When Bernie Madoff’s Ponzi scheme unraveled in December of 2008 it was estimated that his investors which included charities as well as individual investors lost about 20 billion dollars. Irving Picard, the trustee appointed by the Bankruptcy Court to try to recover funds to be used to reimburse Madoff’s victims has had great success in getting close to 11 billion dollars in funds for the benefit of Madoff’s victims. To date, Picard has already returned more than 7 billion dollars of this recovered money to investors swindled by Madoff. Recently Picard filed a motion to be heard on November 18th for permission to immediately distribute an additional 1.18 billion dollars to the victims of Madoff’s crimes. Under the proposed payout requested by Picard the average payment will be $855,000 with the largest payment being $1,082 and the largest approximately 168 million dollars.
Picard has filed more than a thousand lawsuits against people and companies who he alleged profited unfairly from Madoff’s scam and recovered funds from others involved in the complicated scheme under various legal theories. Among those paying money in response to these lawsuits were Madoff’s bank, JPMorgan Chase which paid 543 million dollars and Fairfield Greenwich Group, a mutual fund company which agreed to pay 50 million dollars.
Last year Madoff gave an interview in which he said that his victims were responsible for their losses. He said that his investors were “sophisticated people” who should have known better. “People asked me all the time, how did I do it. And I refused to tell them, and they still invested. Things have to make sense to you. You should ask good questions.” And about this he is correct. No one should ever invest in anything that they do not totally understand. In Madoff’s situation, with 20/20 hindsight we can see that his investment strategy was impossible to conduct. It is easy to say now, but investors should not have relied on him. They should have tried to understand the strategy and if they could not understand it, which no one would have been able to do, they should not have invested. In addition to Madoff’s advice, I would also warn you against ever investing with an investment adviser such as Madoff who both makes the investment decisions and also holds the investments. These activities should be divided between an investment adviser who makes trades and a separate broker-dealer who actually holds the investments. Had this elemental rule been followed by Madoff investors, they would have immediately known that there were no investments to be held.