No, I will not be watching the Madoff TV Movies


Written on February 1, 2016 – 1:11 am | by ibkent

Find your  investment statement … I’ll wait — now look at that nice little SIPC logo at the bottom of the statement… it should look like this:

sipc-logo-member

You feel comforted, right? that SIPC’s “got your back.”  Those invested with Madoff thought the  very same thing

In the days and weeks following the discovery of the financial crime of the century, Madoff investors were gratified and comforted to hear from both Mr. Stephen Harbeck, President of SIPC, and Ms. Josephine Wang, SIPC’s General Counsel that as long as you had your final statement in hand, then you were entitled to SIPC insurance of up to $500K per account.

Without any discussion of how Bernie L. Madoff got away with what he got away with for so long, without any discussion of how SIPC failed its mission to protect investors, any TV movie or series is just not worth my time.   No, I will not be watching either of the upcoming Madoff movies.  Maybe I’m being judgmental, or maybe I’m just being practical.  We’ve heard it all before; can’t fix stupid – “Madoff was a charming delightful guy, and the victims should have known better, boy are they dumb.”

If we don’t see this as a cautionary tale, then we will have learned nothing from history. My friend, Ronnie Sue Ambrosino put it best in a post on her Facebook page:

 ” …  be aware that your investments are at risk-not from the market fluctuations, but from the promise of protection of the SIPC to protect your savings from a fraudulent broker. Unfortunately, the opposite is true. SIPC protects the broker and enriches the attorneys who have been hired (Trustee Irving Picard and his firm) to “distribute” the funds. Picard and his firm (Baker & Hostetler ) have earned $1Billion while trying to “unravel” the fraud and further victimize the innocent investors (again-too long to go into here).”

I am reminded of the poem by Martin Niemüller who spent the last seven years of Hitler’s reign in concentration camps:

First they came for the Socialists, and I did not speak out—
Because I was not a Socialist.

Then they came for the Trade Unionists, and I did not speak out—
Because I was not a Trade Unionist.

Then they came for the Jews, and I did not speak out—
Because I was not a Jew.

Then they came for me—and there was no one left to speak for me.

 

A reporter friend of mine (financial reporter cum movie critic) had early access to the Richard Dreyfuss show and his review in today’s New York Times is here But for a few snippets of a few cameos of small investors unlucky enough to have trusted Madoff there is virtually no mention of the devastation that has been left in the wake of what is probably the greatest government failure in history.

Most of Madoff’s victims were not super wealthy, contrary to the myth perpetuated in the media.  No, they did not receive 15% per annum whether the markets were up or down.   Yes, many are Jewish; this was, after all an “affinity crime,” a crime that is perpetrated upon members of a particular ethnic group. I suppose if Madoff had been Greek, he’d have gone to the Greek community, if he had been Italian the Italian community and so on.   They worked long and they worked hard. They were immigrants or children of immigrants living the American Dream, that is, until the world came crashing down on December 11, 2008.  Legacies lost. Dreams extinguished.

If you truly want to understand why Madoff victims are angry, and some of the gory details of this massive $65 billion government failure,  how Madoff investors continue to be victims of laws that were intended to protect them, and how THIS COULD HAPPEN TO YOU read on. Otherwise, go ahead and continue to blame the victims of this heinous crime and refuse to even consider this as a cautionary tale.

In 1970, Congress created the Securities Investment Protection Corporation. SIPC was an outgrowth of the Securities Investor Protection Act, (SIPA) enacted in 1970 and amended in 1978, a law put in place to restore confidence in Wall Street following some high profile broker failures and disastrous backroom troubles. There were several key elements of that bill:

  • First and foremost, Wall Street would no longer be required to keep customers’ physical securities nor would they be required to hold stocks and bonds in the customers’ name – they could be kept in Wall Street’s – or “Street Name.”
  • Second, investors’ reasonable expectations of the value of their investments are to be amounts shown on the statements and confirmations they receive from their brokers.
  • Third, to fund this new non-profit, tax exempt corporation known as SIPC, Wall Street would be assessed fees to run the corporation; in other words, SIPC – the organization empowered to protect investors — would not require one tax payer dollar, not one.Wall Street has earned billions as a result of this law.

In other words,  customers would no longer receive paper copies (stock certificates ) when they invested. Instead , SIPC would “guarantee” their investments based on their account balances of their broker statements.

OK, so now you have at least a brief understanding of the law and the quasi governmental organization it created to assure victims of securities fraud.

Now imagine this triple tsunami  experienced by thousands of Madoff victims–

a.   You wake up, discover you’ve become a victim of a crime, and your money is gone.  Ok, I have my SIPC insurance; that should do.

b.  You wake up the next day and discover that, due to an arbitrary decision by a bankruptcy trustee, you get nothing.  Well, ok, I guess I have what I have and I’ll move forward.

c. Day three – Tables have turned YOU become the criminal and the SIPC, rather than figuring out how to pay your claim, sues you for any money you took out.

Truth be told, the SIPC does not exist to protect investors. Rather, they have a long and storied history of protecting themselves and their funders – Wall Street. Over 15 years ago, Gretchen Morgenson, a Pulitzer Prize winning New York Times reporter wrote “Investor Beware: Many Holes Weaken Safety Net for Victims of Failed Brokerages.” In that New York Times article, Ms. Morgenson wrote

“the organization requires investors to run a gauntlet of legal technicalities that would challenge even those knowledgeable about securities law.”

She further noted that

“the Trustees in these cases have received far more [money] from representing the corporation than the corporation itself has paid to investors. Their critics say that trustees wanting repeat business from the corporation have an incentive to minimize payouts to investors. One trustee is the former president of the corporation.”

And it remains the same today.

In the Madoff case, the Trustee is a man named Irving Picard. Mr. Picard, in anticipation of his appointment as Trustee by the Federal Bankruptcy Court — after being recommended by   SIPC (who also pays his fees) joined the white shoe New York law firm of Baker & Hostetler. It should come as no surprise that Mr. Picard has been the Trustee in six other SIPC liquidations prior to the Madoff matter.  He makes quite a good living as a career bankruptcy trustee.  He says that customers’ statements are worthless. He and his firm has billed the SIPC at a rate of $1 million per week  – and as of this writing has reached well over a billion dollars – that is money that comes from the general SIPC fund, the same fund that Mary Schapiro, the then-SEC Chairman said was not solvent enough to pay all claims.

 

When the SIPA was first passed, its members (Wall Street brokers) were assessed a percentage of sales.  Let me take this opportunity to remind you that there is not ONE tax dollar used to fund SIPC. Not a dime. Somewhere along the line, SIPC acquiesced to its membership and began billing each SEC registered firm $150 per year, yes PER YEAR.  And this went on for 18 years – each broker paid $150 per year, not per account, net per $100,000 in sales, not per month, for the right to use the SIPC logo and assure their investors that they will be covered in the case of broker failure or broker fraud. I wish I paid $150 per year for any of MY insurance.   Obviously, their funds dwindled.  As recapped in this quite detailed overview of the Madoff fraud  , “SIPC and its Accountability to the American Investor,” there were multiple warnings by the GAO and Congress that it would be unlikely that SIPC could manage a “catastrophic broker failure.” and guess what … it happened and they couldn’t. .(After the fraudster went to jail, that amount was increased again to a percentage of sales.)

 

When the dust had settled it appeared that Madoff had 4904 active accounts on December 11, 2008 – the date he turned himself into the FBI.  Helen Chaitman, Esq, a victim and legal advocate for other victims of this legal disaster testified at a hearing in front of the House Financial Services Committee’s Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises on December 9, 2009 nearly a year to the day that the fraudster went to jail.  According to her the full exposure for SIPC would have been approximately $2.5 billion.  However, SIPC only had assets of $1.7 billion.  With no Congressional or GAO effort to put teeth into their warnings, what they had predicted would happen, did.  (Keep in mind that SIPC had at its disposal a line of credit of $2.5 billion which they opted not to use.)

All of a sudden, since this was a PONZI SCHEME, Mr. Picard claimed, profits didn’t matter and your statement meant nothing.  He, quite brilliantly, created the concept of “net investment” — money in less money out — thereby created fissures amongst investors – the good guys (net losers who never took any money out) and of course those awful bad guy (net winners).  The securities lawyers were astounded.  Never before in SIPC’s history had they EVER determined “even if a customer’s statements reflected the purchase of real securities, SIPC only insured the “net investment” of each customer.”  By this calculation there were 2,569 account holders left without the protection to which they were entitled.  Picard  further tried to claim that SIPC was never intended to be “insurance,” nor was it to be considered the FDIC of the investment industry.  That’s odd, because even SIPC’s own website – since scrubbed – talked about it as being insurance.  President Nixon, when he signed the bill into law proclaimed it was about time that investor had “insurance,”  as did this FINRA alert in 2010, and even the SEC’s own 1971 Annual Report just one year after SIPA was passed.

And if you took out more than you put in — you were sued for the difference. SUED FOR THE DIFFERENCE using bankruptcy law.  And who gets hurt the most? Older investors who’d been with Madoff for years, many of whom were “clawed back” for federally mandated withdrawals from their IRAs.  Or World War II and Korea War veterans who, following their military service worked long and hard to achieve their American dream and once having done so, investing the profits from sales of their businesses or professional practices, or their teacher pensions with Madoff in the early 90s.  These were generous and philanthropic people, many dealing with cancer and other life threatening diseases. What else were they going to live on?

The SIPA was passed in 1970.  Charles Ponzi made a name for himself in the early 20’s.  If Congress wanted to exempt Ponzi schemes from coverage, they well could have added it to the law. So common sense would dictate that there should be no exceptions.

One of the key factors in the creation of SIPA was Congress’s intent to protect a customer’s “legitimate expectations,” based on his broker states and to replace securities even if the broker stole the customer’s money and never purchased the securities.  In fact, one of the key 1978 amendments to the law was just that – to ensure that customers could rely on their account statements as representative of their worth.

The Bankruptcy Trustee is covering up a flawed system.  This has become, as Ms. Chaitman wrote, a classic struggle between Wall Street, represented by SIPC, and Main Street, represented by the destitute investor.  She further writes that the most unfortunately of all, the SEC and SIPC and both protected the interests of Wall Street over innocent investors.

Bottom line, my friends, SIPC is a scam, –the greatest insurance scam in history. The Network for Investor Action and Protection (NIAP) www.investoraction.org has teamed with the victims of the Stanford fraud to implore Congress to force SIPC to enact the law that is written.  They are NOT asking to be made whole (and remember, there is not one dime of taxpayer dollar at risk, although failure to pay allows victims to take carryforward losses on their tax returns) they are simple asking for SIPC to live up to its promises.  Cong. Scott Garrett (R-NJ) has introduced “Restoring Main Street Investor Protection and Confidence Act” – HR 1982 … This has been the third Congress where this has been introduced.  A summary of the bill is here.   It is unfortunate that our elected members of Congress will not do something as simple as passing a bill that would implore a quasi-governmental organization to do. its. job.

A book by Ms. Chaitman talking about the cozy relationship between Madoff and JP Morgan Chase is due out soon. you can read a little bit about it in a Forbes blog by Dr. Laurence Kotlikoff, a frequent contributor to Forbes and economics professor at Boston University.   Her website is www.jpmadoff.com

You can also read more by Dr. Kotlikoff and his suggestion that we all close our broker accounts here.

And finally, for a complete timeline of the Madoff financial disaster, I highly recommend this presentation, “SIPC and its Accountability to the American Investor.” 

Maybe next time we’ll talk more about how the SEC, despite multiple warnings by one Harry Markopolos, and reputable media sources, they did nothing to mitigate the damage caused by Bernie Madoff.

Stay tuned.

 

 

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