Sunday, March 29, 2009

Money for Madoff Victims?

So, now that Madoff is off to prison, what happens to the victims of the fraud? Apparently, there is about $2.6 billion in assets so far recovered by the trustee, Irving Picard. The losses in the ponzi scheme are estimated at about $65 billion. Picard recently commented “I have confidence there is sufficient money at SIPC to satisfy all claims.” SIPC, the Securities Insurance Protection Corporation, created under the Securities Investor Protection Act, is a fund that broker members contribute to in order to cover insolvency, but not fraud. The Madoff ponzi included both, so it would be protected under SIPC. So, how could SIPC have enough money when the amount of the assets recovered is far eclipsed by the losses? The SIPC coverage is limited, up to $100,000 is covered for cash investments and up to $500,000 for actual securities invested. Since there is not much evidence that Madoff bought securities the ceiling may be at issue for some clients. Moreover, "clawbacks" may result in some investors owing money if they make a SPIC claim. For instance, if an investor withdrew more over time then they initially invested originally, they could end up owing money back.

While Picard has paid 12 claims thus far at the $500,000 limit, the potential for clawbacks and the clearly limited pool of assets will lead to disappointed expectations for investors. For now, most seem to be waiting to see how Picard will distribute the assets for the SIPC. Investor claims were due March 4, 2009, but claims will also be considered up to July 2, 2009 for customers. Undoubtedly, there is also more to come about the failure of the SEC to investigate Madoff's business as contributing to increasing losses. Updated claims information is available at the Madoff Trustee website.

For a short primer on the SIPC:


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