Bernie Madoff is dead: Where does that leave his victims' cases?
According to the criminal complaint for his Dec. 11, 2008 arrest, Madoff confessed to his sons on the previous day that his business was a "giant Ponzi scheme."
Bernie Madoff, the architect of one of the largest Ponzi schemes in American history, which defrauded tens of thousands of investors of more than $65 billion, died in prison Wednesday at age 82.
Madoff was a fixture on Wall Street for decades, including presiding as the one-time chairman of the Nasdaq Stock Market. But when the 2008 financial crisis hit, many of his clients sought to liquidate their investments. That was a problem because without any new investments coming in with an amount sufficient to cover those liquidation claims, Madoff’s fraud was uncovered.
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According to the criminal complaint for his Dec. 11, 2008 arrest, Madoff confessed to his sons on the previous day that his business was a “giant Ponzi scheme.” When his sons, Mark and Andrew, called attorney Martin Flumenbaum for advice, the family friend called both the Securities and Exchange Commission and federal prosecutors on their behalf.
When authorities made a house call, they asked the then 70-year-old man if there was an innocent explanation, to which Madoff responded: “There is no innocent explanation.”
Now, Daniel Stermer, an attorney and fiduciary with DSI who does not have any active Madoff cases, said the only impact that the convicted fraudster’s death will have on pending litigation is that Madoff cannot be called as a witness.
“Madoff admitted to what he did,” Stermer said. “They’ve taken every type of discovery from him, even while he’s been incarcerated. His testimony has been memorialized and you will now be able to use that in ongoing litigation.”
But Jim Silver, a partner at Kelley Kronenberg in Miami, said Madoff was impacting litigation in South Florida courts even before his death. Silver represented 80 defrauded investors in the $1.2 billion Ponzi scheme involving disbarred attorney Scott Rothstein’s defunct law firm.
“The Rothstein Ponzi scheme came on the heels of the Madoff Ponzi scheme, which was generating a tremendous amount of litigation and court decisions,” Silver said. “Those court decisions [from the Madoff case] played a role in the Rothstein Ponzi scheme litigation that was taking place in bankruptcy court in South Florida.”
Attorney Michael I. Goldberg, a partner at Akerman in Fort Lauderdale, explained that a part of Madoff’s legacy would be his contribution to public education about financial crimes. Goldberg recalled in 1990 when he began to focus significant attention on Ponzi schemes in his legal practice, few nonlawyers had heard of this type of white-collar crime.
“He brought the term to everyday ordinary American and European life because his Ponzi scheme spanned continents,” Goldberg said. “Do I think Ponzi schemes will end? Of course not. But he raised the awareness that they exist. It has made people a little more suspicious or aware that these scams exist.”
Madoff was sentenced to a 150-year prison sentence and served about 12 years. His attorney, Brandon Sample, who practices in Rutland, Vermont, said his client’s request for compassionate release last year was denied. Madoff had chronic kidney failure and had 18 months left to live.
“Bernie, up until his death, lived with guilt and remorse for his crimes,” Sample said in a statement. “Bernie was by no means perfect. But no man is.”
A Ponzi scheme is a form of fraud that attracts investors with promises of large returns in a short period of time, utilizing newer investments to pay those earlier returns.
It is named after Charles Ponzi, who utilized the fraudulent maneuver when he promised clients in the 1920s that within 45 days, they would reap a 50% profit or within 90 days a 100% profit, according to the SEC. While Ponzi did not invent the scheme, his name became synonymous with this type of fraud.
And since the Madoff Ponzi scheme was exposed, Irving H. Picard, a partner at Baker & Hostetler in New York, who is the court-appointed trustee charged with liquidating assets of the Madoff bankruptcy estate, has recovered billions of dollars for victims. At the same time, Picard has collected hundreds of millions in legal fees.