Did Madoff's biggest 'victims' get 950 percent returns?
Filed under: People, Investing
Last December when Bernie Madoff gave up on his $64.8 billion Ponzi scheme, I guessed that he had help. He could not have produced the fake statements on all those accounts by himself. But in a twist that I had not thought of back then, a lawsuit now alleges that Madoff's biggest clients were in on the scheme. That's especially surprising, given that some of the names mentioned have been touted as Madoff's biggest losers.Here's how the lawsuit suggests that Madoff's clients helped him with his scheme: The clients told Madoff how much of a return they wanted in a given year. Madoff would manufacture the fake account statements needed to generate those returns -- word of which would reach hundreds of other investors who would then clamor to give their money to Madoff, who in turn would forward that new money to his prized clients so they would, indeed, get those high returns.
How high? Well above the 10 percent to 12 percent annual returns that have previously been mentioned in coverage of the story. According to a lawsuit by Irving Picard, an attorney at Baker & Hostetler LLP who is trustee in the bankruptcy liquidation of Madoff's firm, several of Madoff's investors received returns in the range of 300 to 950 percent. Among those investors Picard alleges was Jeffry Picower, a lawyer, accountant and buyout investor.
Picower's foundation invested with Madoff, at one point stating its investment portfolio was valued at nearly $1 billion. He and his wife, Barbara, had 24 accounts with Madoff and received annual returns of more than 100 percent in 14 instances, reaching as high as that astounding 950 percent, according to Picard. Picower's lawyer disputes these claims. He says his client was shocked by Madoff's fraud and his foundation has lost billions.
Who knows which of these claims is true? It's entirely possible that Madoff kept up the 950 percent returns for his earliest investors as long as new money kept flowing in. With the market collapse in 2008, he then would have shifted into triage mode, moving whatever remaining cash he could find to his family and leaving those early co-conspirators or enablers on the wrong side of his dirty dealing.
But realistically, our government was also a co-conspirator in Madoff's scheme. That's because we allow managers like Madoff and Enron's Jeffrey Skilling to write their own report cards. And if Madoff had not been able to create fake account statements, his scam would never have gotten off the ground.
As I've posted, there is one sure way to prevent such scams in the future -- stop letting managers write their own report cards.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing.
Why is Oprah going to cable? Hint: It's nothing to get teary about
Kisses from Hershey: Candymaker may court Cadbury with $17 billion bid
D-Day for Harry Reid: Can he wrangle 60 votes for Senate health reform bill?
Reader Comments (Page 1 of 2)
5-19-2009 @ 12:40PM
bailoutsos said...
When you rob Peter to pay Paul, you can count on help from Paul.
Reply
5-19-2009 @ 2:14PM
Paul said...
David, my identical twin is Peter, if you rob him, he can count on me for help, Italians have a easy way to settle the score, so Peter has no worry! we take care of our own....
5-19-2009 @ 1:32PM
David said...
sad fact, the opposite of Robin Hood. how much $ did the large investors take out from Madoff?
Reply
5-19-2009 @ 1:58PM
bearclaw2304 said...
So how exactly is this any different from investing in the stock market? Large company's that can afford to create swings within the market get little guys like me and you to invest, then yank the rug out from underneath us. While we suffer they reap windfall profits. If you ask me, I say America should boycott wall street. Pull your money out, and watch the big boys flounder.
Reply
5-19-2009 @ 2:16PM
Stan said...
Its hard to believe a significant number of investor actual did benefit from the scheme. Its hard enough for a small handful of people to maintain a secret over a long period of time. If there were 50 or more investors that benefitted from the scheme it would have fallen apart quickly. Its an interesting theory but just not seem workable.
Reply
5-19-2009 @ 3:08PM
Gary Munsterman said...
To think all the rich people who "invested" and lost money in this scheme were ignorant of the facts is naive to say the least. Many got more in returns over the years then they invested.
The members of the club, knew damn well it was too good to be true. Watch Frontline. The only suckers were the investors who gave their money to the feeder funds.
Reply
5-19-2009 @ 3:11PM
Tom said...
Nothing but Scheisters flim flamming lemming Scheisters. We have similar scenario unfolding here in NC. Two large tracts of coastal land in separate coastal communities purchased amid the housing bubble by nefarious RE dev. co. They in turn enlisted relatives to enlist THEIR friends to buy flipped (already flipped, sometimes in same day, by their relatives, to appear as legitimized value increased props) land- who, those friends intended themselves to flip, without even building, for huge rewards. Guess what? Then the bubble burst. People own deeds on land mortgages totaling upwards of 389K, worth 70k. They're all suing each other now. Friends sueing friends and friends of the lender BAC sueing them, in return. Justice served. On a silver platter.
Reply
5-19-2009 @ 4:03PM
tom said...
BTW- the name of the icky "Madoff-like" RE developer?? Total Realty World, (TRW) based out of northern VA. Oh, And they had plenty of help from scheister in-on-the-scheming appraisers getting kickbacks, who of course, now face license termination, and possibly jail time. Oh, one other tidbit. The one coastal community, Cannonsgate, as the land tracts were being chopped up into 300 or so 0.5 acre lots to be flipped to 'friends' at outrageously inflated prices, they were marketing them using our wonderously corrupt governor Easley's plot of land approximately one mile away as the main selling point. And not one of the buyers (friends of TRW) even ventured one mile from their VA homes to even check or look at the land, or the plots they were paying 300K (worth 70k at most) for. Nevermind the ignorance of the lender, BAC. If THIS doesn't exemplify and magnify the mindlessness of the reckless financial charades of the last six years, I don't know what else does. Except Madoff.
Reply
5-19-2009 @ 5:39PM
STEVE said...
Shocking!! I thought he was a front for the Israeli mafia or some Israeli political machine, but to think his motives were just to enrich some friends at everyone elses expense , pure and simple, just blows my mind.
Reply
5-19-2009 @ 6:34PM
Ed Tanovitz said...
Steve---Why do you think this is some kind of Israeli plot? Your anti-semitism is showing?---not your logic.
5-20-2009 @ 2:03AM
dahat said...
Steve you got it partly correct though the circle is too wide to catch the guys with the black coats, hats and curly side burns, these guys have so many names they go under, too many high in N.Y politics to every look into it..Spitzer was on to them, they took him down with a phone call
5-19-2009 @ 5:43PM
peapers said...
Of course they did. That is the whole premise of a pyramid scheme.
Reply
5-19-2009 @ 6:09PM
jj said...
No body needs others to invest their money. Come on, are we smart enough to do it ourselfs?
Reply
5-19-2009 @ 6:14PM
thom said...
IT'S ALWAYS LAWYERS AND POLITICIANS THAT MAKE AWAY WITH THE BIG MONEY, WHILE WHAT THEY REFER TO AS THE LITTLE PEOPLE PAY THE PRICE.
THIS HAS BEEN STANDARD PRACTICE FOR DECADES - OUR SYSTEM IS DESIGNED AROUND GREED, CORRUPTION AND POWER. THESE RICH SLUGS AND POLITICIANS WHO SEEK MORE MONEY - NEED TO BE EXPLOITED AND RAN OUT.
ENOUGH DIRT RUNS OUR COUNTRY AS IT IS.
Reply
5-19-2009 @ 6:31PM
jim lewis said...
Didn't bernie madoff start NASdaQ?
The Gov definitely was in on the scam.
Reply
5-19-2009 @ 6:49PM
danzillo said...
So far the politricksters (his henchmen) who have kept the donations from madoff...and not one of them crooks has said they should return it to the victims...NOT ONE..as they are lawyers themselves...
Reply
5-19-2009 @ 7:09PM
STATEMAN26 said...
We were told repeatedly by tearful investors that these were innocent "Jewish charities" with their investors "shocked"!!! "Shocked I tell you!" LOL LOL LOL
It looks as if this "shocking" fraud is more than just the fraud of frauds. It is raised to the 20th power. The FBI investigations and private law suits will continue for decades.
Reply
5-19-2009 @ 7:35PM
Angela said...
The most important part of this piece is "But realistically, our government was also a co-conspirator in Madoff's scheme. That's because we allow managers like Madoff and Enron's Jeffrey Skilling to write their own report cards. And if Madoff had not been able to create fake account statements, his scam would never have gotten off the ground."
Reply
5-19-2009 @ 7:45PM
Brian said...
All these investors with their "charities" blubbering on national TV how old Bernie took them to the cleaners? LOL LOL LOL Why am I not surprised to learn many, perhaps most, were in on Madoff's schemes?
Alarm bells should have gone off in any intelligent person's mind when dozens of investors reported they were getting pretty much the same returns year in and year out. In good times and bad. Apparently too good to be true in more ways than anyone ever imagined.
We the people were, as usual, treated to this fraud by an unsuspecting media. Always bent on entertaining us rather than informing us. Where were the investigative journalists over the years?
This is not only the fraud of frauds. It has just been raised to the 20th power by being the conspiracy of conspiracies. It indicates the FBI investigations and law suits will continue for decades to come.
Reply
5-19-2009 @ 9:25PM
John said...
It's too bad that the auto companies can't build an engine that runs on dirt like out gov't does--Madoff, Enron, and all the rest of them.
We could eliminate our need for fuels.
Reply