As you might imagine, we have received a number of phone calls from investors or their professional advisors (trust and estate attorneys, etc.) who entrusted Bernard Madoff and his investment firm with significant sums. Investors are both shocked and devastated by the arrest of Madoff and the charges that he ran a massive Ponzi scheme for years.
Therefore, we wanted to pass along to you some of our thoughts based on our review of legal proceedings thus far, and our experience in these types of cases. We have previously worked as the receiver’s counsel and as counsel for investors in these types of cases.
As you are probably aware, the Madoff fraud came to light as a result of many investors seeking to get out of the fund due to the economic crisis and Madoff’s apparent inability to cover these investor redemption requests. Madoff confessed his long-time fraud to some of his high-level employees. The $50 Billion in losses figure came from Madoff himself, and we suspect that he is referring to false profits as well as lost principal. Thus, we suspect and hope the total principal investment by investors is less than $50 billion. However, this still appears to be a massive case in terms of this type of investment fraud.
The Securities and Exchange Commission filed a civil lawsuit on Thursday, Dec. 11, and the receiver was appointed a day later. The receiver is now attempting to move very quickly to freeze and take control of the Madoff accounts and assets subject to the receivership. Unfortunately, during Madoff’s confession to senior employees, he indicated that he only had $200-300 million in funds left.
To the extent this is accurate and he is referring to investor funds, that does not bode well for investors as it seems to indicate that most investor funds no longer exist or are no longer in the investor accounts. Hopefully, Madoff was not referring to investor accounts and the receiver will find far more than this referenced amount in the accounts where investor funds were maintained.
In addition to the Madoff investment accounts and Madoff personal assets that the receiver is able to freeze and control, the receiver may also pursue legal action against third parties. For example, the receiver may pursue third parties who are in possession of funds or assets that can be traced back to investor assets or funds.
The receiver may also pursue investors who previously received more money from the Madoff fund than the receiver believes they should have received. (The receiver may claim these investors are profiteers and received more than their fair share of the remaining funds). Additionally, the receiver may also pursue third parties who may be liable to investors as a group for their involvement in or knowledge of activities related to the fraud. Or, third parties may be liable based on a duty they had to investors that was not carried out or not carried out adequately.
Unfortunately, due to the daunting investigative task of the receiver and costs of the receivership, combined with the limited funds likely to be recovered and the constraints of the receiver to only pursue claims common to all victims, investors are often disappointed by the ultimate recovery they receive from the receiver and the amount of time it takes to receive that recovery.
As we have in past situations similar to the Madoff fraud, we anticipate representing investors who invested significant sums with Madoff and who did not previously receive significant sums back from Madoff (either as return on investment or return of investment). The purpose of our representation is to both assist significant investors through the receivership process and, more importantly, investigate whether any third parties may have liability for the losses (i.e. third parties that the receiver either chooses not to pursue or has no standing to pursue). If our investigation reveals third parties who may be liable and are collectible who are not being vigorously pursued by the receiver (either due to standing or any other reason), we anticipate pursuing those third parties on behalf of our clients.
Please feel free to call us if you would like to discuss this matter further or would like us to provide you with any additional information to assist your clients in this very difficult time.
Chris Vernon, attorney at law
Vernon Litigation Group
E-mail: cvernon@vernonhealy.com