Game changer for Madoff victims: $7.3b recovered
December 18, 2010 - 8:24AM
The widow of a Florida philanthropist who had been the single largest beneficiary of Bernard Madoff’s colossal Ponzi scheme has agreed to return $US7.2 billion ($7.3 billion) in bogus profits to the victims of the fraud.
The trustee recovering money for Madoff’s burned investors have filed court papers formalising the settlement with the estate of Jeffry Picower, a businessman who drowned after suffering a heart attack in the swimming pool of his Palm Beach, Florida, mansion in October last year.
‘‘We will return every penny received from almost 35 years of investing with Bernard Madoff,’’ Picower’s wife, Barbara, said in a written statement.
‘‘I believe the Madoff Ponzi scheme was deplorable and I am deeply saddened by the tragic impact it continues to have on the lives of its victims,’’ she said. ‘‘It is my hope that this settlement will ease that suffering.’’
US Attorney Preet Bharara called the settlement a ‘‘game changer’’ for Madoff’s victims.
A recovery of that size would mean that a sizable number could get at least half of their money back - a remarkable turnaround for people and institutions that thought two years ago they had lost everything.
‘‘Barbara Picower has done the right thing,’’ Bharara said.
Jeffry Picower, who was 67 when he died, was one of Madoff’s oldest clients. Over the decades, he withdrew about $US7 billion in bogus profits from his accounts with the schemer. That amounts to more than a third of the dollars that disappeared in the scandal.
That money was supposedly made on stock trades, but authorities said that in reality it was simply stolen from other investors.
Picower’s lawyers claimed he knew nothing about the scheme, but court-appointed trustee Irving Picard had argued in court papers he must have known the returns were ‘‘implausibly high’’ and based on fraud.
In her statement, Barbara Picower said she was ‘‘absolutely confident that my husband Jeffry was in no way complicit in Madoff’s fraud and want to underscore the fact that neither the trustee, nor the US attorney, has charged him with any illegal act’’.
Lawyers for Picower’s estate have been in negotiations with the trustee for some time.
After Picower drowned, his will revealed he had earmarked most of his fortune for charity, but his widow said in a statement that the family wished to return some of it to Madoff’s victims through ‘‘a fair and generous settlement’’.
A huge charitable foundation Picower had created with part of his fortune closed in 2009 after its assets were wiped out in the Madoff fraud.It had donated hundreds of millions of dollars to colleges, libraries and other nonprofit groups.
Thousands of people, banks and hedge funds that invested money with Madoff saw their savings wiped out when the fraud was revealed to be a hoax. Many, though, like Picower, had been drawing bogus profits from their Madoff accounts for years and wound up walking away from the scheme having taken out more money than they put in.
Picard has been involved in a two-year effort to claw back those false profits and return the stolen money to people who were net-losers in the scheme.
It is those people, who lost more than they withdrew, who could now be poised to recover half of their original investment.
The person said Picower’s estate would pay $US5 billion to settle the civil lawsuit brought by Picard and another $US2.2 billion to resolve a civil forfeiture claim by federal prosecutors investigating Madoff’s crimes. All the money will go to victims of the fraud.
Bharara called the total ‘‘a truly staggering sum that was really always other people’s money’’.
Madoff’s clients had thought, based on his fraudulent account statements, they collectively had more than $US60 billion invested in stocks through the money manager’s funds.
Investigators found, though, no investments had ever been made, and the $US20 billion in principal contributed by Madoff’s clients was simply being paid out bit by bit to other investors.
Bharara said roughly half of that lost money has been recovered.
AP
Mr Duncan Smith is the latest minister charged with tackling Britain's state-funded pension system.
The great Ponzi scheme that lies behind our State pension is unravelling – as they all do eventually – because money being taken from new investors is insufficient to honour promises issued to earlier generations.
None of this should come as a surprise. It is many years since experts began pointing out that Britain’s State pension – like most of its public sector pensions – are unfunded promises which rely on NICs and taxes paid by workers this week to pay pensions to old people next week.
This financial model is so fundamentally unstable that it is illegal in the private sector. No private company or insurer would be allowed to carry on as a series of British governments have done. Hence my disrespectful but I hope helpful comparisons with the original wheeze of the American fraudster, Mr Ponzi.
ile none of this mess is the fault of the new Government, that does not mean we should uncritically accept its suggested solution to the problem. Least of all because so much of what Iain Duncan Smith, the Work and Pensions Secretary, is proposing looks identical to what the discredited previous Labour administration had announced.
For example, there is the plan for a new State pension into which all employees will begin to be auto-enrolled from 2012. You can see why socialists might say the answer to a reduction in voluntary savings is to make them compulsory. But why would Conservatives – who used to believe in individual freedom, responsibility and choice – arrive at the same conclusion?
More importantly, why should individual savers agree? Given the multiple disappointments for pension savers over the last 13 years, the new auto-enrolled pension looks horribly like a case of throwing good money after bad.
While it is true that employees who find their paypackets diminished by deductions they never asked to be made may subsequently ask to leave the scheme, the Government hopes it will get off the ground because of many people’s inertia. Just like the flakiest tick box marketing techniques that are now banned in the private sector by financial regulators. No insurer is now allowed to tell people: “You didn’t opt out, so we helped ourselves to your cash anyway.”
Longer lifespans mean we must save more and work longer or retire in poverty. You can opt out of saving but you cannot opt out of growing old. But that does not mean the Government should nationalise our savings, which is what its new auto-enrolled scheme amounts to.
A Conservative solution to the problem of inadequate saving would be to improve incentives for voluntary pension contributions. That need not involve extra costs in the form of tax breaks. For example, the Budgetproposals to give savers greater choice about how they spend pensions savings, by removing the compulsion to buy a guaranteed income for life in the form of annuitiies, will make pensions more flexible and attractive. Savers do not like being told what to do with their own money.
Pensions would be even more attractive if we knew we could get access to the money earlier in life when we needed it; perhaps to fund a business or buy a home. This flexibility already exists in America and there is no reason it could not be introduced here.
Instead, one of the last acts of the Labour government was to delay savers’ access to private sector pensions by five years; when it raised the minimum retirement age to 55. Now the new Coalition Government seems to be heading in the same direction with State pensions.
That will be very hard on many low-income, working class men who tend to die several years earlier than better-off, middle class women; to give just one extreme example of the wide gap in life expectancy recorded by the Office for National Statistics.
It is also an unfortunate reminder of the very first fraudster I met when working in the City more than 20 years ago. Peter Clowes, who was subsequently sent to jail, told me: “If only I had been given more time, I could have paid them all.” Now the Government seems to be in the same position with State pensions.
