Securities Law Blog

This post is a direct result of speaking with many former Madoff investors over the past week or so. First, I would like to thank each of you for sharing your stories with me. You are, collectively, as gracious and honest a group of individuals one would ever want to meet. I am just sorry our paths have crossed over such a painful matter. I also thank you for your kind words about our blog-and I am glad that it provides you with some guidance in these trying and difficult times. I will continue to try to keep it as current and informative as possible. This particular post is based entirely on your suggestions.

First, here is the link to the Madoff Trustee website that some of you requested. This should be your first line of information-gathering. It is http://www.madofftrustee.com/index.html.

Second, I know many of you have clawback-related questions. The Wall Street Journal has an article on what they believe to be the beginning of the clawback process today, and their blog reports it as follows (note that the hyperlinks within the blog are likely inactive):

February 17, 2009, 9:04 am
With Spate of Filings, Madoff Trustee Kicks off ‘Clawback’ Party
Posted by Ashby Jones

Let the clawback party begin.

Irv Picard (pictured, left), the trustee in charge of liquidating the assets of Bernard Madoff’s investment firm, has begun sending subpoenas to brokerage firms that may have facilitated trades in Madoff’s operation. Click here for the WSJ story; here and here for earlier posts on the clawback conundrum.

Some legal experts think the filings could show that Picard is starting the process of retrieving money Madoff’s firm paid out to various firms or investors in the days before his arrest for operating an alleged Ponzi scheme.

The filings, made in federal bankruptcy court in New York late Monday night, included documents showing that Picard had subpoenaed, among others, Timber Hill LLC, a Greenwich, Conn.-based market maker; Knight Capital Group Inc., a capital markets firm in Jersey City, N.J.; and PEAK6 Investments LP, a market-making firm in Chicago. None of the subpoenaed firms could be reached for comment.
None of the companies has previously been identified as a “feeder firm,” or an entity that helped connect investors with Madoff. Instead, the firms sent subpoenas were more likely brokerage operations through which Madoff sold securities in order to meet redemption requests from investors. Representatives for Mr. Picard didn’t return calls for comment.

Since shortly after Madoff’s alleged Ponzi scheme was revealed, some investors say they have feared they would be subjected to so-called clawbacks of money they had recently withdrawn, after losing in some cases millions of dollars. Such clawback provisions are based on the logic that the redemptions were paid using other investors’ money.

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I would like to think that the WSJ has it wrong-and that there are other reasons behind the Trustee’s subpoenas. Indeed, I find it hard to believe that there wouldn’t be other reasons for those subpoenas. For example, maybe the Trustee is merely looking for additional Bernie Madoff personl assets. If the Trustee was truly looking for transfer by investors—then he wouldn’t have limited it to just a few entities—he would have subpoenaed every brokerage firm on the street trying to catch Madoff investors’ asset transfers. I continue to be hopeful that the clawback doesn’t happen.

The Securities and Exchange Commission today charged Robert Allen Stanford and three of his companies for orchestrating a fraudulent, multi-billion dollar investment scheme centering on an $8 billion CD program. This comes on the heels of a steady drumbeat for the last week or so of rumored FBI and SEC investigations of the company. According to Bloomberg.com this afternoon:

The SEC has been investigating Stanford’s Houston-based investment firm, Stanford Group, since at least last summer over sales of certificates by the Antigua-based affiliate. The inquiry intensified after the December arrest of New York money manager Madoff, who allegedly confessed to masterminding a $50 billion fraud in which early investors were promised steady returns and paid with money from later participants.

Stanford's companies include Antiguan-based Stanford International Bank (SIB), Houston-based broker-dealer and investment adviser Stanford Group Company (SGC), and investment adviser Stanford Capital Management. The SEC also charged SIB chief financial officer James Davis as well as Laura Pendergest-Holt, chief investment officer of Stanford Financial Group (SFG), in the enforcement action.

The SEC's complaint, filed in federal court in Dallas, alleges that acting through a network of SGC financial advisers, SIB has sold approximately $8 billion of so-called "certificates of deposit" to investors by promising improbable and unsubstantiated high interest rates. These rates were supposedly earned through SIB's unique investment strategy, which purportedly allowed the bank to achieve double-digit returns on its investments for the past 15 years.

According to the SEC's complaint, the defendants have misrepresented to CD purchasers that their deposits are safe, falsely claiming that the bank re-invests client funds primarily in "liquid" financial instruments (the portfolio); monitors the portfolio through a team of 20-plus analysts; and is subject to yearly audits by Antiguan regulators. Recently, as the market absorbed the news of Bernard Madoff's massive Ponzi scheme, SIB attempted to calm its own investors by falsely claiming the bank has no "direct or indirect" exposure to the Madoff scheme.