Money stolen by Bernie Madoff is still being found(economist.com)
economist.com
Money stolen by Bernie Madoff is still being found
https://www.economist.com/news/business-and-finance/21737446-almost-decade-after-ponzi-scheme-collapsed-trustees-are-still-returning
6 comments
Read to the end. They're suing people who took their money out, reclaiming it into the bankruptcy trust, and disbursing it (even though these people didn't break any laws). The fund didn't actually have all of the money that they're confiscating for disbursement.
If somebody robbed a bank and gave you the money, there would be an expectation that you would have to return that money, 'possession of stolen property' and all that. The fact that the money was given in the form of investment returns doesn't change that.
I think we can all agree that each investor should get their principal investment back. I don't think there's a good argument for letting people keep the impossibly high returns on that principal.
I think we can all agree that each investor should get their principal investment back. I don't think there's a good argument for letting people keep the impossibly high returns on that principal.
There is something called "bona fide purchase" [0]. As I am not familiar with US common law, I am not sure it would apply here, but basically: an innocent purchaser (no ill intentions etc...) can purchase stolen goods and become their rightful owner.
[0] https://en.wikipedia.org/wiki/Bona_fide_purchaser
[0] https://en.wikipedia.org/wiki/Bona_fide_purchaser
That's for physical goods I guess.
Theres also a counter law for that. In Dutch called heling, English Wikipedia page explains it [1]
[1] https://en.m.wikipedia.org/wiki/Handling_stolen_goods
Theres also a counter law for that. In Dutch called heling, English Wikipedia page explains it [1]
[1] https://en.m.wikipedia.org/wiki/Handling_stolen_goods
And if you sold a car to that bank robber without knowing it was a robber you would have to reverse the transaction?
First, Picard (the trustee) can only clawback transactions for six years per NY law. Second, from
https://en.wikipedia.org/wiki/Recovery_of_funds_from_the_Mad...
he seems to have primarily gone after people who knew, or should have known, that Madoff was doing something fraudulent. eg, from the article,
> On May 7, 2009, Madoff Bankruptcy Trustee, Irving Picard filed a lawsuit [38] against J. Ezra Merkin, seeking to recover almost $500 million withdrawn from Madoff accounts in the last six years. The complaint alleges that since 1995, Merkin steered more than $1 billion to Madoff through three private hedge funds, Ascot Partners, Ariel Fund, and Gabriel Capital. Since 2002, the funds withdrew at least $494 million from Madoff — returns that Merkin “knew or should have known” were fraudulent. There were at least 500 instances in the last ten years when his Madoff account statements showed large blocks of stock bought or sold at prices that did not match the stock’s trading range for the day when the transactions supposedly occurred.
> On May 7, 2009, Madoff Bankruptcy Trustee, Irving Picard filed a lawsuit [38] against J. Ezra Merkin, seeking to recover almost $500 million withdrawn from Madoff accounts in the last six years. The complaint alleges that since 1995, Merkin steered more than $1 billion to Madoff through three private hedge funds, Ascot Partners, Ariel Fund, and Gabriel Capital. Since 2002, the funds withdrew at least $494 million from Madoff — returns that Merkin “knew or should have known” were fraudulent. There were at least 500 instances in the last ten years when his Madoff account statements showed large blocks of stock bought or sold at prices that did not match the stock’s trading range for the day when the transactions supposedly occurred.
Or he didn't look closely enough into what was happening. He might not have been very capable, just lucky. "Should have known" is not an answer to (potential) incompetence or stupidity.
Given his funds went bankrupt, he probably did not know.
Given his funds went bankrupt, he probably did not know.
The law seems to take a dim view of sophisticated investors who pretty clearly could have trivially found something fishy and instead chose not to look. Deliberate ignorance apparently gets clawbacks.
Depends if the car was bought with stolen money or traded for stolen goods. If so, then I'd say yes.
Should everyone expect every transaction to be subject to clawback? Employees have no guarantee their pay is final, vendors have no guarantee their pay for products delivered will be paid for, etc?
The law generally renders those contracts null and void. You never technically hold title to stolen goods or things purchased with stolen goods.
Is this for any contract? If someone steals $20 and buys some food, does the food merchant now have to return the $20 and suffer the loss?
I've never heard of any situation like this. Usually, this type of liability is in events such as vehicle, house, land, or business purchases for which there is title insurance. But if the buyer does the due diligence, and they're not aware of any illegitimate funds being used, how much should they suffer? How much should the person who it was stolen from be liable?
I've never heard of any situation like this. Usually, this type of liability is in events such as vehicle, house, land, or business purchases for which there is title insurance. But if the buyer does the due diligence, and they're not aware of any illegitimate funds being used, how much should they suffer? How much should the person who it was stolen from be liable?
Yes. The title to the property never transfers away from the original victim.
If I steal a pen and sell it to you for $1, the owner can compel you to return it, and you need to go after me for your dollar. Obviously in reality the hassle is often not worth it.
This is one of the reasons that banks and companies are so obnoxious and seemingly overreactive to risk.
If I steal a pen and sell it to you for $1, the owner can compel you to return it, and you need to go after me for your dollar. Obviously in reality the hassle is often not worth it.
This is one of the reasons that banks and companies are so obnoxious and seemingly overreactive to risk.
I believe in the US cash is an exception to the give back rule. My google fu does not find a good reference at the moment. Also, public auctions of goods is a process where the chain of ownership is reset for property (source, had a second hand dealers license). Thus auctions for captured police stuff, lost luggage, etc.
I wonder how it would work in an employer/employee relationship. I can't imagine the government recouping an employee's pay from an employer who has been stealing, assuming the employee is not aware of the theft. Could evading taxes and paying employees be considered stealing from taxpayers, which the employees have to pay back?
I see the hazard in letting people keep stolen goods, as it might be hard to prove they were or weren't knowledgeable of that fact allowing thieves to get away with it, but at the same time how far does a government get to go in determining which of your assets belongs to you.
I see the hazard in letting people keep stolen goods, as it might be hard to prove they were or weren't knowledgeable of that fact allowing thieves to get away with it, but at the same time how far does a government get to go in determining which of your assets belongs to you.
IANAL, but I think the theft of property is a tort that isn’t tied to employment.
If someone stole from an employer and the employer gets a judgement or restitution order, garnishment of wages may be part of collection.
Labor law in my state has a strict liability policy for employers and payroll taxes. Restaurants that get seized by state tax authorities are usually for failure to make timely payroll or sales tax payments.
If someone stole from an employer and the employer gets a judgement or restitution order, garnishment of wages may be part of collection.
Labor law in my state has a strict liability policy for employers and payroll taxes. Restaurants that get seized by state tax authorities are usually for failure to make timely payroll or sales tax payments.
I think you have misread the parent. He is asking if the government would go after employee salaries in a case where the employer owes the government money.
There are cases where this could definitely happen. For instance imagine an LLC where the partners are making millions from government contracts due to the company breaking bribery laws. The government would (has) sue the partners in such cases. I think the parent is more asking whether the government would sue the office admin, though. Just as in the Madoff cases I believe this revolves around their presumed degree of complicity in the illegal behavior. And probably at least some on what the prosecution thinks will get their name in the news in a more positive light.
There are cases where this could definitely happen. For instance imagine an LLC where the partners are making millions from government contracts due to the company breaking bribery laws. The government would (has) sue the partners in such cases. I think the parent is more asking whether the government would sue the office admin, though. Just as in the Madoff cases I believe this revolves around their presumed degree of complicity in the illegal behavior. And probably at least some on what the prosecution thinks will get their name in the news in a more positive light.
Credit card, debit card, and ACH transactions (i.e. checks) can be reversed up to a certain amount of time. Chargebacks are part of the hidden costs of running a business. Nobody likes them but it’s part and parcel of almost every merchant agreement.
If you’ve been overpaid and have direct deposit your employer can reverse the entire or partial payment. It’s been that way for years.
If you’ve been overpaid and have direct deposit your employer can reverse the entire or partial payment. It’s been that way for years.
Those are erroneous transactions, different from what was being discussed. I'm referring to party A transacting with party B, and B doesn't know A is using illegitimately obtained funds, why should B be penalized?
Obviously this is different in the case of things such as vehicles and houses, which have titles and legal checks that can be done to make sure they are legitimate, but even then as long as the buyer has done due diligence, they shouldn't be penalized otherwise trust in the market will erode.
Obviously this is different in the case of things such as vehicles and houses, which have titles and legal checks that can be done to make sure they are legitimate, but even then as long as the buyer has done due diligence, they shouldn't be penalized otherwise trust in the market will erode.
IANAL, the law I was looking for I can't find - can just locate this which isn't directly related[0].
Perhaps I need to look more at the proceeds of crime. Interesting point you raise. I know the police can confiscate the proceeds of crime, and if I buy a car that is stolen it's not legally mine, however as to whether if the money used to purchase the item was stolen, well. Would it be fraud then? If so, I'd still think obtaining goods by deception would cover the car being reclaimed if possible.
[0] https://www.legislation.gov.uk/ukpga/1968/60/crossheading/of...
Perhaps I need to look more at the proceeds of crime. Interesting point you raise. I know the police can confiscate the proceeds of crime, and if I buy a car that is stolen it's not legally mine, however as to whether if the money used to purchase the item was stolen, well. Would it be fraud then? If so, I'd still think obtaining goods by deception would cover the car being reclaimed if possible.
[0] https://www.legislation.gov.uk/ukpga/1968/60/crossheading/of...
In the case of these clawbacks though, they aren't only taking the returns. They are taking it all, to be redistributed evenly. So in this case, even if you got your principle out early, you are probably going to have to share in the loss equally with everyone else when all is said and done.
Hasn't there always been an argument that due to the fact he didn't actually make investments per se that he may have lost a lot less money than many honest and legitimate investment brokers? I'm not really savvy about these things but if I invested in a bullish Hedge fund in 2006,2007,2008 would I not have lost everything? Whereas with Madoff I would have got back a significant fraction of my investment?
What was the total amount on the client accounts (including the never existing, made-up interest, which obviously can't be returned), when the scam collapsed?
Either $50B or $64B according to https://en.wikipedia.org/wiki/Madoff_investment_scandal
This is very much like "Damages" shows it is. Who knows how the game of hiding billions plays out.
I mean if you haven't seen it yet, Wizard of Lies on HBO is a Soprano's-level of quality depiction of the whole Madoff thing.
In addition to film, I highly recommend the book published by the whistleblower Harry Markopolos, "No One Would Listen".[0]
He spent the better part of a decade trying to alert the SEC to what he found. It was certainly a risky endeavour given how much money was at stake.
[0] https://duckduckgo.com/?q=harry+markopolos+no+one+would+list...
He spent the better part of a decade trying to alert the SEC to what he found. It was certainly a risky endeavour given how much money was at stake.
[0] https://duckduckgo.com/?q=harry+markopolos+no+one+would+list...
Also available on Netflix (in some places)! DeNiro plays the title character - loved the movie :D!
Yeah that movie really helped me understood a whole picture
I enjoyed Wizard of Lies too, but let's all take a deep breath
Irony of a dead system.
MADOFF: Rich man looses money of old timey rich people, government scrambles to find and repair.
MTGOX: e-BTC collude with hackers to hack MTGOX, FBI takes down e-BTC, FBI keeps money.
MADOFF: Rich man looses money of old timey rich people, government scrambles to find and repair.
MTGOX: e-BTC collude with hackers to hack MTGOX, FBI takes down e-BTC, FBI keeps money.
It was BTC-E and you are missing some important information. Btc-e collusion not yet proved, FBI still keep the money, BTC-E remain in business and arrange to refund users at their own expense. So the analogy would require the government to take Madoffs money while claiming he was defrauding users and Madoff continuing his scheme and returning to them the money the government had taken from him/them.
You are right, my comparison is absurd. bTCe work to return funds to their customers though, not those of mtgox. Nor should they need to, if indeed the accusation they colluded with MTGox hackers is false
Are the paying people for lost returns? One one side these returns were fictitious, but on the other if you invested $100 in the 70s, should your claim in 2018 be only $100?
People will be lucky to get cents on the dollar. Lost returns isn't even in the ballpark.
There still needs to be a way to allocate the recoveries. If investor A invested $100 in 1970 and investor B invested $100 in 2006 do they both get the same recovery?
Unfortunately, they do. The conclusion was that, because for quite a period there were no investments, just a scam, that the law says money-in, money-out.
In particular:
> The accounting of "funds stolen" in this matter excludes inflation, interest, time invested, opportunity cost, and falsely reported balances. The interpretation of the laws do not consider time value of money when reimbursing lost funds.
see https://en.wikipedia.org/wiki/Recovery_of_funds_from_the_Mad...
In particular:
> The accounting of "funds stolen" in this matter excludes inflation, interest, time invested, opportunity cost, and falsely reported balances. The interpretation of the laws do not consider time value of money when reimbursing lost funds.
see https://en.wikipedia.org/wiki/Recovery_of_funds_from_the_Mad...
The key quote from that article:
> "...no legitimate investments were made on the investors' behalf for at least the last 12 years..."
It's unfortunate for the people who thought they were earning interest, but it wasn't earned; it was money stolen from other investors.
> "...no legitimate investments were made on the investors' behalf for at least the last 12 years..."
It's unfortunate for the people who thought they were earning interest, but it wasn't earned; it was money stolen from other investors.
It is worth noting, however, that apparently you can only clawback disbursements for the previous six years, so someone who invested in the 70s most likely did quite well via withdrawals.
And do you get inflation? or the "fake" returns? What if there are a mix of real and fake returns?
as this article says, based on the amount recovered (ignoring opportunity cost), people are getting much more than cents on the dollar back. It would seem that on average they've gotten around 2/3 of their principal back.
joering2(4)
Lawyer fees have exceeded $1 billion so far, which I suppose is reasonable given the money returned.