Before Bernard Lawrence Madoff confessed to the largest Ponzi scheme in history, few people outside Wall Street and financial circles had even heard of him. But since then, he and his inner circle have featured prominently in books and movies as the pre-eminent personification of greed.
Well, it’s little more than a decade since the man started serving his maximum 150-year jail term. During that time, the authorities have been hard at work trying to recover some of the loot—and have made decent progress, too. The court-appointed trustee put in charge of liquidating Bernie Madoff’s firm, Bernard L Madoff Investment Securities LLC, have reported that the firm has begun disbursing a $464-million tranche to victims of the scam that will boost total recoveries to $12.2 billion.
The trustee, Irvin Picard, has said that the latest recovery means that all former customers eligible to recoup up to $1.49 million of their losses will now be paid in full. The trustee said that $13.36 billion, or about 76 percent, of the estimated $17.5 billion that customers lost in the epic scandal has now been amassed either through recoveries or agreements to recover.
As of October 2018, $11.275 billion had been distributed or committed to the victims which means the latest disbursement will bring total distributions to nearly $11.74 billion, or two-thirds, of losses. Some of the recovered money is being held back due to pending litigation. Other Madoff victims including pension plans, schools and charities have been allocated $1.97 billion from a separate $4-billion compensation fund by the U.S. Department of Justice.
A recovery rate of nearly 80 percent is most definitely a resounding success for Irvin Picard, but more of that a little later.
The Bernie Madoff fraud was uncovered in December 2008 while Bernie was arrested and convicted shortly thereafter. The 80-year Madoff is now serving a 150-year jail term in a medium-security North Carolina prison after pleading guilty to crimes that his judge termed as “extraordinarily evil.”
But, how did it all come to this?
The unfolding of a giant scam
A decade after the giant scandal was unearthed, plenty of questions still linger in the minds of curious investors. First off: how much money was lost in the scandal? Figures of $20-$65 billion have been tossed around and one wonders why such a wide discrepancy. Well, both figures are about right depending on how you define the loss.
Well, customer deposits siphoned off by Bernard L Madoff Investment Securities LLC are actually closer to $20 billion—or $17.5 billion by the latest count. Those were the principal funds that were invested in the firm. However, they say the devil is in the detail. Madoff’s firm generated account statements telling investors that they had earned returns that, together with the principal deposits, that racked up to a total of $65 billion. In other words, the 37,000 or so victims who had entrusted their life savings with Madoff really did lose the $65 billion they believed was theirs—only that nearly three-quarters of that money only existed in Bernie’s imagination.
The second big question: when did the scam of the century start? Straight answer: nobody knows for sure. Some experts estimate that the epic crime could have started as early back as the 1960s, or just a few years after Madoff launched his firm as a penny stock trader. Others suggest the deception begun in 1987 after the historic 1987 market crash when Madoff scrambled to polish up the books after the massive downturn. Bernie himself has been just as unreliable, telling CNN Money that the scheme began in 1987 before later changing his tune to 1992. Madoff's former account manager, Frank DiPascali, Jr., revealed in a court testimony that the crime had been going on “for as long as I remember”. That implies that the scam might have run undetected for decades considering that he started working with Madoff in 1975.
The final question: what has made the recovery process so successful?
If the Bernie Madoff scam was extraordinary by sheer scale, the success rate by recovery efforts has been astounding. It's a sad fact that no one will ever recover the billions of dollars in phantom profits that Madoff made up to have earned over the years. Irvin Picard, however, is only interested in the cash deposits that customers invested in the firm. In case you are wondering how the 76 percent hit rate by Irving Picard stacks up, bear in mind that recoveries in Ponzi schemes typically range from 5-30 percent with many victims winding up getting paid nothing at all. So Irving has been extraordinary and atypical by any standard. The firm has been aggressively suing those who profited from the scheme, whether knowingly or not, and is likely to net a couple billion more.
Lastly, in case you are wondering how Madoff is able to live with himself after all this, well, he says life in jail is not so bad:
“It’s kind of like being in the Army,” he has said, “only you’re not worried about getting killed.”
Earlier on, the octogenarian did admit to being haunted by the death of his first son who hanged himself on the second anniversary of his father’s incarceration.
By Alex Kimani for Saafehaven.com