Lawyers' Full Employment Act: Alleged $50B Madoff Fraud
In addition to keeping prosecutors and white-collar defense lawyers busy, the alleged $50 billion Ponzi scheme that 70-year-old Bernard Madoff is accused of operating under the guise of a purportedly profitable hedge fund is also providing plenty of work for securities and tax specialists, not to mention litigators.
As accountants and others seek to unravel the inner workings of a claimed one-man fraud that Madoff himself reportedly admitted totals some $50 billion, a wealth of legal issues will need to be resolved on numerous fronts. Among them: whether money from later investors was fraudulently conveyed to earlier investors, who hence might have to repay some of the profits, reports the Wall Street Journal (sub. req.).
Also, tax lawyers are gearing up to help clients seek a strategic advantage, such as deducting theft losses, the newspaper writes. Doing so, however, may require investors to forgo possible litigation, since such losses can’t be deducted if they might be recouped later.
Even exercising all legal options, investors—who include Lawrence Velvel, dean of the Massachusetts School of Law, Newsday notes—could suffer huge losses.
“If the money were stolen from a brokerage, as much as $500,000 per client should be covered by the Securities Investor Protection Corp., a nonprofit funded by the securities industry. However, SIPC doesn’t cover investment losses, and many of Bernard L. Madoff Investment Securities LLC’s clients had millions of dollars invested with the firm, far above the SIPC limit,” the WSJ explains.
Meanwhile, a lengthy list of attorneys representing those on both sides of the aisle is getting longer, as many apparent victims of the scheme lawyer up, reports the American Lawyer in an article reprinted in New York Lawyer (reg. req.).
Among the names it includes:
• Martin Flumenbaum of Paul Weiss Rifkind Wharton & Garrison is representing Mark and Andrew Madoff, who reportedly alerted authorities to their father’s wrongdoing.
• Scott Berman, of Friedman Kaplan Seiler & Adelman in New York, is representing several investment management funds as they seek to recover lost assets and review due diligence procedures.
And several renowned plaintiffs securities firms also have signed up new clients: “Milberg’s Brad Friedman and Seeger Weiss cofounder Stephen Weiss announced on Friday that they have been retained by dozens of individual investors—including a senior citizens center, corporate executives, banks, and hedge funds—thought to have lost hundreds of millions of dollars,” the legal magazine writes.
The Madoff scheme reportedly found new investors largely through recommendations by others thrilled by its seeming superstar performance year after year.
Velvel tells Newsday that an unnamed New York City lawyer, who is a friend of his, introduced him to Madoff in 1995, when both visited him at his Manhattan office. The investment fund wasn’t looking for killer returns, he was told, merely 10 to 12 percent annually.
“It made a lot of sense to me,” Velvel tells Newsday. “Our view was just give us the small gains and we’re happy.”
The U.S. Securities and Exchange Commission reportedly investigated Madoff several times, after his high returns aroused suspicion, but found nothing wrong of any significance.
However, they apparently didn’t probe closely enough into a situation described by USA Today as “possibly the biggest swindle ever committed by a single person” and seen by some observers as providing steady investment returns that were too good to be true.
As discussed in an earlier ABAJournal.com post, Madoff is the target of criminal and civil complaints concerning his alleged fraud.
His lawyers have denied the accusations made against Madoff, but decline to comment in detail, USA Today writes.
Corrected at 12:45 p.m. on Dec. 17, 2008 to remove erroneous reference to Madoff as a graduate of Hofstra University School of Law. He in fact graduated from Hofstra University, but not from its law school, the Associated Press reports in a correction on Dec. 16, 2008.
Additional coverage:
Dealbook: “Another View: The Madoff Scheme”
