 9 years ago

    Hum, "...too good to be true."??? Then how come my son, an algorithmic/quant money manager of NYSE & NASDAQ equities, non-leveraged, has an audited +107% net, from 4/10/2006 thru 7/3/2009, with a worst one time interday drawdown of only 11% peak to valley in equity, and manages some $17 billion+ as a private money manager? [NO, he is NOT soliciting for new investors.]

    The capability to well exceed Madoff's alledged returns is a fact of the financial investment world. The fact that HE was a fraud, and that most all publicly available investment products cannot consistently maintain their returns in a linear fashion, is no reason to believe that such belief is a fact for all.

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