Madoff $171 Billion Restitution a Moot Point

New York--Bernard Madoff has agreed to pay back $171 billion to the victims of his decades-long Ponzi scheme. But they’ll probably have to settle for seeing him die in prison.
A few days before Madoff was sentenced for probably the largest investment fraud in history, the federal judge hearing the case handed down the $171 billion forfeiture order forcing the disgraced financier to relinquish everything he owned: property, homes, yachts, jewelry, cars, etc…
At the time, court papers said the $171 billion figure represented the total amount prosecutors could directly tie to Madoff’s fraud. In other words, it was the amount investigators estimated had flowed in and out of Madoff’s phony investment fund during the decades he ran his Ponzi scheme.
When Madoff was arrested last December, he reportedly told authorities that he had about $65 billion in customer accounts. That number, despite being widely disseminated by the media, was never verified.
It’s likely that the $65 billion number is meaningless. That’s because the investigation by the trustee overseeing the liquidation of Madoff’s assets quickly determined that virtually all of Madoff’s financial statements were fraudulent, and that Madoff hadn’t conducted a single transaction for his clients for more than a decade.
So the $65 billion figure is meaningless, but no more so than the $171 billion forfeiture amount.
Consider that that the bankruptcy trustee, Irving Picard, has recovered just $1.5 billion since he began scouring through all of Madoff’s assets just a few weeks after Madoff’s scheme collapsed late last year and the once high-flying Wall Street titan turned himself in.
Meanwhile, more than 15,000 claims have been filed by victims seeking to recover money lost in the fraud.
Fraud experts believe that victims who get anything back will get it either from the $1.5 billion recovered by the trustee or from funds provided by the Securities Investor Protection Corp., the industry funded entity that acts as a sort of insurance firm for fraud victims.
But it won't total anywhere near $171 billion. That figure is moot, they say.
Bill Branscum, a Florida-based investigator who specializes in Ponzi schemes, said investigators shouldn’t waste their time trying to track every nickel that passed in and out of Madoff’s investment firm.
“Even banks don’t keep records going that far back,” he said. “And who’s going to pay for someone to go back that far to go through all those records? The cost for someone to do that would be an outrageous expense, and all of it spent simply in the hope that there is money to be recovered.”
Branscum believes investigators will never really know how much Madoff burned through in his epic fraud.
As Branscum noted, Picard’s job as bankruptcy trustee is to “maximize recovery.” Spending millions of dollars essentially searching for a needle in a hay stack would be a waste of money that could otherwise go toward the victims, he said.
“The reality is that the only good reason for someone to do that kind of research is if they’re writing the Great American novel. Anything else is just an exercise in billing,” said Branscum.
That last point is worth emphasizing because already many victims have complained that Picard has wasted a lot of time going through Madoff’s records in an effort to determine how much money clients deposited and withdrew from their Madoff accounts. Picard is using that information to determine how much victims should receive, if anything.
But Picard is like any other lawyer. His time is money. The trustee recently submitted a bill for $14.7 million for his law firm’s services for four months of the Madoff investigation.
Victims say Picard would save a lot of time and money if he simply used Madoff’s final statements to determine the amount he will reimburse victims. Picard strongly disagrees with that formula.
The 71-year-old Madoff is serving a 150-year sentence in a federal prison in North Carolina.
As part of the $171 billion restitution order, the government also settled claims against Madoff's wife. Under the arrangement, the government obtained Ruth Madoff's interest in all property, including more than $80 million-worth that she had claimed was hers. The order left her $2.5 million in assets.
The agreements also stripped the Madoffs of all their interest in properties belonging to them, including homes in Manhattan, Montauk, N.Y., and Palm Beach, Fla., worth a total of nearly $22 million. The Madoff’s must also forfeit all insured or salable personal property contained in the homes.
Other seized assets include accounts at Cohmad Securities Corp., valued at almost $50 million, and at Wachovia Bank, valued at just over $13 million, and tens of millions of dollars in loans extended by Madoff to family, employees and friends.
The judge’s order also authorized the U.S. Marshals Service to sell the Manhattan co-op, properties in Montauk and Palm Beach and certain cars and boats.
Madoff agreed to pay the $171 billion in restitution, but has declined to name anyone who might have helped him operate his scheme. Two others, Frank DiPasquale, widely regarded as Madoff’s right hand man, and David Freihling, an accountant, have also been charged as criminals in the case.
Four of Madoff’s family members, his brother, two sons and a niece, have all been sued by Picard. They have denied any knowledge of Bernard Madoff’s fraud.