Category Archives: Madoff Investments

Shattered dreams and broken spirits were, in part, vindicated today when a federal judge formally sentenced disgraced financier Bernie Madoff to 150 years in federal prison.

Before Judge Denny Chin of U.S. District Court in New York imposed the sentence, several victims, including former friends of Madoff’’s, told their stories of how the money manager’s $65 billion Ponzi scheme had destroyed their lives. One victim said Madoff’s scam not only ruined her financially, but forced her to turn to food stamps and to scavenging for food in dumpsters. 

Madoff, who was arrested Dec. 11, 2008, orchestrated his money scheme over what investigators now believe is decades by presenting his firm, Bernard Madoff Investment Securities, as a genuine investment advisory business. In actuality, the company served as a front for a Ponzi scheme, with Madoff using money from new investors to make payments to previous ones, thus creating a false sense of legitimacy. Regulators now contend Madoff’s business hadn’t made a trade in at least 13 years. 

Madoff’s roster of clients entailed the who’s who of Hollywood, including director Steven Spielberg, charities, universities, friends, money managers, global firms and even his own sister.

Today, investigators are continuing to look for others who may have collaborated with Madoff. To that end, on June 23, the Securities and Exchange Commission (SEC) filed civil fraud charges against Cohmad Securities, its chairman, Maurice Sonny Cohn, his daughter, chief operating officer Marcia Cohn, and vice president and broker Robert Jaffe. A second SEC lawsuit named investment adviser Stanley Chais, a Beverly Hills philanthropist, who allegedly oversaw three funds that invested the entirety of their assets – nearly $1 billion – with Madoff.  In channeling the money to Madoff, the SEC says the associates collected several hundred million dollars in fees.

Madoff’s sentence is the maximum allowed under federal law. After hearing the sentence read aloud, the courtroom erupted into universal applause.

The case is U.S. v. Madoff, 09-cr-00213, U.S. District Court for the Southern District of New York (Manhattan).

Ira Sorkin, the lawyer for disgraced money manager Bernard “Bernie” Madoff, says his client will plead guilty to 11 criminal charges on March 12. His punishment: a potential prison term of 150 years.

On Dec. 11, Madoff, a former Nasdaq chairman, was arrested by federal authorities and accused of running a $50 billion Ponzi scheme in which billions of dollars from new investors allegedly were used to pay off older ones.

Madoff’s March 12 court appearance, where he is expected to enter a guilty plea and avoid going to trial, has been anticipated for months. At least 25 of Madoff’s victims are expected to speak.

On Monday, the Wall Street Journal reported that one of Madoff’s assistants directed employees to produce fake trading tickets to mislead clients into thinking their investment returns were legitimate.

To date, authorities have located about $1 billion for investors burned by Madoff’s scam. 

Former high-profile executives with Merrill Lynch, including two CEOs, invested in hedge funds that lost huge amounts of money to disgraced money manager Bernard Madoff and his $50 billion Ponzi scheme. According to a March 5 report from Reuters, one-time chief executive officers Daniel Tully and David Komansky, along with former investment-banking chief Barry Friedberg, personally invested millions in the hedge funds, which were set up by former Merrill Lynch brokerage chief John “Launny” Steffens.

Steffens’ connection to Madoff was tied to Ezra Merkin, who, along with Steffens, is a partner in Spring Mountain Capital LP. Spring Mountain managed nine of Steffens’ hedge funds, and invested in three Merkin-led funds. Steffen reportedly was aware of their heavy Madoff exposure in at least one.

Shortly after Madoff’s arrest on Dec. 11, Steffens announced plans to shut down the Spring Mountain funds of hedge funds. It is unclear exactly how much money the Merrill Lynch executives lost.

Daniel Tully served as president and chief operating officer at Merrill Lynch from 1985 to 1996, and was named chairman in 1993. Succeeding Tully was David Komansky, who held the top spots from 1997 to 2003. John Steffens spent nearly four decades at Merrill Lynch, ultimately rising to vice chairman in charge of overseeing the company’s global assets division. He retired in 2001 to launch Spring Mountain Capital.

Revelations that several former top Merrill Lynch executives personally invested with Madoff and his alleged $50 billion Ponzi scheme are unsettling on several fronts. At one time, these men were CEOs and senior-level management, responsible for managing and overseeing billions of dollars of investors’ money during their tenure at Merrill Lynch. If they can put due diligence on the backburner when it comes to investing their own personal wealth – i.e. fail to perform the legwork necessary to fully understand exactly how Madoff and those associated with him made money – what does it say about the job they did in protecting the investments of Merrill Lynch’s own clients?

First there was Bernie Madoff, now Texas financier Robert Allen Stanford is making a name for himself by running an alleged $8 billion fraud scheme. On Feb. 17, the Securities and Exchange Commission (SEC) filed a civil lawsuit against Stanford and three of his companies on charges of orchestrating a fraudulent, multibillion-dollar investment scam that involved an $8 billion certificates-of-deposit program.

Stanford’s companies include Antiguan-based Stanford International Bank (SIB), Houston-based broker-dealer and investment adviser Stanford Group Company (SGC), and investment adviser Stanford Capital Management. The SEC also charged SIB chief financial officer James Davis, as well as Laura Pendergest-Holt, chief investment officer of Stanford Financial Group (SFG), in the enforcement action. 

According to the SEC’s complaint, Stanford lured investors with promises of big returns on certificates of deposit but instead poured money into illiquid real estate and private equity investments. The complaint also alleges Stanford used false historical performance data to add $1.2 billion in revenues to a “proprietary mutual fund wrap program” called Stanford Allocation Strategy.

On Feb. 17, federal authorities raided Stanford Financial Group’s offices in Houston. A sign outside the office now reads: “Under management of receiver.” Currently, Stanford’s whereabouts are unknown. Many believe the money manager may be hiding out in Antigua.

Stanford International Bank is operated by a small group of family and long-time friends, according to a Feb. 17 article by Forbes. The firm’s investment committee, which oversees the bank’s portfolio, is made up of Stanford; his father, James Stanford; Pendergest-Holt, who, the SEC says, had no financial services experience prior to joining Stanford Financial Group; and James Davis, Stanford’s college roommate.

In 2008, SIB promised clients 12-month certificates of deposit paying interest rates of 4.5%. That rate represented a 3.5% premium over two-year U.S. Treasury bonds (which were paying just below 1%). In June of 2005, SIB was offering CDs paying 7.45%.

According to the SEC’s complaint, SIB showed a 1.3% loss on its investments last year while the S&P 500 declined nearly 40%.

The parallels between Madoff and Stanford are uncanny. Like Madoff, Stanford’s fraud appears to have global implications, reaching from the Texas to Caribbean and around the world.  Stanford also lived a lavish lifestyle. Known as “Sir Allen” after being knighted by Antigua’s prime minister, the Texas financier owned private jets and spent millions on sport sponsorships and charities.

Also like Madoff, Stanford offered too-good-to-be-true investment opportunities. Law enforcement agencies questioned his investing strategies as far back as 1998 but, just like the Madoff case, nothing was done until it became too late.

Our securities lawyers are actively involved in advising individual and institutional investors in evaluating their legal options when confronted investment losses.

Investors may get a welcome shot in the arm if Florida’s attorney general and several state lawmakers have anything to say about it. On Feb. 11, Attorney General Bill McCollum joined Senator Garrett Richter and Representative Tom Grady to unveil a legislative proposal designed to strengthen Florida laws protecting securities investors.

According to the Florida Attorney General’s Office, the legislation – Senate Bill 1126 and House Bill 483 – would broaden the ability of state authorities to investigate and pursue securities fraud, as well as enhance registration requirements for investment advisors, dealers and other personnel.

In addition, the proposed legislation gives the Attorney General the ability to participate in civil investigations with the approval of the Office of Financial Regulation.

Grady, a securities attorney and expert in securities regulation, is the author and House sponsor of the bill. Richter, a banker and chairman of the U.S. Senate Banking & Insurance Committee, is sponsoring the bill in the Senate. The legislation is expected to be heard during the 2009 Legislative Session.

In recent months, thousands of Floridians have become victims of securities fraud, including the alleged $50 billion Ponzi scheme orchestrated by Bernie Madoff. On Feb. 11, the Securities and Exchange Commission (SEC) announced that a partial civil agreement had been reached with Madoff. Under the terms of the deal, Madoff cannot contest the SEC’s civil fraud allegations. Possible civil fines and restitution will be decided at a later date.

The civil proceeding is separate from the criminal case against the New York money manager. Today, Madoff remains free on a $10 million bond.

Only hours before money swindler Bernie Madoff was arrested on securities fraud charges, his wife pulled $15 million out of a brokerage account. According to a complaint filed Feb. 11 by Massachusetts Secretary of State William Galvin, Ruth Madoff withdrew $5.5 million on Nov. 25 and $10 million on Dec. 10 from Cohmad Securities. On Dec. 11, federal agents arrested her husband for allegedly running a $50 billion Ponzi scheme.

Cohmad Securities was founded by Madoff and friend and former neighbor Maurice “Sonny” Cohn some two decades ago. The company, whose name is combination of Cohn and Madoff, had offices in the same Manhattan building as Madoff’s so-called investment advising business, Bernard L. Madoff Investment Securities. 

As reported Feb. 11 in the New York Post, Cohmad Securities received millions of dollars in service fees and account maintenance from Madoff during the past eight years. According to documents from Massachusetts securities regulators, those payments totaled $67 million and made up 84% of Cohmad’s total income.

In December, both Cohmad Securities and its vice president, Robert Jaffe, were subpoenaed by Massachusetts authorities in connection with the federal investigation of Madoff.

Galvin is now trying to suspend Cohmad’s state license so that the company can no longer act as a broker in the state of Massachusetts.

Meanwhile, Madoff, the alleged mastermind behind the $50 billion Ponzi scheme, remains out of jail on a $10 million bond. So far, federal prosecutors have not charged Ruth Madoff – who’s been married to her husband for nearly 50 years – with any crimes.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

Marcus Schrenker’s past finally caught up with him. The Indiana financial manager was arrested by authorities on Jan. 13 after staging his own plane crash to escape financial ruin.

U.S. marshals located Schrenker late Tuesday night at a campsite in Quincy, Florida. Schrenker was then taken to a nearby hospital. Once released, he faces securities fraud charges for allegedly bilking clients out of hundreds of thousands of dollars.

This isn’t first time Schrenker, who heads Heritage Wealth Management, Heritage Insurance Services and Icon Wealth Management, has been on the wrong side of the law. Mark Maddox, a former Indiana securities commissioner and later a lawyer, approached county and state regulatory officials in 2002 over concerns about Schrenker’s business practices. No investigation, however, ever evolved from Maddox’s inquiries.

Seven years later, 38-year-old Schrenker is charged in what many are calling a mini Bernard Madoff scheme. In between providing financial advice and managing investors’ portfolios, Schrenker created a personal empire. In addition to a 10,000-square-foot luxury home in the exclusive Geist Reservoir area, Schrenker was an avid collector of rare cars and owner of two airplanes.

Now it’s likely Schrenker will be trading in his Armani suits for less-attractive attire. In addition to the avalanche of lawsuits expected from investors, Schrenker already was facing $10 million or more in potential and actual court judgments and legal claims when he departed Indiana in his Piper aircraft on Jan. 11. State regulators also have filed charges against Schrenker for operating as a financial manager even though his license had expired in Indiana.

“My heart goes out to victims who lost money,” said Maddox, in an interview for Fox Channel 59. “I think we’re going to see not just hundreds of thousands but millions lost before the final accounting is done.”

Madoff Recovery Questions Answered

How big is the Bernard Madoff scandal?

The Madoff fraud is being called the largest financial fraud in U.S. history. Following Bernard (Bernie) Madoff’s arrest on Dec. 11, authorities estimate that the scale of the alleged scam could be as much as $50 billion, with 4,000 or more investors suffering extraordinary financial losses. Among those investors: ordinary citizens, charities, foundations, pension funds, municipalities, college trusts, senators, wealthy celebrities, hedge funds, universities and global banks, even Madoff’s own sister.

At the time of his arrest on Dec. 11, investigators discovered more than 100 signed checks worth $173 million in Madoff’s office that he was ready to distribute to family members and friends.

How did Madoff operate his scam?

Madoff conducted what is known as a “Ponzi” scheme. Named after Charles K. Ponzi who used the technique after arriving in the United State in 1903, a Ponzi scheme entails paying early investors with proceeds from those who enter the the investment scheme later on. A Ponzi scheme is similar to a Pyramid scheme.

Madoff conducted his Ponzi scheme through his investment-advising business, Bernard L. Madoff Investment Securities LLC. 

Why wasn’t Madoff caught earlier by authorities?

A number of factors apparently were at play that allowed Madoff to remain under the radar for so many years. First, Madoff himself was an extremely savvy financial money manager. As the former president of NASDAQ, he was highly respected on Wall Street and in financial circles. His clients were equally influential, and included the Who’s Who of the wealthy, cultural organizations, higher education institutions, charities and global financial services firms, among others. 

Second, Madoff alone oversaw the accounting of his investment advisory business. There was no third-party oversight whatsoever.

Did any red flags exist regarding Madoff’s scam before his arrest on Dec. 11?

Unfortunately, signs of Madoff’s deceit may go back as far as the 1970s, when charges of misconduct were brought against the disgraced money manager. In terms of the $50 billion Ponzi scheme, several Wall Street whistleblowers made reports in 1992 and 1999 to the Securities and Exchange Commission (SEC) about Madoff and his operation of what they called a “modern-day Ponzi scheme.” 

Publication articles, including a 2001 story in Barrons’ magazine, also openly questioned as to how Madoff could produce such consistent high returns for investors when no other brokers seemingly could.

Can investors who lost money with Madoff recover anything?

Despite Madoff’s claims of financial insolvency, Irving Picard, the court-appointed trustee charged with liquidating Madoff’s assets, numerous individual attorneys, and the SEC all believe investors will be able to recover some of their lost funds.

If you invested money with Madoff, you can call a special FBI hotline at 212-384-2359. Investors also can contact the Securities Investor Protection Corporation (SIPC) at 888-727-8695.

In addition, the SEC provides regular updates regarding Madoff on its Web site at http://www.sec.gov/.

Where can I find additional information about investor recovery?

Our Web site, www.subprimelosses.com, offers a comprehensive library of articles on the Madoff case, as well as information on other investment-related issues.

If I decide to take legal action, what is the cost to file a suit?
First and foremost, our team of lawyers will work with you to review your situation. You are not responsible for any fees or expenses unless a recovery is obtained. To review your case, call us at 866-827-6537.

Are there other avenues for recovery?

The Securities Investor Protection Corporation (SIPC) serves as the FDIC of brokerage and investment firms in the United States. In the event a brokerage firm fails, this is an investor’s first line of defense to retrieve money missing from his or her account.

In the Madoff case, the SIPC may pay up to $500,000 to individuals who invested directly with Madoff. Indirect investors – those who invested in so-called feeder funds that then funneled money to Madoff’s funds – also can file claims with SIPC.

However, the reserve funds held by SIPC can in no way cover the entire $50 billion that investors allegedly lost in the Madoff scam. The SIPC’s fund, which is supported by broker-dealer assessment fees, currently has a balance of $1.6 billion.

The trustee handling the liquidation of Madoff’s business also has identified more than $830 million in liquid assets that may be subject to recovery.

Where is Madoff today?

Madoff remains free on a $10 million bond. On Jan. 13, United States Magistrate Judge Ronald L. Ellis ruled Madoff to be confined to his Manhattan penthouse with an electronic ankle bracelet and 24-hour monitoring. In addition, the judge ordered searches of Madoff’s outgoing mail. Prosecutors in the case continue to argue that Madoff’s bail should be revoked because Madoff violated previous restrictions when he sent more than $1 million worth of jewelry as gifts to friends and family over the holidays.

Madoff has yet to enter a plea in the case. Both the New York Times and the Wall Street Journal have suggested that Madoff’s lawyers are actively negotiating a plea agreement that could result in the case never going to trial.

The plot concerning hedge fund manager Bernie Madoff continues to thicken. And this time the news may benefit the growing number of investors trying to recover some of the $50 billion that the disgraced 70-year-old and former Nasdaq stock market chairman scammed from them as part of a massive Ponzi scheme.

On Jan. 5, the Securities Investor Protection Corp. (SIPC) reported that Irving Picard, the trustee charged with overseeing the liquidation of assets from Madoff’s investment firm, had identified $830 million in liquid assets. Both Picard and the SIPC subsequently mailed more than 8,000 claim forms to investors who lost money in the investment fraud. The deadline for claims to be filed is March 4.

Claim forms and instructions also are available on the SIPC’s Web site at http://www.sipc.org/cases/sipccasesopen.cfm.

 

Meanwhile, prosecutors in the Madoff case are asking a federal judge to immediately revoke Madoff’s $10 million bail and place him behind bars. Their reasoning is based on the fact that Madoff apparently transferred various items totaling $1 million in value to a third party following his arrest on Dec. 11. The allegation, if true, violates a previous freeze on Madoff’s assets by the Securities and Exchange Commission (SEC).

As the case continues to build against Madoff, more investors are coming forth with accounts of their financial losses. As reported Jan. 5 by Bloomberg, Harley International Ltd., a hedge fund run by Cayman Island-based Euro-Dutch Management Ltd., invested all of its assets – $2.76 billion – with Madoff. Other Investment firms that have lost billions in the Madoff swindle include Tremont Group Holdings and Fairfield Greenwich Group. 

One of the first tasks greeting lawmakers in the new year will be to examine Bernard (Bernie) Madoff’s alleged $50 billion Ponzi scheme and why the Securities and Exchange Commission (SEC) appeared to be asleep at the wheel before detecting the fraud. On Jan. 5, members of the House Financial Services Committee plan to hold a lengthy discussion on the Madoff scandal as part of an effort to radically reform the impaired U.S. regulatory structure that oversees banks and financial service firms. 

On Dec. 11, federal agents arrested Madoff at his luxury Manhattan apartment on charges of securities fraud. The 70-year-old hedge fund manager is accused of running a massive Ponzi scheme – a rob-Peter-to-pay-Paul scam in which early investors are paid off with money from newer investors. The nickname of “Ponzi” is coined after Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s.  

Investors scammed in Madoff’s modern-day Ponzi scheme include numerous foundations and charities, universities, some of the world’s biggest banks, actors Kevin Bacon and Kyra, director Steven Spielberg, Dreamworks chief Jeffrey Katzenberg Sedgwick, former Salomon Brothers Chief Economist Henry Kaufman and countless others. 

Flushed with investors’ cash, Madoff built a massive financial empire for himself over the years, with mansions in Manhattan, the Hamptons and Palm Beach, Florida. Many of the clients Madoff later duped were recruited from the country clubs that the money manager belonged to.   

The allure of exclusivity may have, in part, allowed Madoff to keep his scam undetected for so long. A client had to “know” someone to get a meeting with Madoff.  Even in the face of too-good-to-be-true financial results and lack of account transparency, people still clamored to get on board with Madoff.  

Now, after having lost their life savings, many of those investors are wishing they had jumped ship long ago.   

On Dec. 30, the trustee placed in charge of Madoff’s money management firm, Bernard L. Madoff Investment Securities LLC, obtained court approval to use $28.1 million out of its accounts as it begins the liquidation process.  

Shortly before his arrest, Madoff told employees that his own financial worth had deteriorated from billions to approximately $200 million to $300 million. Madoff has until midnight Dec. 31 to provide the SEC with a detailed list of his assets. 

Only a few months ago, Madoff’s firm ranked as the 23rd-largest market maker on Nasdaq, handling an average of about 50 million shares a day. Now, instead of taking orders for some of the largest companies in the United States, Madoff faces the likely prospect of spending the rest of his life behind bars. 

For Madoff’s investors who have lost everything because of the decades-long fraud swindle, it’s a fitting end for the so-called legend of Wall Street. 

Our securities lawyers are actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.