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.
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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Method,” in which victims get back only what they originally invested, not any of the profits that they may have not withdrawn but paid taxes on anyway.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.”