Madoff Family Targeted in $30 Million Lawsuit

Irving Picard, the court-appointed trustee who has been working to recover the billions of dollars lost in the historic Bernard Madoff Ponzi scheme, has just filed three lawsuits, said The Associated Press (AP).

Madoff, 72, pleaded guilty to running the biggest Ponzi scheme in history. He has long maintained that he acted alone and no one—no family members, friends, or colleagues—were aware of his fraud. Madoff is now spending 150 years in prison for orchestrating the massive scam that is estimated to have cost duped investors an incomprehensible $65 billion.

Bernard L. Madoff Investment Securities is the investment firm that served as a ”front” for the scam, noted CNN previously.

Picard filed the recent lawsuits in an attempt to recoup over $30 million that he alleges the Madoff family invested—primarily in oil and gas properties and technology companies—said the AP. The lawsuits were filed in U.S. Bankruptcy Court in Manhattan by Irving Picard and follow another lawsuit he filed in November, said the AP. The November filing seeks about $200 million from Madoff family members who, Picard said “lived lavishly while using the family finance business like a ‘piggy bank,’” wrote the AP.

According to the AP, Picard wrote a so-called sarcastic statement regarding the recent lawsuits describing the shamed financier as being “quite generous” with the funds he took from thousands. “Foremost among the recipients of Madoff’s gifts of customer funds were his closest family members, including his wife Ruth Madoff, his brother Peter, his two sons Andrew and Mark and his niece Shana,” Picard said, quoted the AP.

The AP said that defendants named in the lawsuits include Madoff Energy Holdings LLC, Conglomerate Gas Resources, Madoff Technologies, Madoff Brokerage & Trading Technology LLC, Primex Holdings LLC and Madoff Family LLC. According to Picard, said the AP, the entities were controlled by Madoff family members, many of whom were Madoff employees.

The lawsuits seek over $22 million that was invested in technology companies, over $5 million invested in oil and gas properties, and $3 million from the Madoff Family Fund that also included hedge fund and a biotechnology company investments, noted the AP. According to the filings, the investments were allegedly used to move money from Bernard L. Madoff Investment Securities, said the AP. The lawsuits also allege that Madoff’s business investment arm issued statements as far back as December 2008 for some 4,900 open customer accounts and were claimed to have been valued at $68 billion, said the AP. In truth, all but $20 billion were lost by Madoff, said the lawsuit, wrote the AP.

Since news broke of Madoff’s scheme, the SEC has been faulted for failing to detect the historic fraud since 1992 and for not fully going after tips, having inexperienced staff handle reviews, not looking into unbelievable and sustained profits, not pushing when Madoff was clearly caught in lies, and not pursuing trading records that would have pointed them to the scam.

The disgraced financier apologized at his sentencing in June for lying to thousands of investors and deceiving his wife, brother, and sons.

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Bankruptcy Judge Sides with SIPC Trustee in Calculating Madoff Investors’ Claims

U.S. Bankruptcy Judge Burton Lifland ruled today in favor of the SIPC Trustee in the liquidation of Bernard Madoff’s securities firm, affirming that customers’ claims are properly based on the amount of cash deposited by the customer less any amounts withdrawn by the customer (the “net investment method”).  Some customers argued that the amounts of their claims should be based on the amounts set forth in their last financial statements received from Madoff (the ‘last statement method”).  Recognizing that choosing between these two competing calculations of “net equity” was not “plainly ascertainable in law,” the court endorsed the trustee’s net investment method after a thorough analysis of the plain meaning and legislative history of the relevant statute, controlling Second Circuit precedent, and considerations of equity and practicality.  The New York Times has posted the opinion on its website.

An appeal of the decision is expected.

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Prosecutors Set Sights on Madoff Kin

Federal prosecutors in Manhattan are pursuing criminal tax-fraud cases against Bernard Madoff’s brother and sons, according to people familiar with the matter.

His brother, Peter Madoff, was the chief compliance officer of Bernard L. Madoff Investment Securities LLC. Sons Mark and Andrew Madoff helped run the firm’s market-making division, which was separate from the investment arm where Bernard Madoff perpetrated his multibillion-dollar Ponzi scheme. Through representatives, they all have denied knowledge of the fraud.

Lawyers for Peter Madoff, who is in his 60s, didn’t respond to requests for comment about the tax-fraud probe. Martin Flumenbaum, a lawyer for Mark Madoff, 45 years old, and Andrew Madoff, 43, said in a statement that they had no prior knowledge of Bernard Madoff’s crimes and contacted authorities immediately after their father told them of his fraud. The sons “continue to cooperate fully with the authorities in their ongoing investigations,” he said.

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Madoff Right-Hand Man DiPascali Stays in Jail

Epic fraudster Bernard Madoff’s longtime deputy Frank DiPascali must stay in jail at least until more is disclosed about his cooperation in the government’s investigation of Wall Street’s biggest investment fraud, a U.S. judge said on Wednesday.

U.S. District Judge Richard Sullivan reserved decision on whether to grant motions for DiPascali’s release following denial of bail in August when he pleaded guilty for his role in the fraud.

Judge Sullivan said he was unconvinced by the bail requests from prosecutors and DiPascali’s lawyer that he would not flee. The judge sought more details on the “quality” of DiPascali’s cooperation and asked whether “this is the last saga in a decades-long scheme to defraud investors, regulators and now this court.”

Sullivan also said during a 50-minute hearing in Manhattan federal court: “I’m hoping for more information, getting to the truth of what happened and recovering more for the victims.”

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SEC Sued by Madoff Investors for Missing Ponzi Scheme

Two of Bernard Madoff’s victims sued the U.S. Securities Exchange Commission last week for failing to uncover Madoff’s $65 billion Ponzi scheme. The lawsuit was filed by Phyllis Molchatsky, a disabled retiree and single mother who lost $1.7 million, and Steven Schneider, a doctor who lost almost $753,000. The SEC earlier denied the investors’ administrative claims, clearing the way for them to file today’s suit under the Federal Tort Claims Act. The government’s “sovereign immunity” from lawsuits should be waived under a law that permits cases against the U.S. if its workers were negligent, according to the complaint filed in Manhattan federal court seeking the return of $2.4 million. Through a “pattern of incompetence,”the SEC missed at least six opportunities to uncover Madoff’s fraud even after receiving detailed tips from an expert explaining how Madoff’s high returns and mysterious investment strategy were proof of the world’s biggest Ponzi scheme, according to the complaint. “Had the SEC carried out its functions with even a minimum of reasonable due care, many, if not most, of Madoff’s victims would have been spared the financial ruin they face today,” the two New York investors said in their 63-page complaint. “Plaintiffs relied on the SEC to protect them and, instead, time after time, the SEC’s agents looked the other way, allowing an obvious danger to grow exponentially, until massive injuries to the plaintiffs and other Madoff investors became inevitable,” according to the complaint.

Full Story: SEC Sued by Madoff Investors for Missing Ponzi Scheme

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SEC Pledging to Fix Problems in Securities Laws

Two top Securities and Exchange Commission officials are pledging to fix the problems that led to the agency’s failure to detect the multibillion-dollar fraud conducted by Bernard Madoff.

In testimony prepared for a Senate hearing, the heads of the SEC’s enforcement division and inspections office say they “deeply regret” the agency’s failure in the Madoff affair and promised changes to avoid future breakdowns.

Lawmakers are seeking answers from the agency’s inspector general and potential lessons as they craft a new system of financial regulation.

I guess all we can do now is wait and see if they meet their obligations. In the meantime, if you need a securities lawyer, try our Securities Lawyer Directory.

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Watchdog Says SEC Mishandled Madoff Probes

The watchdog of the Securities and Exchange Commission has found the agency consistently mishandled its five investigations of Bernard Madoff’s business, despite ample complaints over 16 years about the multibillion-dollar fraud.

But SEC inspector general David Kotz’s report found no evidence of any improper ties between agency officials and Madoff.

Despite speculation that senior SEC officials may have tried to influence the probes, a summary of Kotz’s 450-page report released Wednesday also found no evidence of that.

Read the SEC report’s executive summary.

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SEC Releases Inspector General’s Summary of Agency’s Failures to Detect Madoff Fraud

The SEC released today the REPORT OF INVESTIGATION, UNITED STATES SECURITIES AND EXCHANGE COMMISSION OFFICE OF INSPECTOR GENERAL, Case No. OIG-509, Investigation of Failure of the SEC To Uncover Bernard Madoff’s Ponzi Scheme. (This is the executive summary.  The entire report should be released in a few days.) Bottom line:  the SEC staff was not corrupt, but incompetent.  Here are some excerpts:

The OIG investigation did not find evidence that any SEC personnel who worked on an SEC examination or investigation of Bernard L. Madoff Investment Securities, LLC (BMIS) had any financial or other inappropriate connection with Bernard Madoff or the Madoff family that influenced the conduct of their examination or investigatory work. The OIG also did not find that former SEC Assistant Director Eric Swanson’s romantic relationship with Bernard Madoff’s niece, Shana Madoff, influenced the conduct of the SEC examinations of Madoff and his firm. We also did not find that senior officials at the SEC directly attempted to influence examinations or investigations of Madoff or the Madoff firm, nor was there evidence any senior SEC official interfered with the staff’s ability to perform its work.

The OIG investigation did find, however, that the SEC received more than ample information in the form of detailed and substantive complaints over the years to warrant a thorough and comprehensive examination and/or investigation of Bernard Madoff and BMIS for operating a Ponzi scheme, and that despite three examinations and two investigations being conducted, a thorough and competent investigation or examination was never performed. The OIG found that between June 1992 and December 2008 when Madoff confessed, the SEC received six! substantive complaints that raised significant red flags concerning Madoffs hedge fund operations and should have led to questions about whether Madoff was actually engaged in trading. Finally, the SEC was also aware of two articles regarding Madoffs investment operations that appeared in reputable publications in 2001 and questioned Madoffs unusually consistent returns.

* * *

The OIG retained an expert in accordance with its investigation in order to both analyze the information the SEC received regarding Madoff and the examination work conducted. According to the OIG’s expert, the most critical step in examining or investigating a potential Ponzi scheme is to verify the subject’s trading through an independent third party.

The OIG investigation found the SEC conducted two investigations and three examinations related to Madoff’s investment advisory business based upon the detailed and credible complaints that raised the possibility that Madoff was misrepresenting his trading and could have been operating a Ponzi scheme. Yet, at no time did the SEC ever verify Madoff’s trading through an independent third-party, and in fact, never actually conducted a Ponzi scheme examination or investigation of Madoff.

* * *

As the foregoing demonstrates, despite numerous credible and detailed complaints, the SEC never properly examined or investigated Madofi’s trading and never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme. Had these efforts been made with appropriate follow-up at any time beginning in June of 1992 until December 2008, the SEC could have uncovered the Ponzi scheme well before Madoff confessed.

SEC Chair Mary Schapiro released a statement in response, stating that “[h]is report makes clear that the agency missed numerous opportunities to discover the fraud. It is a failure that we continue to regret, and one that has led us to reform in many ways how we regulate markets and protect investors.”  The statement goes on to describe various SEC changes to improve examinations and investigations.

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Madoff Associate Pleads Guilty

Frank DiPascali Jr., longtime associate of Bernard Madoff, pleaded guilty today to 10 criminal charges, including securities fraud, investment adviser fraud, mail and wire fraud, and conspiracy.  He admitted that he helped Madoff to defraud his customers from 1990s-2008.  DiPascali reportedly is cooperating with prosecutors.  He will not be sentenced until next year.  WSJ, Madoff Aide Pleads Guilty.

The SEC also settled charges with DiPascali today. According to the SEC’s complaint, filed in U.S. District Court for the Southern District of New York, DiPascali helped generate bogus annual returns of 10 to 17 percent by fabricating backdated and fictitious trades that never occurred. The SEC further alleges that DiPascali helped Madoff cover up the fraud by preparing fake trade blotters, stock records, customer confirmations, Depository Trust Corporation (DTC) reports and other phantom books and records to substantiate the non-existent trading.

Without admitting or denying the allegations of the SEC’s complaint, DiPascali has consented to a proposed partial judgment, which if entered by the court would impose a permanent injunction against DiPascali and leave the issues of disgorgement and a financial penalty to be decided at a later time.

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Trustee sues Ruth Madoff for $44.8 mln in US court

NEW YORK, July 29 (Reuters) - The trustee winding down imprisoned swindler Bernard Madoff’s former firm sued his wife on Wednesday, seeking at least $44.8 million for investors bilked in Wall Street’s biggest investment fraud.

Court-appointed trustee Irving Picard said in court papers that of that amount, Ruth Madoff received at least $23.7 million directly or indirectly from Bernard L. Madoff Investment Securities LLC. He said she received an additional $21.1 million during the six years up to her husband’s arrest last December.

“For decades, Mrs Madoff lived a life of splendor using the money of BLMIS’s customers,” the trustee said in the filing in U.S. Bankruptcy Court in New York. “Regardless of whether or not Mrs Madoff knew of the fraud her husband perpetrated … she received tens of millions of dollars from BLMIS.”

Married to Madoff for 49 years, she was a controller of Madoff Securities International in London and worked on accounts at the New York firm, the lawsuit said.

It did not accuse her of knowing about the multibillion dollar fraud in which thousands of investors worldwide were swindled.

In a statement, a lawyer for Ruth Madoff described the complaint as “particularly perplexing and totally unjustified” because she has already forfeited almost all of her assets in an agreement with U.S. prosecutors.

The agreement in June allowed her to keep $2.5 million in cash, but it did not preclude the trustee from suing her.

“We believe the Trustee’s action is wrong as a matter of law and fairness,” lawyer Peter Chavkin said in the statement.

Bernard Madoff, 71, is serving a 150-year sentence in a prison in Butner, North Carolina, for a fraud U.S. prosecutors estimated at as much as $65 billion over at least two decades.

About $13.2 billion has been traced, according to court documents. So far, the trustee has recovered about $1.2 billion under the auspices of the Securities Investor Protection Corp.

Wednesday’s lawsuit by Picard said at least $44.8 million “was subject to recapture” from Ruth Madoff.

It described how the worldwide Ponzi scheme by the former investment adviser and trader left investors impoverished and charities ruined. Madoff ran a classic Ponzi scheme in which early investors were paid with the money of new clients.

Rest of Story here.

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