Madoff Victims May Have to Return 6 Years of Profits, Principal

[Adsos Letter]

Source: Bloomberg

Dec. 23 (Bloomberg) -- Like some of Bernard Madoff’s clients, a Florida restaurant owner was lucky enough to withdraw part of his investment before the money manager allegedly confessed to a $50 billion Ponzi scheme. Now he’s worried he might be asked to give it back.

53-year-old investor, who asked not to be identified to protect his stake, took out about $600,000 this year from his $1.5 million account, using some of it to pay down a mortgage. He and other Madoff clients who withdrew funds as long as six years ago may be sued on behalf of other victims to return profits and even principal, securities and bankruptcy lawyers say.

“Right now there are Madoff winners and Madoff losers,” said Lynn LoPucki, who teaches bankruptcy law at Harvard University. “Before this is over there will be nothing but Madoff losers.”

Clients of Madoff had about $36 billion with his firm, according to a Bloomberg tally that may include some double counting. Before his arrest on Dec. 11, Madoff, 70, confessed to employees that his “giant Ponzi scheme” may have cost as much as $50 billion, according to an FBI complaint. His misconduct may have stretched back to at least the 1970s, two people familiar with the government’s inquiry of Madoff said last week.



Read more: http://www.bloomberg.com/apps/news?pid=20601087&sid=a3kFmYaaw5sY&refer=worldwide

[Idealism]

1. That is fucking rediculous

If you didn't realize the scumbag you hand millions of dollars to was running a Ponzi scheme in order to maintain crazy high returns, that is your fault. Buyer-beware in our capitalistic society, yes? Why should others pay because you failed due diligence and your hand got caught in the cookie jar?

[sandnsea]

2. Everybody was involved in an illegal scheme

I think the point is, let people keep what they invested, but some of the ones who profited early will have to put their profit into some sort of fund to pay the people who were scammed after them. It's wrong for anybody to make money off this, and I'm guessing it's illegal too.

[The Backlash Cometh]

3. I suspect that they will probably be able to keep "capital," but anything

over that will be up for grabs.

[Idealism]

15. Capital since when

Madoffs funds returned around 10% each year, what if someone invested with him for a decade? Where would you declare principal, yearly? They already said that there was (I believe) $10 billion missing, so its pretty apparent everyone will be losing money.

[The Backlash Cometh]

16. Yeah. I expect so.

It's really sad when you get down to realize that everything some of these people worked for in the way of charitable foundations, are done with.

[Idealism]

18. Yeah, its a huge mess

But, on the other hand, why did they invest with him? Greed.

Nobody forces you to invest 90% of your net worth in the stock market, and a "sure thing" doesn't exist. People routinely forget the rules of the game and wonder why they lost their ass

[LiberalHeart]

21. But were all the gains fake? How do officials sort thru what's legal gain and what's not?

[The Backlash Cometh]

23. I expect people will produce receipts for the money they actually

put into the kitty. That's probably the only thing that will be safe. Everything else will be up to the authorities.

I'm just guessing. I have no idea how it's actually done. But, knowing how everything else happens in this country, there are probably politically connected individuals who will probably be able to walk away with what they have.

[LiberalHeart]

29. I'm wondering if he actually made investments with the money or if it went somewhere else.

[alcibiades_mystery]

5. Actually, these kinds of clawbacks are the long-established rule in Ponzi schemes

[aquart]

6. So you are a total believer in free market buyer beware?

Ah. I tend to believe that there is no god-given right to cheat and defraud. But that's just me.

[Idealism]

14. Its just common sense

If you are thinking about handing a guy you don't know a small fortune to invest for you, you would think people would look into his practices for getting the incredible results. Same as if you were to go buy a car, wouldn't you read up on Consumer Reports, for example, and try to find as much information as possible to make the best possible investment? If you then buy a Kia because it is cheaper and the engine block falls out in a year, whose fault is it?

[Donnachaidh]

32. another point -- Madoff WAS NOT registered with the SEC

Now if these people were aware of the rules of investing - do you think that possibly checking his credentials might have been something to do? Geez, it's like hiring a guy off a street corner to perform open heart surgery -- on yourself.

I cannot believe that the people who handed over a huge amount of their fortunes did so *without* checking this guy out. For that reason alone I don't have pity for the folks who handed over vast sums of money. And it seems a lot of the money being made was funneled into charities -- so they profit from his actions, and then get the huge tax deductions for *philanthropy*. That used to be a win/win for the wealthy.

Until Madoff got caught.

Oh well.. :shrug:

[Pisces]

36. I would think that you would trust reputation and current customers if you had no

knowledge of investments. I think some poor fools were taken by a guy with a great reputation and a great list of clients.

[Robbien]

10. Banking execs get to keep their bonuses which were based on imaginary income

Madoff didn't have any income to distribute. So you are saying if the rich bankers get to keep money that is not theirs, these rich investors should also be able to keep money that is not theirs.

The only losers should be the ordinary American who has to cover the funds these rich dudes pocketed?

[Donnachaidh]

31. you know, poor people are always told that *ignorance is not an excuse*

So why should there be a different answer for the wealthy?

[Idealism]

35. Exactly my point

The rich get enough benefits as is.

[GoesTo11]

4. Any similar arrangement for Lehman execs? AIG? Citicorp? Goldman?

No. They get to keep their $100s of billions in bonuses from their Ponzi scheme.

[truthisfreedom]

7. bushco. Obama can prove they were a total Ponzi scheme.

And make corporate America pay it all back.

[WriteDown]

11. What about the taxes paid though?

There were obviously taxes paid on the returns. Are they going to be returned as well?

[Hugin]

12. Not if they were also tucked away in some tax-haven.

As was likely.

[WriteDown]

13. Huh?

If they were getting dividends, they were paying taxes.

[Hugin]

17. Oh, I'm sure most of these Ponzi Schemers were beating down the doors of the IRS to pay taxes..

:rofl:

I'm not sure where/if they could get the correct numbers to even do so.

[WriteDown]

19. Trust me....

Someone was paying taxes. You don't have a huge name like Madoff working for decades without the IRS demanding their cut. I made a little money gambling at the casinos last year and already got a notice how much I'll owe.

[pokercat999]

39. You know that you can deduct losses up to the amount of your

winnings. If the winning/losses are substantial (50K or more) you should make an effort to "record" your losses i.e. casino, table number, date and time, dealers names if possible, in a note book at least, this is especially important to poker players as the house doesn't record their losses and rarely even records their playing time. Table and slot players using a "players card" can request their time at play from the casino and usually get an official report. Good luck.

[LiberalHeart]

22. They can get tax credits for their loses, but you can use only 3 grand per year.

At least that's what happened to someone I know who paid tens of thousands more in taxes than she needed to. I forget the details of her situation, but she didn't get any of the overpayment back; just the annual 3 grand tax credit which will probably last her the rest of her life.

I read somewhere that Madoff's losers can refile their taxes for at least a few years back. I don't know if that means refunds for them.

What happens to those who took what they thought were profits, invested in something else that then failed. If the money's no longer available, do those folks go into bankruptcy?

There needs to be a special place in hell for Madoff. And I am not one who's willing to dis those who invested with him. Someone here called it greed. WTF? Should people just stuff their dough under a mattress rather than risk being seen as greedy by investing? Of course people invest. And of course they hope their money will grow. Just as the cost of living grows. And those suggesting that the investors didn't do due diligence -- um, didn't the SEC fail to find fault with the guy? I do not understand why some on DU hate the rich so much. Some of my best friends are poor, some of my best friends are rich, and they're all wonderful people.

[pitohui]

26. your friend did not tell you the truth, liberalheart

if you have thousands in tax overpayment, there is a line right there on your 1040 where you can ask to get it all back for direct deposit, i have certainly used this feature, and you don't have to believe me, pick up a form 1040 for yourself, turn it over, and read it for yourself!


one of my friends just received a direct deposit for almost $20K for a tax overpayment...so you see...the 3K story your friend was telling is just not true...

here's where the confusion may have come from, the $3K limit is the loss you are allowed to take each year on investment losses versus earned income

her bad investments had nothing to do w. any overpayment to the IRS, they were lost on whatever fund or stock she made the bad investment in

any year where you make an overpayment of federal taxes, you have your option to have it refunded to you in full as a direct deposit, or you can have it all put forward toward the next year's estimated taxes, or it's your choice how much you wish to use of the overpayment toward next year's tax and how much you want refunded

it ain't rocket science, your friend either told you a little fib to get sympathy or you misunderstood what she told you

[LiberalHeart]

28. She didn't lie; had to be my misunderstanding. I know this because....

...I'm the one who took all her tax info to the CPA, and the CPA explained it to me. I just didn't understand the difference between overpayment and investment losses, I guess -- and I still don't, because the CPA said she had overpaid by almost 50 grand. That is the word he used: overpaid. Did he mean she overpaid on the investments? Obviously my understanding of this stuff is nil. But I do know the lady wasn't trying to get some sympathy.

She took the money out of an annuity and it had been taxed as regular income. In future years, she got tens of thousands more in tax credits that she'll never live long enough to use.

Why does the gov make you take your tax break only $3K t a time? And if she dies (she's in her 90s), does she lose all those credits at the time her estate is taxed?

[pitohui]

43. i can see that you don't understand, i'll try to put it simply

when you overpay on your taxes, you made a payment to a tax entity -- in this case, the IRS (fed. gov't) -- you can receive the total amt of your overpayment as a direct deposit, as a check, or you can authorize the feds to hold all or part of the overpayment toward future taxes -- if i have overpaid $50K (it has never been so much) then i get the $50K back in my bank account in a few weeks to a few months depending on processing time and when i filed

by contrast --

when you make a bad investment and overpay for a stock that will never recover, you haven't paid one penny to the IRS and it's really not clear to me why you should get "any" tax break for your own screw-up whatsoever, the $3K a year that you can write off for making a bad investment is limited precisely because we the people shouldn't be required to subsidize bad investments beyond a very small basic amount -- it's questionable to me whether the $3K a year "break" is good law at all

here is my example, like an idiot i bought ford stock because of its good dividends in 2001, at $25 a share that's money i'll never see again, plus 911 and the market collapsed, the dividends were cut, and the stock was never going to recover, so yes i "overpaid" for the stock but i didn't "overpay" any taxes!!! and for me to expect the IRS to compensate me for my own bad investment is just silly

as you say, each year i can deduct $3K of my losses against ordinary income, and so i do, but it isn't the IRS fucking w. me, it's the IRS throwing me a bone for a mistake i made that really wasn't their fault

does it seem so unfair now? most people don't have $50K to "overpay" for a bad investment so they are not going to sympathize too much with your friend or with me, i wish i had never bought this supposed good sound "widows and orphans" stock with its supposed good dividends but it is not the IRS fault that i did so, any more than it would be the IRS fault if i spent $50K on a shitty SUV instead of $30K on a nice reliable toyota...any tax break they give at all in the circumstance is a nice thing they're doing, to my mind, not a reason to bitch them out for not doing even more

it sounds like the CPA you used is a remarkably shitty communicator but that happens sometimes when people are better with numbers than w. expressing themselves in words -- sounds like the taxes were calculated correctly but the explanation not given in language you could understand

[LiberalHeart]

46. Thank you for going to all that trouble. Now I do see what happened.

But I doubt the CPA's explanation was the problem; it was my poor comprehension. I know just about nothing about anything that has numbers in it. My guess is that his words got garbled as soon as they went in my ears.

It does seem odd that the feds are allowing that break for bad investments. It's like a long-term bailout.

The lady who lost the 50 grand wasn't/isn't rich. She was in her 80s when her husband died, leaving her a little money that she didn't know how to manage. She'd never so much as balanced a check book before he died because he handled everything. She tried to do the responsible thing, going to a financial adviser rather than stick the dough under her mattress. She wasn't squandering money, wasn't doing silly stuff. Just trying to get by and not worry about her old age. But now, in her 90s, she's scared she'll outlive her money (not much is left). About two months in a nursing home would wipe her out.

Thanks again for going to so much trouble to clarify this for me. I appreciate it.

[Donnachaidh]

34. that's doubtful -- why do you think all these *investors* were giving so heavily to charities?

For the TAX BREAKS. OBVIOUSLY.

[Donnachaidh]

33. don't expect Obama to make THAT a priority

I sure don't.

[Nay]

8. Infuriating, isn't it, Goes? The financial crooks keep everything, AND get

bailouts besides! IMHO, all the rich folks in the financial system need to be reduced to a VERY middle-class existence -- say, that of a store manager -- and be relieved of all their ill gotten swag, including houses, private planes, etc.

[CanonRay]

9. Like every other bankruptcy, the f'ing lawyers will get it all.

[bluestateguy]

20. Madoff should be executed

It's time to use the death penalty for white collar corporate supercriminals.

[CheCheCheCheYerBooty]

27. Totally agree

and the executions should be on cable tv.

[patriotvoice]

47. Absolutely not. The best way to punish rich people is to make them poor people.

And I will point out that modern "corrections facilities" are not living poor: they have heat, A/C, three square, a roof, bed, and recreation. It's like living in a hotel. Perhaps he needs to spend some time on the streets.

On edit:
Grammar.

[CheCheCheCheYerBooty]

24. These bush cronies

on Wall Street should be locked up and the key tossed. Disgusting.

[Dreamer Tatum]

37. Madoff isn't a Bush crony, alas

He's just a criminal asshole.

[pitohui]

25. "may"? you never have the right to keep stolen items, even if you got them unknowingly

this has been the law with fine art and jewels since at least the nazis, otherwise, none of the original victims would have ever been able to get back their art, jewels, etc. after the passage of some time

you have no legal right to profit from a crime, even if you did not know that your profit came from a crime

so, yes, the money is going to need to be traced and then a means worked out to fairly distribute it among the victims

"early" adaptors of the investment fund should not be allowed to profit when "late" adaptors, who were more cautious and would not have bought in until seeing years of repeat profits, have lost EVERYTHING -- that is to punish those who were the more prudent and to allow the more reckless to benefit from the crime

a very sad situation all around, knowing victims of a similar but not so large ponzi scheme i can certainly sympathize

in one of the cases cited, it sounds as if the restauranteur sensed a problem and hoped to keep the stolen/fraudulent profits by cashing out and paying off his property -- while i sympathize, c'mon, dude, that ain't gonna fly -- now he will just have to get a loan against the property or even sell it to repay the funds in question

you don't have the right to profit from crime, not even someone else's crime, that is pretty much bedrock law

[muriel_volestrangler]

38. You have no idea what the restaurateur suspected when he took the money out

but paying off a mortgage would be a valid, and sensible, thing to do, even when you had your money in investments you knew were perfectly legitimate. Otherwise he would have been in effect borrowing to invest, and that's a bad idea.

[pitohui]

41. unfortunately his motives are not relevant to whether he has to repay

let's say he was an art investor and he decided to sell one of his paintings to pay off the mortgage and then the fbi came back and showed that the painting's provenance was fraud and it was actually looted by the nazi's

he would still have to pay it back

even though he didn't know

even though selling the investment and paying off his mortgage might have seemed a prudent thing to do at the time, considering our global economic situation

i feel sorry for the investors, i really do, but again -- you cannot reward the FIRST investors by letting them keep the money, and punish the LAST investors who are actually the more prudent people who would have NEVER invested if not for years of records showing the investment was legit -- you MUST trace back the money and pay it all back pro rata to the victims

there is no other fair way to do it in my view

and i say that knowing innocent people who were defrauded in a ponzi scheme

i just don't know how else you can do it and be fair to everyone

[420inTN]

45. $600K out of $1.5M? Unless he's been with Madeoff for over a decade...

the restaurant owner's investment was probably more than $600K, which means that he could argue that he only withdrew his principal. He may lose the remaining $800K in his account, but i don't see why he'd have to repay the $600K of his own money that he withdrew from his account.

[IndianaGreen]

30. Meanwhile Madoff is staying in his fancy Manhattan apartment

while his victims find themselves penniless. One of them committed suicide today!

[ieoeja]

40. That is what usually happens to those who possess property known to have been stolen. n/t

[pitohui]

42. of course, i'm surprised that so many in this thread are surprised

doesn't seem like obscure or unknown law to me

[customerserviceguy]

48. The art analogy is a poor one

theoretically, you could have an art expert figure out if some painting that you were buying for $100K was stolen or not. How would you identify money that is electronically wired to your bank account as stolen?

I keep hearing the same themes here as I read on the freeptard board concerning this, they boil down to rich, vain, look-the-other-way getting what they deserved. The only key element in Madoff's scheme that looked fishy was the consistency of his returns. If you got 5% on your savings account, year after year, and discovered one day that your small bank or credit union was a Ponzi scheme, should you have to pay back the money you withdrew from your account last year for a vacation?

The search for traceablity is going to involve many more lost dollars in accounting and lawyer fees, and all it's going to do is compound the losses realized. The very best thing the Feds can do is to confiscate everything from this asshole's family, and sell it to divide among the victims. My suspicion is that he had his sons turn him in to the Feds so that they could look like they had clean hands for all the ill-gotten gains Madoff has pocketed over the years of the scam.

Going back and trying to loot Jewish charities for money they've already spent on charitable purposes will accomplish nothing to restore justice to this situation.

[FlaGranny]

44. The local retirement fund

of the police was invested in that fund. Bye bye retirement. Now they'll need to work until they drop dead of old age, like we're doing.