As a Madoff victim and Coordinator for the Madoff Victims Coalition, I have been battling Mr. Picard's contradictory handling of the victims' claims. Mr. Picard has redefined the way victims are protected by SIPC, which is inconsistent with their 39 year history, and totally contrary to what Congress had intended SIPC to do in an attempt to deny benefits to thousands of investors.
The original article can be found here: click here
I submitted the following letter to Dick Carozza and as of the writing of this editorial, have not received a response.
I need to be totally honest with you. When I first saw the picture of Irving Picard with the words FRAUD plastered over his head I thought "how appropriate". This is not to disrespect your magazine or the Association of Fraud Examiners, however I was only looking at the picture and the word.
I am a Madoff victim. I am also the Coordinator of the Madoff Victims Coalition, a group of 400+ defrauded investors who believed in the SEC's ability to detect fraud and in SIPC's ability to protect defrauded investors. The beliefs we had are gone.
Your article depicts Mr. Picard's role in the bankruptcy proceedings, however he actually wears two hats. The other role he has is as a Trustee whose responsibility is to uphold the SIPC statute. To date, Madoff victims do not feel that is happening.
In your article, Mr. Picard says, "The money in/money out methodology is the approach that has generally been used in resolving claims in Ponzi scheme cases, going back to the fraud perpetrated by Charles Ponzi. The people who already received more money than they deposited have received their payments from the funds put in by those who have not received some or all of their deposits. Thus, as a matter of fairness, the persons who have not gotten back all the money that they paid into the Ponzi scheme, in my view, should get back as much as possible. Those who have been fully paid or received more than they deposited should not get more at the expense of those who have not been fully paid."
I'd like to discuss each of his statements.
First of all, the money in/money out methodology is not defined in the SIPC statute. The statute clearly states that the filing date is the effective date to determine net equity, thus in the Madoff fraud this is 12/11/08 and the last statement sent to customers was on 11/30/08. In fact, Stephen Harbeck, President of SIPC has on several occasions been quoted as supporting this exact argument (of paying victims based on their last statement date). I wonder how and why Mr. Picard is changing this?
Picard should be reminded that when Charles Ponzi perpetrated his fraud, SIPC did not exist and therefore any precedent set would be superseded by the enactment of SIPA in 1970. In reality, SIPC was created to ensure that investors would be protected from the likes of the Charles Ponzi type.
As for the "redistribution' of funds between Madoff "net losers and net winners", this is preposterous. The function of SIPC is to promptly pay investors of a defrauded broker (up to $500,000). It is not the responsibility of another defrauded investor to pay out this money. That is SIPC's role. Mr. Picard has tried to put the responsibility on the investors and thus eliminate the need for SIPC to fulfill its role.
Nowhere in the SIPC statute does it mention that protection is not available for Ponzi schemes. Mr. Madoff stole customer funds and as such, SIPC is required to pay those customers based on the value of their securities on the date of the bankruptcy filing. It is not Mr. Picard's role to determine whether an investor was fully paid or received more than they deposited. If this were to be true, then what is the purpose of SIPC?
In your article, Mr. Picard says, "The fact that the customer property we recover will not be sufficient to satisfy all allowed customer claims is unfortunately the nature of Ponzi Schemes."