Madoff Help News & Assistance

I can see it now. Amid the litany of pain and outrage expressed by Madoff victims and their congressional representatives at the Senate hearings, the ultimate cop-out stands to emerge. Listen carefully for the two words – “bailout fatigue” – for these will assuredly be uttered quietly by certain senators and decision-makers intent more on style points than substance.

Victims — your representatives in Congress need to hear from you. Madoff victims need to be clear that in this day of massive bailouts of banks, insurers and automakers, that we expect the US government to do the right thing when it comes to the countless charities and little guys that have voted their representatives into office. The US government – its regulators and the self-regulating organizations (SRO’s) that it empowered – messed up big time. Frankly, we’d have all been better off had the SEC and NASD not bothered to investigate at all, because their investigations only added legitimacy to the scheme. Madoff perpetrated the fraud, but the government unwittingly enabled it, and therefore the government — and the SRO’s — share substantial responsibility. While it is investigating and gathering information, the government should, therefore, take ownership of this mess and step up. It’s the right thing to do. And quickly.

Ideally, that means making Madoff investors whole, pure and simple. With the exception of those investors who may have, in “bad faith” pulled their entire assets out within the past year, Congress should step forward to assist the legions who have been decimated, with the full value of the investments at the end of November 2008 reimbursed.

Of course, we realize that this level of responsibility-taking is not probable, even though appropriate. So here’s a four-step, less politically daunting, but more complicated alternative.

Raise SIPC Coverage Immediately. The government should quickly raise the SIPC coverage from the paltry $500,000 – a number established in 1970, to an amount indexed by inflation. Why? The $500,000 in 1970 is worth a mere $91,340 today. That Congress has not raised the SIPC amount over all these years is just another example of poor oversight. So raise the SIPC amount to $2,735,000 per person, which would incorporate the appropriate inflation adjustments.

Waive Clawbacks. The terrifying notion of clawbacks – “fraudulent conveyance” – whereby the trustee of a fund in bankruptcy can demand return of distributions taken by investors — is largely inappropriate in this context, and Bayou and similar hedge fund Ponzi cases should not be established as precedents. It is important to distinguish the “non-accredited” investor in the registered and regulated entity of BLMS versus an unregulated or other hedge fund. “Good faith” should be assumed, and not be proved. Only investors who withdrew 100% of their investment over the last year or so should be required to demonstrate the “good faith” defense. Investors have suffered innocently enough, and are being further punished just by this fear. Congress can and must stop it.

Mandate IRS Leniency. The government should insist that the IRS take a quick, and maximally lenient approach in terms of determination of theft loss, amending of returns, and statute of limitations so as to minimize the overall loss to investors. Furthermore, all IRS and qualified plan losses should be immediately permitted as theft losses.

Provide Clarity, Immediacy and Comprehensiveness. The government should take all the above steps pre-emptively – which means now. That is, not wait until the trustees identify all assets, the Senate completes its hearings, SIPC makes its determinations, etc. People have suffered enough and the anxiety of waiting and costs of professional fees make it worse. The Treasury (IRS), Senate, FINRA, SEC, SIPC should huddle immediately, and make a clear and comprehensive determination to resolve this issue to the best benefit of the victims and declare immediately what those actions are. Moreover, the government should set clear and appropriate timetables to insure that Madoff victims quickly receive the SIPC payments and refunds from amended returns.

That is the least government should do. Frankly, making every investor whole would be a lot easier, and the more appropriate way to go.

So what can you do? Contact the Senate Banking Committee investigating Madoff. Contact your Congressman and Senators and let them know that foot-dragging and “bailout-fatigue” isn’t an acceptable excuse. Contact Treasury Secretary Timothy Geithner, who heads both the SEC and the IRS and let him know that you expect him to make every effort to assist you and other Madoff victims.

We expect all of them to do the right thing.

Ron Stein