A bipartisan group of lawmakers in Washington is co-sponsoring legislation and demanding an independent probe to stop the government and a trustee from suing innocent victims who invested in Bernard Madoff’s Ponzi scheme.
Carolyn McCarthy
Rep. Carolyn McCarthy, D-N.Y., is one of the lawmakers pushing for the legislation. Her district has a large number of investors victimized by the Madoff scheme, including elderly retirees. She is participating in a bipartisan effort to keep them from being victimized again by a process in which the government and a trustee are suing former Madoff investors for spending money they were told belonged to them. The effort by McCarthy includes a new demand for an independent government probe and legislation introduced earlier this year.
Many victims of the Madoff scheme are currently under threat of being “clawed back,” or sued by the government in an effort to retrieve profits that they withdrew from their investment accounts. Irving Picard, the trustee in charge of liquidating Madoff’s old investment management firm, has been leading the effort to sue former Madoff investors, such as New York Mets co-owner Fred Wilpon, claiming that as sophisticated investors they should have known that Madoff was acting illegally.
The problem with the process, according to McCarthy’s office, is that most of the investors would not have known that their profits were falsified by Madoff, yet they are now being punished again. Many of the former Madoff investors are senior citizens who made long-term retirement plans—or even started paying for their retirement living expenses already—with these funds.
On June 3, McCarthy was the only Democrat, along with three Republicans, to write to the Government Accountability Office demanding a probe into whether there are any conflicts of interest in Picard’s selection as trustee, his execution of the controversial clawback process, or his use of an accounting method called the “Net Investment Method,” in which victims get back only what they originally invested, not any of the profits that they may have not withdrawn but paid taxes on anyway.
In April, Rep. McCarthy became a cosponsor of H.R. 757, the bipartisan “Equitable Treatment of Investors Act,” which would protect Madoff victims by prohibiting clawbacks from investors unless the investor had knowledge of the fraud or was an SEC-registered financial professional or entity.
The bill would also allow investors to rely on their final statements (not just what they originally invested) for the purpose of determining what they are owed under the SEC-run Securities Investors Protection Corporation.
In addition, the bill would ensure that for future SIPC trustees, the court would pick from a group of candidates provided by the Securities and Exchange Commission, rather than the SIPC, to avoid any conflict of interest.
“Suing innocent investors is fundamentally unfair and just victimizing the victims, adding injury to injury,” said McCarthy, a member of the Financial Services Committee. “We need to protect vulnerable seniors and other investors from these unfair government ‘clawbacks’ and earn the public’s trust and confidence by removing any potential conflicts of interest in these cases. I’m hopeful that the bipartisan letter to the GAO and legislation that I’ve signed on to help to bring some long-overdue relief and justice to the many victims of Bernie Madoff—and future Bernie Madoffs—out there.”
5 Comments
It is my understanding that Picard is attempting to "claw back" money from Madoff investors that profited from their investments, and that the money clawed back is to be pooled and paid to Madoff investors that did not profit from their investments. I believe this action is similar to bankruptcy proceedings in which the bankruptcy court requires certain unsecured creditors that received payments from the entity are required to return those funds (or explain why they meet certain exceptions) so that they don't receive preferential treatment that other unsecured creditors did not receive.
I believe Picard's intention is to more equitably share the pain. There was no profit in the global Madoff pool of investments. Some parties were fortunate enough to withdraw funds that other investors did not. If the investor lost money, then Picard will not be clawing back, but if they profited from the investment they should have the false profit (there really was no profit) returned to the pool to be distributed proportionately among all the fraud victims.
I believe this article does not adequately describe the mechanism or the reasoning.
I do not belief that Picard is receiving compensation on a contingent fee basis. I do not know how or from what source he is compensated, and this may be relevant, but I believe his motives are above reproach.
He spoke at the Association of Certified Fraud Examiners 2010 annual conference regarding the progress he is making, and his task seemed quite daunting.
I applaud his efforts to clean up this mess and to provide a more equitable distribution of the Madoff pain.
Posted by: welovehoop | June 24, 2011 8:03 AM
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Our financial markets need HR 757 Equitable Treatment of Investors Act.
If the public comes to understand that we cannot rely on our brokerage statements in a liquidation for purposes of SIPC insurance our capital markets will cease to exist as investors rush to gold and other investments that don't rely of statements of account.
At this point-in-time this understanding is known only to well to the victims of FINRA's and the SEC's failures in the Madoff and Stanford multi-decade frauds.
The SEC's, SIPC's and their Trustee's claims that investors cannot rely on their brokerage statements is damaging our capital markets at a time when we should be reinforcing safety and security, healing from the failures of our regulatory systems and encouraging capital investment.
Posted by: TP1Murray | June 15, 2011 12:50 PM
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I apologize for the typo in my previous comment....If you want to support Cong. McCarthy's efforts to protect your investments, please go to http://tinyurl.com/petition757.
Ronnie Sue Ambrosino
Posted by: RonnieSueAmbrosino | June 15, 2011 10:55 AM
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Madoff investors applaud Reps. McCarthy, Garrett and others who are concerned that the American investor is being lured into a false sense of security about their personal investment portfolios.
Congress is protecting innocent investors and working to ensure that ALL can feel safe that their investments are protected by the insurance promised by SIPC (which is funded by Wall Street brokers, NOT taxpayers).
Irving Picard has tried to rewrite the rules under which we all invest (after the fact) and against Congressional intent and law. This is illegal and immoral.
Congress is stepping up to oversee his actions and for that, All investors should applaud them.
Please support their efforts by signing this petition, http://tinury.com/petition757
Ronnie Sue Ambrosino Madoff Victims Coalition twitter.com/madoffvictim1
Posted by: RonnieSueAmbrosino | June 15, 2011 10:51 AM
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Here's someone worse than Madoff. Read the information at this link and forward it to everyone you know, so they don't get scammed: Google "Tex Madoff who is worse"
Posted by: Tex | June 15, 2011 6:21 AM
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