Econintersect: The latest news appears to be reaching the end of the long story of the $50 billion Ponzi fraud perpetrated by Wall Street investment firm icon Bernard Madoff (pictured). It was almost four years ago (December 2008) that the scheme came apart when Madoff was unable to pay $7 billion in redemptions at a time that his records indicated that his investments were worth more than seven times that amount. As in all Ponzi schemes the day arrived, due to the financial crisis, that new money coming in was insufficient to cover redemptions requested for payout.
Last Thursday (08 November 2012) the longest serving employee of the Madoff firm who was not a family member, former controller Irving Lipkin, pleaded guilty to falsifying records. In a statement quoted in the Chicago Tribune, Mr. Lipkin rationalized his actions:
"While working for Bernie Madoff, I made accounting entries in financial records that I knew were inaccurate," Lipkin said. "At no time before I retired was I ever aware that Mr Madoff or anyone else at the company was engaged in the Ponzi scheme reported in the media."
Alas, another Madoff victim.
On Tuesday 13 November Bloomberg reported that that Ivy Asset Management, a division of Bank of New York Mellon (NYSE:BK), agreed to a $210 million settlement of charges it had concealed negative information it learned about Madoff in order to keep collecting fees it was paid for advice and due diligence. The approximately $40 million in fees collected by Ivy ended up costing more than four times that amount plus a raft of legal expenses.
According to a September report by ABC News, while there may still be some more recovery, more than $3.6 billion has been disbursed to investors, including in the latest payments totaling $2.5 billion. ABC News said that the court appointed Madoff liquidation trustee Irving Picard estimated the fraud cost customers about $17.3 billion. Also from ABC News:
Only a handful of victims are being made whole. Many more will receive about 34 percent of what Madoff stole from them.
If the total is $17.3 billion and $3.6 billion has been distributed, there should still be another $2.3 billion yet to be distributed. (34% of $17.3 billion is $5.9 billion.)
There are still another dozen individuals linked to the case who have been charged but have not gone to trial.
So the Madoff case is winding down but it still has quite a few more loose strings to tie up.
- Longtime Madoff employee admits decades of fraud (Basil Katz, Reuters, Chicago Tribune)
- BNY's Ivy Settles N.Y.'s Madoff Lawsuit for $219M (Bloomberg News, Financial Advisor, 13 November 2012)
- Madoff Victims: The Check Is in the Mail (Aaron Katersky, ABC News, 20 September 2012)