Madoff Jailed After Guilty Plea
Thursday, March 12, 2009; 1:30 PM
An "ashamed" Bernard L. Madoff pleaded guilty Thursday morning to bilking investors out of billions of dollars in savings in the biggest fraud in Wall Street history, and a judge ordered him jailed immediately to await a June 16 sentencing date.
The 11 felony charges carry a maximum sentence of 150 years in prison. The actual sentence is likely to be much shorter, but given Madoff's age would likely still amount to a life sentence.
Elliot J. Blumenthal, attorney with Buchanan Ingersoll and Rooney, was online Wednesday, March 12, at 1:30 p.m. ET to discuss the case and the victims. In his practice Blumenthal focuses primarily on complex civil and white collar litigation. He has been closely involved in the Madoff case since it began.
A transcript follows.
Elliot Blumenthal: Hi. Elliot Blumenthal here to discuss the Madoff case. Today was an important day in the ongoing saga. My firm represents Madoff victims and I have also represented many defendants in all kinds of white collar crimes, so I have been on both sides of this situation. I look forward to answering your questions.
Detroit, Mich.: What I don't understand is how Madoff thought he could get away with a Ponzi scheme. Just by the virtue of the type of scheme it was, it was sooner or later going to fail. Am I wrong or was this a scheme that could have kept going on for a long time without his getting caught? What would make him think that he could get away with it?
Elliot Blumenthal: Many criminals don't believe they are going to be caught. From what Madoff said in court today, it seems that he started the Ponzi scheme in a down market in the early '90's when he felt desperate. There has certainly been a better market since then and he could have invested the funds sent to him, but he didn't. Had the investors not sought redemptions because of losses in other investments, it might still be going on today.
Mrs. Madoff: Why haven't there been any charges against the wife -- she had an office in the firm and lived off the ill-gotten gains. Do you think with Bernie behind bars the feds will go after her? I mean go after her with criminal charges, not just the money.
I know we're discussing crime and this is more of a gossip question but here goes. I get the impression they liked the flashy life style and being "big names". Have all the social contacts dropped them?
Elliot Blumenthal: I think the government will go after anyone the evidence leads them to. Mrs. Madoff is a prime suspect. She has been sued civilly and recent reports indicate that she will be hiring her own counsel and not be represented by his lawyer. Madoff refused to plead to a conspiracy charge so it seems that he will not give evidence against anyone else.
As to your second question, my guess is that the Madoffs would not be too popular in the Palm Beach Country Clubs today.
Harrisburg, Pa.: What is recoverable to victims in this case, especially when the purported assets were mostly fiction and I doubt anyone can provide so many billions of dollars in future restitution? What can be collected, and what percent of what is owed to people can be recovered?
Elliot Blumenthal: That's the $65 billion question! Right now, the SEC, FBI, prosecutors, and the Bankruptcy Court appointed Trustee have access to Madoff's books and records. They are in the best position to answer. In my experience, the funds that went into the Madoff firm will mostly be accounted for over time. No one has alleged that Madoff was given, or took out, buckets full of cash. Bank records of the inflows and the outflows can probably be pieced together. But that will take time.
Fairfax, Va.: When/if the economy springs back, is there a chance for some of the investors that some money will be recovered or has the money long been gone?
Elliot Blumenthal: It seems that much of the "money" never really existed and was only an entry on a statement created by Madoff. Apparently, there have not been any trades for 13 years. The assets that do exist could appreciate over time. His Palm Beach and Manhattan properties have probably lost some value in the real estate market. Who knows when and if they will increase in value. Even if they do, it won't be enough to make up for the losses.
Philadelphia, Pa.: I know you are not Madoff's attorney, but what are his legal options? I can't imagine what he could do other than plead guilty.
Elliot Blumenthal: The news reports indicated that his sons originally turned him in and that he admitted his guilt when he was arrested. Going to trial after that would have been near impossible. His only other option, which he has apparently refused to exercise, is to cooperate with the government and tell them more about how he did it, where any money or assets are, and, most importantly, who else knew about it and helped him. However, even if he did that, it's hard to believe that he would get any kind of significant leniency that would allow him to be free ever again. He is probably the most notorious white collar criminal in history.
Washington, D.C.: Has anyone hired forensic accountants to find out where all that money went? And can that evidence be used in court?
Elliot Blumenthal: As I said in an earlier response, there isn't much for a forensic accountant to do at this point. The government has all of the books and records. Eventually, there will be discovery in civil cases and much forensic work to be done. I have spoken to forensics about this and they are all in the wait and see mode.
Co-defendants?: Is it possible for a scheme like this to work at this scale and for so long, without a large group of people who are in on it? Someone had to prepare reports and so on.
Elliot Blumenthal: Madoff said that he purposely hired inexperienced and unknowledgeable people who would do what he instructed and not know the questions to ask. You can be sure that the government has been and will continue to investigate the employees.
Washington, D.C.: It's a scary possibility to think that Madoff's case is just the tip of the iceberg in questionable, if not illegal, practices in Wall Street trading and that it's more common than what we hear of the big players. Has this been more of a norm than an exception into the stocks market that so many people who put their money and faith?
Elliot Blumenthal: I don't think that illegal, or even questionable, practices are the norm on Wall Street. We have seen other alleged Ponzi schemes and alleged frauds exposed since the Madoff case made headlines, such as the Stanford case. A Ponzi scheme collapses when the outflows go out faster than the inflows come in. In a down market, it's likely that investors will seek to take out more money to make up for their losses elsewhere, while at the same time, it's harder for the schemer to continue to raise sufficient money to keep it going.
Baltimore, Md.: Re Madoff's personality: From all the news accounts, he is a very controlling, orderly to the point of obsessive compulsion individual. He is also someone who has fallen from a high business and social position. It just seems odd to me that he has behaved so passively throughout the legal proceedings and, frankly, I am surprised that he has not attempted suicide. Any thoughts?
Elliot Blumenthal: Whoa! That question needs to be answered on Psychiatrist's forum, not a legal one.
Bethesda, Md.: In general, how do you foresee the government reacting to these and similar types of cases (i.e. FCPA, FCA, SEC Investigations) going forward? During the Bush years these were mostly hands-off affairs with the companies doing their internal investigations then reporting results to the government.
Elliot Blumenthal: This has gotten so much publicity and there have been so may questions along the lines of "where was the SEC all these years" that the government regulators will be mandated by Congress to be more vigilant. We see clients who have not been charged with anything looking to shore up their compliance. The equivalent of an annual physical is a good idea. I think that financial firms better be careful because Congress and the regulators want to show that they are protecting the public. We have represented "self-reporters" in the past and I think that they will continue to be given more lenient treatment than if they catch you first.
Wokingham, U.K.: I can accept that some people are too focused on charity and good works to ask proper questions and that some are virtuously trusting. But when people of great expertise and abundant information become involved in schemes with imagination-stretching rates of return and barely existent audit we surely have to ask whether they are really victims or whether they are in some sense complicit. At that rate we mustn't take every claim about how much was lost at complete face value.
Elliot Blumenthal: Well, if you invested $1 million and received a statement every month showing 10%-20% gains and after several years it indicated that your balance is now $5 million, when the scheme falls apart, how much did you lose? The answer may not matter here because full recovery may not be possible for either number. Madoff apparently recruited big investors and charities who he was reasonably certain would not seek to take money out. That's one of the reasons it lasted so long. Any way you look at it, his investors were victims. How much they actually lost is a legitimate question.
He's Sorry?: Am I the only one who doesn't buy his apology? He was actively trying to shift funds when arrested. The only thing he seems to be sorry about is that he got caught.
Elliot Blumenthal: That might be true. This case is so notorious that even an apology, which is helpful at sentencing in other cases, won't help at all here.
Boston, Mass.: What do you think the trustee's clawback position will be? Will he go after all money paid out over the last several years? Will he only go after profits investors realized? Will he distinguish between wealthy and not wealthy recipients of money (i.e. people who are left with assets vs. those with little left). If he distinguishes the wealthy from the not, where do you suppose he would draw the line?
Elliot Blumenthal: I think the Trustee will be aggressive. His first targets will be whatever he thinks he can recover the easiest. Hard to tell who among the individual victims are considered wealthy anymore. Those who received distributions over the past few years have to be concerned. I expect much litigation to occur over this issue and expect much contact with our firm's creditor's rights lawyers.
Washington, D.C.: Wait, wait. A big reason that the scheme was not detected earlier was because the hedge fund industry is a relatively unregulated area compared to other investments. Madoff was not required to disclose details of his operations, which blunted the ability of critics to nail down the impossibility of his success.
Elliot Blumenthal: Keep in mind that part of his plea was the crime of perjury. He has admitted to lying to the SEC under oath. I do expect Congress to step in and at least attempt to pass legislation that would require more regulation of hedge funds. It's the knee jerk reaction.
Austin, Tex.: Was Madoff reporting capital gains on which investors were then having to pay taxes? If so, is there any sort of relief/refund that these folks could get by refiling tax returns (and how far back could they go?)
Elliot Blumenthal: The investors were paying capital gains taxes on their "earnings". Our tax lawyers have been involved in this issue. That's an area of relief for some of the investors, albeit a relatively small benefit to them.
Hackensack, N.J.: Hi, Mr. Blumenthal. What I wonder is why did Madoff confess in the first place? Apparently he told his brother and/or sons back in December. But after so many years of living so high on the hog and getting away with it, what made him come clean at all? Thanks.
Elliot Blumenthal: It seems that the Ponzi scheme was collapsing under its own weight. He saw the end was near.
New York, N.Y.: Do you think the government will have a hard time getting convictions for Madoff's wife and sons since none of them will testify against each other? Do you think the government will make deals with employees who broke the law to get their testimony against members of the Madoff family? Btw, I'm a victim and a check I deposited in my Madoff account last summer my accountant informed me was endorsed over to his personal account. And it wasn't that big a check. He stole on a grand and small scale.
Elliot Blumenthal: It depends on how strong the evidence is. If, and I stress if, there are employees who were in on it, you usually see a race to the prosecutor's office to cooperate against others and get leniency for yourself. I don't expect any of the family members to turn on each other, but then again, stranger things have happened.
Elliot Blumenthal: Thanks so much for your questions and for taking the time to read my answers. It was interesting to read so many different viewpoints on this enormous case. I hope to do this again sometime.
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