Madoff Is Dead, but 'Clawback' Effort Isn't

Lawyers say they still have at least 2 years of work ahead
By Newser Editors and Wire Services
Posted Jun 2, 2021 1:14 PM CDT
Madoff Is Dead, but Work to Unravel his Fraud Isn't
Bernard Madoff exits Manhattan federal court, Tuesday, March 10, 2009, in New York.   (AP Photo/ Louis Lanzano, File)

Epic Ponzi scheme mastermind Bernie Madoff is dead. But the effort to untangle his web of deceit lives on. More than 12 years after Madoff confessed to running one of the biggest financial fraud in Wall Street history, a team of lawyers is still at work on a sprawling effort to recover money for the thousands of victims of his scam. Their labors, which have already secured $14.5 billion of the estimated $17.5 billion investors put into Madoff's sham investment business, didn't cease with the financier's death in prison in April. Ongoing litigation by Irving Picard, a court-appointed trustee for the liquidation of Bernard L. Madoff Investment Securities, and his chief counsel, David Sheehan, could potentially pull in billions of dollars more. "You don’t like to see anyone die. But in this case, it wasn’t going to have any impact on what we’re doing," Picard told the AP. "Our work goes on." What that looks like:

  • While Madoff's books said his fund was worth $60 billion in 2008, most of that money didn't exist. He'd never actually invested the cash clients gave him. When clients cashed out fictitious profits, Madoff simply stole from other clients to cover withdrawals.
  • Picard was given the task of separating the "net losers"—Madoff clients who didn’t cash out of their accounts—from those who did. Over time, net losers with approved claims have quietly seen an average of 70% of their investments returned. Net winners were subjected to so-called "clawbacks." Not only did they lose money they thought they had in their accounts, they had to pay back profits they had withdrawn over the years.
  • The biggest single chunk Picard recovered came in late 2010 when the widow of a Florida philanthropist agreed to return a staggering $7.2 billion that her husband, businessman Jeffry Picower, had pocketed. Months later, another $1 billion was secured from one of the many feeder funds that the trustee accused of ignoring red flags about Madoff.
  • The trustee still has the financial backing of the non-profit Securities Investor Protection Corporation (SIPC) to keep global litigation going against the remaining clawback holdouts—including feeder funds and other sophisticated money managers who failed to detect the fraud.
  • Asked whether the recovery effort was winding down, the lawyers predicted it will go on at least another two to three years—something they’ve been saying for a decade. But Picard assured, "Someday it will come to an end."
(Read more Bernie Madoff stories.)

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