Madoff presention to community group


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Bernard Madoff perpetrated the largest financial crime in the history of the nation. I am one of those investors. The purpose of this three part presentation is to provide inforrmation about the role of government investigations of Madoff and to introduce a book written by 20 Madoff investors. This one-of-a-kind book tells the Madoff story from the victims. The presentation itself was prepared to give to a local community group that expressed interest in better understanding Madoff from one who has experienced it.

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Madoff presention to community group

  1. 1. MADOFF AND THE LARGEST FINANCIAL FRAUD IN HISTORY Community Meeting Montgomery County August 26, 2010
  2. 2. WHO WAS MADOFF <ul><li>Founder of Bernard L Madoff Investment Securities (BLMIS) </li></ul><ul><li>First firm to implement electronic trading on the NASDAQ </li></ul><ul><li>Clearing house for large traders such as Fidelity Investments </li></ul><ul><li>At one point BLMIS was executing 15% of the daily NASDAQ trading volume </li></ul><ul><li>Former two-time chairman of the NASDAQ </li></ul><ul><li>Frequent consultant to the SEC </li></ul><ul><li>Considered for the post of Treasury Secretary in the 1990s (according to Madoff) </li></ul><ul><li>Sat on the board of directors of the Securities Industry Association (later merged to form SIFMA - Securities Industry and Financial Markets Association) </li></ul><ul><ul><li>Peter Madoff (brother) and Shana Madoff (niece) sat on this board until 2008 when the ponzi scheme broke </li></ul></ul><ul><li>Involved in politics: Since 1991, Madoff contributed about $240,000 to federal candidates, parties and committees including $25,000 a year to the Democratic Senatorial Committee. He also contributed to BOTH the Democratic and Republican Conventions </li></ul>
  3. 3. WHAT WAS MADOFF WORTH <ul><li>March 2009 (according to the trustee) </li></ul><ul><ul><li>Madoff and his wife reported net assets of $126m </li></ul></ul><ul><ul><li>Plus Madoff reported the value of BLMIS at $700m </li></ul></ul><ul><ul><li>50% interest in BLMIS air charter service </li></ul></ul><ul><ul><ul><li>A yacht ($7m) </li></ul></ul></ul><ul><ul><ul><li>Jewelry ($2.6m) </li></ul></ul></ul><ul><ul><ul><li>Manhattan apartment ($7m) </li></ul></ul></ul><ul><ul><ul><li>Montauk home ($3m) </li></ul></ul></ul><ul><ul><ul><li>Palm Beach home ($11m) </li></ul></ul></ul><ul><ul><ul><li>Home in France ($1m) </li></ul></ul></ul><ul><ul><ul><li>Art ($9.9m) </li></ul></ul></ul><ul><li>Virtually all of it stolen from his investors </li></ul>
  4. 4. THE END FOR MADOFF <ul><li>On December 11, 2008 Bernard Madoff was arrested for perpetrating the largest financial crime in the history of the nation </li></ul><ul><ul><li>He was not being investigated by anyone at this time </li></ul></ul><ul><li>Although the true number of victims will likely never be known </li></ul><ul><ul><li>Over 4,000 had direct brokerage accounts managed by Madoff </li></ul></ul><ul><ul><li>There were a large number of feeder funds, both domestic and international. The total number of individual investors in these funds has been reported as between 50,000 and 150,000 </li></ul></ul>
  5. 5. MADOFF BY THE NUMBERS (as of July 2010) <ul><li>18 – the number of months since Bernard Madoff was arrested (December 11 th , 2008) </li></ul><ul><li>13 – the number of months since Bernard Madoff was sentenced to 150 years in prison (June 29 th , 2009) </li></ul><ul><li>30 – the approximate number of years that Bernard Madoff continued his fraud </li></ul><ul><ul><li>An SEC report states that it began sometime before 1990 – Madoff himself stated that the fraud began in the early 1970s </li></ul></ul><ul><li>6 – the number of times Madoff was investigated by the SEC (the SEC found nothing wrong on each occasion) </li></ul><ul><li>1 – the number of times that Madoff was investigated by the IRS (he was approved to accept IRA and pension accounts which amounted to $5b in retirement account losses) </li></ul>
  6. 6. HOW DID MADOFF GET AWAY WITH IT – CRIMINAL MASTERMIND OR BUMBLING INVESTIGATORS <ul><li>The SEC (Securities Exchange Commission) asked Madoff whether his operation was legitimate. He said “Yes”. And the SEC believed him </li></ul><ul><li>It is a little more complex than that, but not by much </li></ul><ul><li>The SEC had the power and the obligation (mandated by congress) to investigate brokerage firms and investment advisors </li></ul><ul><li>The SEC had the power to look at the trading activities executed by Madoff’s investment advisory service </li></ul><ul><li>SEC investigators could have checked with the clearing house to determine if those trades actually were made </li></ul><ul><li>A simple, 10 minute phone call during any one of the 6 investigations would have been sufficient to determine THAT MADOFF NEVER EXECUTED A SINGLE TRADE </li></ul><ul><li>Every single one of the millions of trade confirmations and monthly brokerage statements printed over at least 3 decades was a fake </li></ul><ul><li>Not a single person at the SEC ever made that call </li></ul><ul><li>The SEC was not alone in failing to investigate Madoff. The IRS approved Madoff to handle IRA and Pension funds as a non-bank IRA custodian in direct violation of their own rules </li></ul>
  7. 7. CAN YOU TRUST THE COMPETENCE OF THE SEC TO BE THE WATCHDOG FOR YOUR INVESTMENTS <ul><li>The SEC actually helped Madoff to ensnare more investors. According to a report generated by the SEC “Perversely, Mr. Madoff used the S.E.C.’s inquiries as a selling point to reassure investors that the government had looked over his operations and found no problem” </li></ul><ul><li>Since Madoff’s arrest, the SEC has been criticized for its lack of financial expertise and lack of due diligence </li></ul><ul><ul><li>Not only did the SEC conduct 6 investigations of BLMIS but the SEC received complaints from Harry Markopolis and others for almost a decade. The SEC ignored these warnings or did a superficial investigation which found nothing. The SEC even received information from whistle blowers INSIDE Madoff’s operation </li></ul></ul><ul><li>In 2009, the SEC’s inspector General, H. David Kotz, found that “since 1992, there were six botched investigations of Madoff by the SEC, either though incompetent staff work or neglecting allegations of financial experts and whistle-blowers” </li></ul>Can you trust the competence of the SEC? Maybe NOT - See how easy it is to betray trust
  8. 8. Schapiro “ These aren’t bad People. In some cases they were people who were very junior and not adequately trained or supervised.” JULY 20 TH , 2010 THE SEC’S EXCUSE FOR NOT CATCHING MADOFF WAS BECAUSE THE SEC EMPLOYEES WHO CONDUCTED ALL 6 INVESTIGATIONS WERE TOO POORLY TRAINED AND SUPERVISED TO DO THE JOB EFFECTIVELY
  9. 9. THE WINNERS MADOFF’S PREFERRED INVESTORS <ul><li>Madoff’s relatives and friends benefited greatly from their BLMIS investment account </li></ul><ul><ul><li>Peter (brother) invested $32,146 and withdrew $16m </li></ul></ul><ul><ul><li>Mark (son) and Andrew (son) invested a small amount (less than $1m) and withdrew over $35m </li></ul></ul><ul><ul><li>Mark took out a loan of $22m which was never repaid </li></ul></ul><ul><ul><li>Andrew took out a loan for $9.5m which was never repaid </li></ul></ul><ul><ul><li>Shana (niece) used a BLMIS account as a piggybank and withdrew a significant sum </li></ul></ul><ul><li>There were 244 “SPECIAL ACCOUNTS” that received returns far in excess of other investors </li></ul><ul><ul><li>For example: Jeffery Picower invested $2b with Madoff in the early 1980’s </li></ul></ul><ul><ul><ul><li>When Madoff was arrested his account was worth $4.5b which made him seem like a major loser </li></ul></ul></ul><ul><ul><ul><li>But, he withdrew $7.1b over the years </li></ul></ul></ul><ul><ul><ul><li>Average return 140% </li></ul></ul></ul><ul><ul><ul><li>Best year 1999 – 950% </li></ul></ul></ul><ul><ul><ul><li>Letters found in Madoff’s office indicated that Picower asked Madoff to post date statements showing a specific return for earlier months </li></ul></ul></ul><ul><ul><ul><li>Picower was sued by the trustee for $7.1b </li></ul></ul></ul><ul><ul><ul><li>Picower drowned in his own pool in 2009 </li></ul></ul></ul><ul><ul><ul><li>His estate is now being sued </li></ul></ul></ul>
  10. 10. MORE WINNERS BOTH FEDERAL AND STATE <ul><li>The IRS and State departments of revenue collected taxes on the fraudulent 1099’s – for DECADES </li></ul><ul><ul><li>Madoff collected about $20b in real money from his investors </li></ul></ul><ul><ul><li>The FBI reported that the total value of all accounts on November 30, 2008 was $64.5b </li></ul></ul><ul><ul><li>Taxes were paid on about $45b of fraudulent income – </li></ul></ul><ul><ul><ul><li>At a 30% tax rate that is $15b in taxes paid </li></ul></ul></ul><ul><li>Madoff paid himself and his “preferred” employees HUGE salaries </li></ul><ul><ul><li>All of those salaries and the taxes paid on them were actually investor money resulting in even more gains for the Federal and State “Winners” </li></ul></ul><ul><li>The IRS has returned 5 years of back taxes (but collected for decades) </li></ul><ul><li>Most states have returned nothing </li></ul>
  11. 11. THERE IS YET ANOTHER BIG WINNER <ul><li>Irving Picard – trustee appointed by SIPC </li></ul><ul><ul><li>His law firm, Baker & Hostetler is receiving $1.3m a week in payments for work handling the dissolution of assets of BLMIS (talk about a GREAT retirement plan) </li></ul></ul>
  12. 12. FOLLOW THE FLOW OF THE MONEY Madoff’s 1099s to his investors IRS and State Taxes Madoff’s high salaries IRS refunds State refunds Huge profits paid to the 244 Special Madoff Accounts
  13. 13. THE FIRST CHANCE TO STOP MADOFF AND IT SHOULD HAVE BEEN THE LAST <ul><li>In 1992 Avellino and Bienes (A&B) was investigated by the SEC </li></ul><ul><li>Investigators thought A&B might be running a ponzi scheme </li></ul><ul><li>But, A&B was actually just giving the money to Madoff to manage and taking a cut of the “profits” </li></ul><ul><li>A&B turned out to be one of the original feeder funds for Madoff </li></ul><ul><li>Madoff returned $400m to A&B investors </li></ul><ul><li>The SEC closed the case without ever looking at where Madoff got the $400m to return (in actuality it likely came from other investors in his growing ponzi scheme) </li></ul><ul><li>An article was published in the WSJ which indicated the SECs findings: “there was no evidence of fraud” and the money was actually being managed by one of the most respected money managers on wall street, Bernard Madoff, former chairman of the NASDAQ” </li></ul>
  14. 14. WHAT DID THE SEC KNOW AND WHEN DID THE SEC KNOW IT (this in only a partial list) <ul><li>1992: Avellino and Bienes was one of the 1 st feeder funds for Madoff. The SEC shut down A&B, but actually recommended Madoff in a WSJ article as the brains behind the investments of A&B </li></ul><ul><ul><li>The SEC’s words gave thousands of investors a false sense of security leading them to fell confident investing with Madoff </li></ul></ul><ul><li>2003: SEC Inspector General David Kotz who is conducting an investigation into how regulators failed to detect the fraud despite numerous red flags stated that Madoff should have been caught in 2003, but bumbling investigators acted like “Lt. Colombo” and never asked the right questions </li></ul><ul><li>2004: Geneviette Walker-Lightfoot (an investigator for the SEC) informed her supervisor chief (Mark Donohue) that her reviews of Madoff found numerous inconsistencies and recommended further questioning of the firm </li></ul><ul><ul><li>Lightfoot had to rapidly wrap up her work prematurely to switch to investigating the mutual fund industry </li></ul></ul><ul><ul><li>Donohue’s boss, Eric Swanson, later married Shana Madoff </li></ul></ul>
  15. 15. SOME OF THE PLAYERS WHO CLAIM THEY KNEW NOTHING OF THE FRAUD <ul><li>Peter (brother) was the Chief Compliance Officer for BLMIS. He worked with his brother Bernie for more than 40 years, and ran the daily operations for the past 20 years </li></ul><ul><li>Shana (niece, daughter of Peter) was the SEC compliance officer for BLMIS </li></ul><ul><ul><li>She married an SEC director </li></ul></ul><ul><li>Madoff's sons Mark and Andrew, worked in the trading arm in the New York office, but also raised money marketing the Madoff funds </li></ul><ul><li>Ruth (wife) worked as the firms bookkeeper for more than 15 years </li></ul><ul><li>Annette Bongiorno is a long time personal secretary and aide to Madoff. She is accused of directing two assistants to generate fictitious trading tickets for customer accounts </li></ul><ul><li>Frank Di Pascali (referred to himself as &quot;director of options trading&quot; and as “CFO&quot; at Madoff Securities) joined the firm at the age of 18 and ran the day to day operations for the investment part of the firm </li></ul><ul><li>David Friehling (accountant) audited the books for over 20 years. Madoff's firm paid Friehling between $12,000 and $14,500 a month for his services </li></ul>
  16. 16. THE INTERNATIONAL CONNECTION WHERE DID THE MONEY GO <ul><li>Madoff Securities International Ltd. Located in the U.K. </li></ul><ul><li>In 2008, about $1 billion was transferred between Madoff’s U.S. advisory firm and Madoff Securities International Ltd. in London (later most of this money was transferred back to the U.S. – but to the brokerage part of Madoff’s business) </li></ul><ul><li>There were nine directors. All were family members or very close friends </li></ul><ul><ul><li>Family members with shares included Mark and Andrew Madoff, Peter Madoff, and Bernard himself. Ruth Madoff, Bernard Madoff's wife, also held shares. Non-family members with shares included Maurice J. &quot;Sonny&quot; Cohn. Madoff and Cohn were shareholders in Cohmad Securities (Cohn and Madoff), which steered investors to Mr. Madoff's advisory business </li></ul></ul>
  17. 17. WHO WAS PUNISHED <ul><li>In jail </li></ul><ul><ul><li>Bernard Madoff – sentenced to 150 years </li></ul></ul><ul><li>Under criminal investigation </li></ul><ul><ul><li>Two programmers who started working for Madoff while still in their 20’s wrote and maintained the software to generate the false trade confirmations - co-operating and will be sentenced </li></ul></ul><ul><ul><li>Friehling - co-operating and will be sentenced </li></ul></ul><ul><ul><li>Frank Di Pascali –co-operating and will be sentenced </li></ul></ul><ul><li>Number of SEC employees who were fired, demoted or censured for their multiple failed investigations </li></ul><ul><ul><li>ZERO </li></ul></ul><ul><li>Number of SEC employees who received promotions or commendations in their employee records for conducting a competent investigation of BLMIS </li></ul><ul><ul><li>At least 2 </li></ul></ul>
  18. 18. DID THE SEC EVER DISCOVER THE FRAUD <ul><li>In spite of the written and verbal warnings by Markopolis, the information provided from whistle blowers and their own investigations – the SEC NEVER uncovered the Madoff fraud </li></ul><ul><li>He “confessed” to his sons and they “turned him in” to the authorities </li></ul>
  20. 20. WHAT IS SIPC <ul><li>Created by Congress in 1970 </li></ul><ul><li>Reason – to encourage investors to feel safe leaving their securities at a brokerage firm in “street name” rather than taking physical possession of the actual stock certificate </li></ul><ul><li>The securities industry benefitted greatly from the promise of SIPC insurance in that this promise led directly to a huge increase in trading volume which could be done instantaneously rather than using the mail </li></ul><ul><li>SIPC insures brokerage accounts against fraud and theft of securities </li></ul><ul><li>Wall Street firms paid $150 per year for having SIPC insurance for ALL of their customers, and NOTHING from 2000 to 2008 since SIPC determined that there were adequate funds available (that is until 2008 when SIPC insurance was increased substantially, partially to replenish reserves due to the Madoff fraud) </li></ul>
  21. 21. THE ILLUSION OF SIPC INSURANCE <ul><li>SIPC does not consider any of the gains accumulated over decades as real money </li></ul><ul><ul><li>But the IRS does – and did collect taxes on those gains </li></ul></ul><ul><li>SIPC does not consider investors in any of the feeder funds as “customers” and has rejected every claim from these investors </li></ul><ul><li>SIPC is looking at Madoff’s records OVER THE DECADES to determine exactly how much each investor put into the account and how much they took out. Only the difference is eligible for SIPC insurance </li></ul><ul><ul><li>Many of those older records are on microfiche or in hundreds of cartons stored in a warehouse which means that investors can take years to receive payments (in spite of SIPC being Federally mandated to “Promptly Pay” claims </li></ul></ul><ul><li>Any monies withdrawn over the 6 years before the fraud was discovered are subject to “clawback” – (having a very negative effect on those who were drawing regular monthly checks from their account. Not only are investors no longer getting checks, but they are being sued to return monies already received) </li></ul>
  22. 22. LETS COMPARE THE OUTCOME OF FDIC AND SIPC FDIC SIPC <ul><li>Invest $10,000 for 5 years </li></ul><ul><li>Receive statements showing gains of $500 a year </li></ul><ul><li>Account worth $12,500 after 5 years </li></ul><ul><li>Withdraw $1,000 from account </li></ul><ul><li>New balance $11,500 </li></ul><ul><li>Fraud at the bank </li></ul><ul><li>FDIC pays based on last statement </li></ul><ul><li>Investor receives $11,500 in a few days which is the amount shown on the last statement </li></ul><ul><li>Invest $10,000 for 5 years </li></ul><ul><li>Receive statements showing gains of $500 a year </li></ul><ul><li>Account worth $12,500 after 5 years </li></ul><ul><li>Withdraw $1,000 from account </li></ul><ul><li>New balance $11,500 </li></ul><ul><li>Theft at the brokerage house </li></ul><ul><li>SIPC uses a cash-in minus cash-out basis for payment of insurance </li></ul><ul><li>No credit for gains </li></ul><ul><li>Investor receives $9,000 ($10,000 investment - $1,000 withdrawal) but it takes months or years as SIPC checks every deposit and withdrawal </li></ul>
  23. 23. HOW MANY INVESTORS HAVE RECEIVED SIPC INSURANCE PAYMENTS (as of July 16, 2010) <ul><li>13,131 claims received and investigated by the trustee </li></ul><ul><li>2,159 claims have been allowed (84% of claims have been rejected) </li></ul><ul><li>Amount of allowed claims total $5,534,139,344 </li></ul><ul><li>Payments paid by SIPC total $706,994,114 (13 cents on the allowed dollar covered by SIPC) </li></ul>
  24. 24. MAYBE SIPC HAS A GOOD REASON FOR NOT PAYING ACCORDING TO THE 11/30/2008 INVESTOR STATEMENTS <ul><li>Mary Schapiro, the head of the Securities Exchange Commission, expressed concerns about the SIPC's lack of funds when she testified before Congress about the Madoff situation </li></ul><ul><li>“ The tragic truth is there is not enough money available to pay off all the customer claims” </li></ul><ul><li>Remember that $150 a year brokerage firms pay to insure ALL of their customer accounts while proudly displaying the supposed security of the “SIPC” emblem on the statements </li></ul><ul><ul><li>I guess it was not enough to protect the customers, but it sure did help the brokerage houses </li></ul></ul>
  25. 25. THE IMPACT OF CLAWBACKS <ul><li>Many Madoff investors saved for decades in preparation for their retirement </li></ul><ul><ul><li>Just like you or your retired relatives who are receiving pensions from the jobs where they worked their whole lives </li></ul></ul><ul><li>One member of our “survivor” group sent me the following email when they read this presentation and I believe this email is instructive in showing the heartbreak cause by the Madoff fraud </li></ul><ul><li>“ I have just read your presentation re Madoff. It is magnificent. I write to you directly; I think I owe you that much and infinitely more. You are the best. </li></ul><ul><li>Words cannot express the gratitude I feel for all you have done from day one and all you are doing now. </li></ul><ul><li>I am 86. My wife is 81. We do all we can but can't hold a candle to you. </li></ul><ul><li>My greatest wish is to win the net equity case and defeat clawback. If this happens we will have a great party to celebrate. I will meet you both at that party .” </li></ul><ul><li>You can clearly read between the lines that this retired couple considered the Madoff income an integral part of their retirement </li></ul><ul><li>The threat of clawback is an issue they should not have to worry about at this stage in their lives </li></ul><ul><li>It is an absolute catastrophe that their lives will never be the same, and an unimaginable tragedy that it could have all been avoided had the SEC effectively done their job </li></ul>
  26. 26. A REAL CASE OF THE DAMAGE DONE BY CLAWBACKS <ul><li>Irving Picard’s position on clawbacks: </li></ul><ul><li>“ The people who made money, who got more, have made money at the expense of the people who didn't&quot; </li></ul><ul><li>An example of who is being sued: Are clawbacks fair when investors believe They are simply withdrawing their own money? </li></ul><ul><li>” The Madoff trustee has asked an 87 year old former school secretary to repay $691,372” </li></ul><ul><li>Some of the money targeted by Mr. Picard comes from withdrawals she was required to make from her retirement account after she turned 70, and on which she paid taxes, she said. &quot;This is my money that I need now, and if he comes after me, I will be penniless,&quot; said the investor. </li></ul>
  29. 29. HOW DID I GET INTO THIS MESS <ul><li>Started to invest with A&B in 1990 </li></ul><ul><li>First learned of Madoff in 1992 during the SEC investigation of A&B </li></ul><ul><li>Began to invest with Madoff when funds from A&B were distributed </li></ul><ul><li>Looking for an investment with high safety. Willing to forego large upside gains in any specific year in order to avoid those years with large losses </li></ul><ul><li>Looking for a well respected money manager </li></ul><ul><li>Aware of SEC investigation when making initial investment </li></ul><ul><li>Made regular investments from 1992 to 2002 </li></ul><ul><li>Both myself and my parents opened accounts </li></ul>
  30. 30. DESIGNING “THE PLAN” <ul><li>My plan </li></ul><ul><ul><li>Projections of reported gains indicated that I could retire in February of 2010 </li></ul></ul><ul><li>My parents plan </li></ul><ul><ul><li>Use the proceeds from Madoff to replace the social security and pension benefits of the one who passed first </li></ul></ul>
  31. 31. EXECUTING “THE PLAN” <ul><li>My father passed in April of 2008 </li></ul><ul><li>On December 8 th , 2008 we were in the office of our local bank arranging to close both Madoff accounts, transfer the funds to the bank and begin to receive regular monthly withdrawals thus implementing “the plan” </li></ul>
  32. 32. WHEN I FOUND OUT <ul><li>December 11 th , 2008, 8:05 P.M. </li></ul><ul><ul><li>Initial shock and disbelief </li></ul></ul><ul><ul><li>It must have happened “to the other guy”, those in the feeder funds </li></ul></ul><ul><ul><li>After all, I had a brokerage account with thousands of confirmation statements collected over the years </li></ul></ul><ul><ul><li>And, brokerage accounts are regulated by my government through the SEC </li></ul></ul><ul><li>December 14 th , 2008 </li></ul><ul><ul><li>Reality sets in – the money is gone </li></ul></ul><ul><ul><li>How do I tell my mom that her retirement funds are gone? There would be no replacement of the income from her husband’s passing and she would now have to live on a substantially lower income </li></ul></ul>
  33. 33. WHAT COMES NEXT <ul><li>Newspapers report that there were thousands of investors </li></ul><ul><li>The total losses likely exceeded $60b </li></ul><ul><li>I searched the web and discovered that there were others seeking out information on how to proceed and what, if anything, could ever be recovered </li></ul><ul><li>Received calls from the FBI and US Attorney’s office in NYC </li></ul><ul><li>Through phone calls and emails discovered an attempt to organize investors to share information </li></ul><ul><li> was formed in January of 2009 and currently has over 400 members. An associated organization, NIAP (Network for Investor Action and Protection) was formed in 2009. Both work to educate the investing public and secure fairness for all ponzi scheme victims </li></ul>
  34. 34. WHAT ARE THE OPTIONS FOR RECOVERY <ul><li>The original investment is gone </li></ul><ul><li>The gains were NOT real </li></ul><ul><li>The taxes paid on those gains WERE real (and most taxing agencies refuse to return them) </li></ul><ul><li>Where are the funds available for recovery </li></ul><ul><li>SIPC insurance </li></ul><ul><ul><li>Will take years for many investors </li></ul></ul><ul><li>Refunds of taxes paid on fraudulent 1099s </li></ul><ul><ul><li>Only 5 years of back taxes recovered at the Federal level </li></ul></ul><ul><ul><li>Nothing at the State level </li></ul></ul><ul><li>Distributions from the trustee for funds that he recovers from BLMIS </li></ul><ul><ul><li>Currently 1.7 cents on the original investment amount have been recovered and it is unclear when there will be any distribution </li></ul></ul>
  35. 35. MADOFFSURVIVORS.COM TO THE RESCUE <ul><li>During January, February and March of 2009 I received and sent about 150 emails each day from various members seeking and sharing information </li></ul><ul><li>A letter writing, emailing and calling campaign to Senators and members of the House of Representatives was begun </li></ul><ul><ul><li>Most States had Madoff Survivors and most legislators in those States were contacted multiple times </li></ul></ul>
  36. 36. WHAT DID WE INITIALLY ACCOMPLISH <ul><li>Congress was initially responsive, introducing and passing Revenue Procedure 2009-20 which treats ponzi scheme losses as a Net Operating Loss which can be carried back 5 years and up to 20 years forward </li></ul><ul><ul><li>Anecdotal evidence suggests that the average Madoff victim is about 67 years old. Many will never live long enough to use the loss carry forward and will never earn sufficient income in their twilight years to exhaust the amount of the NOL </li></ul></ul><ul><li>HR 1159 was introduced which allowed ponzi scheme victims to reclaim 10 years of taxes paid on fraudulent 1099s </li></ul><ul><ul><li>It is currently stuck in committee with only a handful of co-sponsors </li></ul></ul><ul><li>The trustee distributed forms which collected information on SIPC insurance coverage and the group provided samples of how to correctly fill out the form </li></ul>
  37. 37. REVENUE PROCEDURE 2009-20 <ul><li>This procedure required completion of an incomprehensible form which, thankfully, most Americans will NEVER have to deal with </li></ul><ul><li>Again group members provided samples </li></ul><ul><li>Some the IRS accepted and some were rejected. It seemed as though the likelihood of having the IRS accept the completed form was random and depended on who opened the envelope </li></ul>
  38. 38. PROGRESS AT THE STATE LEVEL <ul><li>While the Federal government did allow recovery of as much as 5 years of back taxes paid on the fraudulent 1099s, the responsiveness of the State Legislators have been uniformly disappointing </li></ul><ul><li>Most states, including Pa, are returning nothing </li></ul>
  39. 39. SO YOU THINK YOU CAN AMEND THREE YEARS TO REMOVE FALSE INCOME THAT NEVER EXISTED <ul><li>Pa (like many states) allows taxpayers to amend the past 3 years of tax returns </li></ul><ul><li>The trustee, IRS, FBI, US Attorney, SEC and SIPC have all said that the 1099 income was a fake. Therefore the states should allow you to remove that income and amend your returns </li></ul><ul><ul><li>Those amended returns were rejected by the PA Dept of Revenue </li></ul></ul><ul><ul><li>Reason: the state will not allow the deductions of the falsified 1099s while the trustee is still conducting the recovery of funds for BLMIS </li></ul></ul><ul><ul><li>And, the state of Pa has a 3 year statue of limitations to file an amended return </li></ul></ul><ul><ul><li>Which continues to run while the trustee conducts the investigation </li></ul></ul><ul><ul><li>The trustee has said that the investigation will take 5 to 10 years </li></ul></ul><ul><ul><li>Implication: the state of Pa will return nothing and the State of PA becomes a beneficiary of income that was collected as a direct result of a criminal activity </li></ul></ul><ul><ul><li>Taxes, as we are all told, should be fair and balanced. We are often told by our legislators that we should “pay our fair share.” REAL Income SHOULD be taxed. Taxes paid on FALSE income should be returned </li></ul></ul><ul><li>Most states are reacting exactly as Pa – they are keeping the money – SO MUCH FOR FAIRNESS </li></ul>
  40. 40. MY PERSONAL ACTIONS <ul><li>Over 1,000 letters, emails and calls </li></ul><ul><li>At the Federal Level </li></ul><ul><ul><li>Senators Casey and Specter </li></ul></ul><ul><ul><li>Representative Patrick Murphy </li></ul></ul><ul><ul><li>Every member of the Senate Banking and Senate Finance Committee </li></ul></ul><ul><ul><li>Every member of the Pa House of Representatives Banking and Finance Committee </li></ul></ul><ul><ul><li>President Obama and Michele Obama </li></ul></ul><ul><ul><li>Vice President Biden </li></ul></ul><ul><ul><li>Secretary Timothy F. Geithner </li></ul></ul><ul><li>At the State level </li></ul><ul><ul><li>Representative Kathy Watson </li></ul></ul><ul><ul><li>Senator Mc Illhinney </li></ul></ul><ul><ul><li>Representative William Adolph </li></ul></ul><ul><ul><li>Governor Rendell </li></ul></ul><ul><li>The Press </li></ul><ul><ul><li>Granting every press interview requested </li></ul></ul><ul><ul><li>Numerous articles in the Intelligencer and Philadelphia Inquirer </li></ul></ul><ul><ul><li>Over 6,000 newspapers on June 29 th , 2009 during the sentencing </li></ul></ul><ul><ul><li>Philadelphia Magazine article </li></ul></ul><ul><ul><li>Various TV interviews </li></ul></ul><ul><ul><li>Interviews with the BBC, French TV, Russian TV and Japanese TV amongst others </li></ul></ul><ul><ul><li>Local radio interviews on 1060 and 1440 </li></ul></ul>
  41. 41. AND WHAT HAS BEEN ACHIEVED TO DATE FROM ALL THESE EFFORTS <ul><li>At the Federal Level </li></ul><ul><ul><li>Great support from Patrick Murphy who has met with me twice, co-sponsored HR1159 and provided invaluable support in completing the form for Revenue Procedure 2009-20 </li></ul></ul><ul><ul><li>And, that is it….. (other than aides and form letters) </li></ul></ul><ul><li>At the State level </li></ul><ul><ul><li>Testified at the House Professional Licensure Committee on June 3, 2009 in Harrisburg at the State Capitol </li></ul></ul><ul><ul><li>Spoken directly to Representative Kathy Watson multiple times </li></ul></ul><ul><ul><li>Spoken directly to Senator Chuck Mc Illhinney </li></ul></ul><ul><ul><li>Frequent communication with Vickie Hoffman, the aide for William Adolph (the district for the Pa “mini Madoff”, William Forte) </li></ul></ul><ul><ul><li>And, that is it…. </li></ul></ul><ul><li>The effort continues every single day </li></ul>
  42. 42. OUR GOVERNMENT AT WORK <ul><li>Example 1 </li></ul><ul><ul><li>On April 22, 2010 BP caused a major financial catastrophe for a large number of Americans by its negligent and incompetent operation of the Deep Water Horizon oil well. President Obama visited the situation 4 times and within 7 weeks (June 16 th) the President forced BP to allocate $20b to compensate the victims </li></ul></ul><ul><li>Example 2 </li></ul><ul><ul><li>On December 11, 2008 the SEC caused a major financial catastrophe for a large number of Americans by its negligent and incompetent investigation of BLMIS. 19 months later - our government does almost nothing to compensate the victims </li></ul></ul><ul><li>Why is it that when a private company does great damage our government leaps to the rescue BUT when a government agency does great damage our government does nothing? </li></ul>
  44. 44. American Mutual Funds Average Annual Return 4 American funds started from 1934 to 1978 (year started in parenthesis) Madoff return reported by various news agencies Returns reported on website, November 2009
  45. 45. Fidelity Mutual Funds Average Annual Return 4 Fidelity funds started from 1963 to 1985 (year started in parenthesis) Madoff return reported by various news agencies Returns reported on website, November 2009
  46. 46. Janus Mutual Funds Average Annual Return 4 Janus funds started from 1970 to 1998 (year started in parenthesis) Madoff return reported by various news agencies Returns reported on website, November 2009
  47. 47. Vanguard Mutual Funds Average Annual Return 4 Vanguard funds started from 1958 to 1984 (year started in parenthesis) Madoff return reported by various news agencies Returns reported on website, November 2009
  48. 48. THE CLUB NO ONE WANTED TO JOIN 1 st release, June 2010
  49. 49. HOW DID IT HAPPEN <ul><li>Of the 400+ members of Madoffsurvivors, some shared much more information and became friendly </li></ul><ul><li>29 of them got together and decided to tell their story in book form </li></ul><ul><li>It is one of a kind – the only book that tells the story of the victims, by the victims </li></ul><ul><li>So many other books focus on how Madoff hoodwinked the SEC </li></ul><ul><li>And, the real story is that of the real Americans who were victimized by Madoff, by the SEC, by SIPC, by the trustee, by the press and by our own State and Federal governments </li></ul>
  50. 50. WHY DID WE WRITE THE BOOK <ul><li>Are we just seeking our “15 minutes of fame” </li></ul><ul><ul><li>Well, I have looked very hard at all 29 authors and NONE of us are ever going to be the next B rad Pitt or Angelina Jolie </li></ul></ul><ul><li>But we do have a message that you need to hear </li></ul>
  51. 51. WHAT IS THE REAL MESSAGE OF THE BOOK <ul><li>If you read the book you will see that the media stereotype of Madoff investors is totally off base </li></ul><ul><li>Most look just like me – and you </li></ul><ul><li>Meaning, “this could easily have been you writing this book and giving this presentation” and me sitting in the audience listening to you </li></ul><ul><li>Have you checked and verified your brokerage account lately? (Or, do you trust the SEC to do it?) </li></ul>The faceless SEC asleep at the wheel
  52. 52. WHAT DO I ASK OF YOU AND WHY <ul><li>For myself </li></ul><ul><ul><li>I would like you to call your Federal representatives and ask them to pass HR 1159 </li></ul></ul><ul><ul><ul><li>This would return taxes paid on the fraudulent 1099s – and not just for 5 years </li></ul></ul></ul><ul><ul><ul><li>The government cannot benefit financially from a criminal activity – particularly one where a government agency (the SEC) abandoned their responsibilities to oversee Madoff and became a virtual co-conspirator in this crime </li></ul></ul></ul><ul><ul><li>While you are on the phone ask your representatives TO HAVE SIPC HONOR THE 11/30/2008 BROKERAGE STATEMENTS that investors relied on as being accurate </li></ul></ul><ul><ul><li>Tell them those who invested indirectly through the feeder funds were also customers deserving compensation </li></ul></ul><ul><ul><li>And, tell them that clawbacks SHOULD NOT EVEN BE CONSIDERED FOR INNOCENT VICTIMS WHO DID NOTHING WRONG (EXCEPT BELIEVE THAT THE SEC COULD COMPETENTLY POLICE THE SECURITIES INDUSTRY) </li></ul></ul><ul><ul><li>Call your State of Pa representatives and ask them to pass HR 2153 </li></ul></ul><ul><ul><ul><li>This would return taxes paid on the fraudulent 1099s for the past 3 years – essentially acknowledging that the 1099 income never existed and should not be taxed. </li></ul></ul></ul><ul><ul><ul><li>This bill would treat crime victims like any other taxpayer and allow amended returns for 3 years (a match to the Federal plan would be fair) </li></ul></ul></ul>
  53. 53. WHAT DO I ASK OF YOU AND WHY <ul><li>For yourself </li></ul><ul><ul><li>Call your Federal representatives and tell them to require the SEC to actually focus on doing their job and protecting the investing community. </li></ul></ul><ul><ul><li>While Mary Schapiro is suggesting massive overhaul and other changes to the SEC – BE AWARE THAT THE SEC DID NOT REQUIRE ANY NEW POWERS OR AUTHORIZATION TO STOP MADOFF IN 1992 </li></ul></ul>
  54. 54. DO YOU THINK THE SEC HAS REALLY CHANGED <ul><ul><li>Do senior SEC staff really have time for this? </li></ul></ul><ul><ul><ul><li>“ April 23, 2010: The Securities and Exchange Commission is the sheriff of the financial industry, looking for crimes such as Bernard Madoff's Ponzi scheme , but a new government report obtained by ABC News has concluded that some senior employees spent hours on the agency's computers looking at sites such as, skankwire and youporn as the financial crisis was unfolding” </li></ul></ul></ul>
  55. 55. Schapiro “These aren’t bad People. In some cases they were people who were very junior and not adequately Trained or supervised.” IS THE GOVERNMENT BEING HELD RESPONSIBLE FOR THE DAMAGE THEY CAUSED? JUST LIKE ANY OTHER ORGANIZATION WOULD BE
  56. 56. MY SPECIAL THANKS TO THOSE WHO HAVE BEEN ESPECIALLY SUPPORTIVE <ul><li>Chrissa Shoemaker – a reporter for the Intelligencer who has been the ONLY media contact that has been in touch for the entire episode </li></ul><ul><li>Representative Patrick Murphy who has been the ONLY Federal legislator who has given us his personal time and made his staff available to us without limitation </li></ul><ul><li>Representative Ackerman and Senator Schumer - who have communicated regularly with other members of “the survivors” </li></ul><ul><li>Erin Arvedlund – a reporter and author who has written extensively about the Madoff affair FOR YEARS and contributed significantly to “the book of 29” </li></ul><ul><li>The 29 individuals who bared their personal stories in “The Club No One Wanted to Join” </li></ul><ul><li>Every single Madoff investor who lost their financial freedom and individual dignity – especially tragic since almost all of the damage was avoidable </li></ul><ul><li>(Note: I deliberately left off thanking the SEC) </li></ul>
  58. 58. Copyright 2010 by Michael De Vita It is the writer’s fervent hope that others will consider this material of value in educating the American citizenry of the true facts surrounding the Madoff fraud, how it happened and to better understand the repercussions to so many Americans I would be more than pleased if this presentation were given scores of times throughout the country to other groups that would benefit from the information Therefore, feel free to use the UNALTERED information in this presentation. And, feel free to add your own personal slides “and tell your story” I do ask that you notify me whenever this presentation is used at [email_address]