With literally thousands of investors clamoring to get their money back in the wake of Bernie Madoff’s $65 billion Ponzi scheme, someone will have to decide who was complicit in the fraud and who was genuinely duped. It’s one of the thorniest issues in the whole Madoff fraud.
Two men have been charged with figuring out that complicated question — Irving Picard, the court-appointed trustee for the liquidation of Bernard L. Madoff Investment Securities, and Stephen Harbeck, president of the Securities Investor Protection Corporation, which maintains a special reserve fund authorized by Congress to help investors at failed brokerage firms.
So far, they have committed about $61 million to 125 people — out of more than 8,000 claims. Both men were on a conference call late last week, where they talked about trying to sift through the Madoff muck.
The men will be looking into people who received (sometimes absurdly high) payouts just before the scandal erupted — people who many investors now say should have known they were reaping the rewards of a scam.
Picard said the fund wouldn’t just “willy-nilly bring a lawsuit” against them.
“There are all sorts of issues, beyond hardship, that we’ll consider,” Picard said. “If we look at an account record, all it tells us is that the money moved from here to there. If we can make a determination that the person has a legitimate defense, we won’t pursue.”
So, what factors will they look at to see if those investors just conveniently, and perhaps illegally, looked the other way? In a phone call with the Voice later, Mr. Harbeck explained that they conduct a variety of tests that involve looking at the volume of dollars, the timing of withdrawals, and relationships like blood or marriage.
“Mr. Madoff’s social network was extensive, and he did have business connections with some of our claimants,” said Herbeck. “We consider that to be a red flag.”