WC has helped dismantle a couple of Ponzi schemes, most famously Raejean Bonham’s World Plus Ponzi. That one caused immense amounts of pain among more than 1,500 people. It took eleven years to wrap up, and included 1,300 lawsuits and a trip to the Ninth Circuit Court of Appeals. Lives and careers were damaged, and by reason of that case WC is still anathema for a few people. Altogether, the World Plus Ponzi involved some $65 million in “investment contracts” and “profits.”
Bernie Madoff’s Ponzi scheme had $170 billion up in the air. The actual cash losses, with the fictional profits pared off, were between 17 and 20 million dollars. More than 2,500 times more than World Plus. The carnage, the damage to human lives and institutions, beggars the imagination. When Madoff’s fraud collapsed in December 2008, it financially crippled folks ranging from individuals to churches to charities to professional baseball clubs. At least two people, in despair over their losses, committed suicide. A major Madoff investor suffered a fatal heart attack after months of contentious litigation over his role in the scheme. Some investors lost their homes. Others lost the trust and friendship of relatives and friends they had inadvertently steered into Madoff’s fraud.
The cleanup from a Ponzi scheme includes recovering “profits” – stolen money, really – paid out to early “investors,” so that the monies can be paid to all the victims, not just those lucky enough to get paid early. The power of a bankruptcy trustee to “reach back” in time and undo payments is among the most powerful ones in bankruptcy. The amount of time a trustee can “reach back” varies from state to state. In Alaska, it was six years. In New York the period is also six years. Folks lucky enough to have gotten “profits” from Madoff prior to December 2002 probably got away with it. Partly in response to the fallout from the Madoff Ponzi scheme, New York in 2019 shortened the “reach back” period form six years to four years.
After liquidating Madoff’s personal assets and collecting payouts back from early investors, the Trustee has recovered about $14.4 billion. The recovery process still continues.
Madoff got away with his fraud for an astonishingly long time. The Ponzi began in the 1980s – possibly in the 1970s – and didn’t collapse until 2008. Most Ponzi schemes collapse in 5-7 years, for the same reason that growth curves cause animals to exhaust available food. Madoff’s persisted for so long because he was canny about who he selected and because he was highly regarded. Madoff and members of his family were members of most to the private securities regulatory agencies. And, famously, the Securities and Exchange Commission botched the 2003 investigation of Madoff it attempted.
He copped a plea to eleven felonies, and, at age 71, was sentenced to 150 years (that’s not a typo) in prison. He forfeited all of his assets; they had been purchased, of course, with money he had swindled from others. In February 2020, he petitioned for early release, complaining “I’ve served 11 years already, and, quite frankly, I’ve suffered through it.” This from a man whose fraud had led to suicide by one son, death from cancer in the other, and ten years in prison for his brother. In his petition for early release, he said he had “Made a terrible mistake.”
Nonsense. Madoff committed an unrelenting series of crimes for more than 25 years. Everyone one of them was intentional; not one of them was accidental; not one of them was a “mistake.”
Madoff died last week.
All of which is why WC cannot offer any sympathy, empathy or even tolerance for the late Bernie Madoff. Do Not Rest in Peace, Bernard L. Madoff, 1938-2021.