In the eight years since Ponzi scammer Bernie Madoff was exposed as having swindled unsuspecting investors out of approximately 17 billion dollars, Irving Picard, the court appointed trustee charged with recapturing funds from people who profited from Madoff’s scheme in order to return money to cheated investors has managed to get back more than 11 billion dollars, much of which has already been returned to the victims of the scam. Now a proposed settlement has been made with the estate of the late Stanley Chais, a money manager who improperly steered investors into Madoff’s funds while lying to them about his involvement in the scam. Under the terms of the proposed settlement, his estate as well as Chais’ widow will be paying 277 million dollars to Picard and a separate restitution fund for victims established by the California Attorney General. In a 2009 lawsuit, Picard claimed that Chais made a billion dollars in profit from Madoff’s scheme as well as earning hundreds of millions of dollars more in fees from clients he directed to Madoff knowing that it was a scam. The proposed settlement will be presented to the judge overseeing the matter on November 22nd for approval.
In 2014 Bernie 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 although it is outrageous for Madoff to blame his victims for their plight, he is correct in his analysis. 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 achieve. 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 direct investors, they would have immediately known that there were no investments to be held.