Saturday, February 21, 2009

Madoff claims to drain SIPC fund

Here's the law behind SIPC.

SIPC mailed out 8,000 claims for investors that got spanked by Bernie Madoff. So far, they have received claims from 2,350 people, and SIPC expects that the eventual claims will finally be double that.

We also know that there is no record of Madoff ever buying any stocks the past 13 years.

“We have found no evidence to indicate that securities were purchased for customers’ accounts” for “perhaps as much as 13 years,” said Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC. It was “cash in and cash out,” he said.

That means the SIPC is now on the hook for $500,000 per claim, since the claims involve only cash. SIPC originally pretended that these investments were in securities; that way the claim would be only $100,000 per investor. Now it will be $500,000.

The trustee for Madoff is now looking to clawback any money that was paid to previous investors.

Madoff had a creditor hearing yesterday. Here was the number to listen in on the meeting. 877-419-6660. And guess what? If you missed it, tough luck. They didn't archive the meeting for you to listen to it on your weekend! After all, it was only the biggest Ponzi scheme in the history of mankind!

But what did Bernie Madoff do, that Wall Street still isn't doing now? For years, Wall Street never purchased the stock that customers thought they were buying. Stock is just electronically shorted without a good locate and never delivered. If you want the naked truth, on naked shorting, it's here.

Bernie pretended he was investing your money, and yet he wasn't. How about the feeder funds that received kickbacks? Why aren't these trustees attempting to clawback this money? And where's the money? Where is the electronic trail? Madoff had taken laundered money in. Where did the laundered money go out? And how about JP Morgan? JP Morgan yanked $250 million of it's money out of Madoff, and left it's clients in the fund, but the trustee has not yet asked JP Morgan for their earnings or that "Madoff" money back. If you know that you are investing in a fraud, and you pull the money out, you can't keep it.

Why not? JP Morgan pulled the money out, because they thought Bernie was a fraud. Once again, JPMorgan had information asymmetry.

In a ponzi scheme, all investors are treated the same, as there were no profits that were disbursed but just other's people's money. Those people that recieved money, need to give it back. That's fraudaulent conveyance.

In Bayou Management's case, the clawback was used effectively. Use it here also.

But instead the trustee will be knocking on the door of the retired Jewish lady in Palm Beach, but they'll leave the bankers at JP Morgan alone.

Where is that justice?

When Stephen Harbeck, President and CEO of Securities Investor Protection Corporation was before the House of Representatives on January 9, he told Congress that SIPC had $1.6 billion of money, and a billion dollar credit line with Treasury, and a credit line with an international consortium of banks.

Madoff will have at least 4,700 claims. Since the money was never invested, these individuals are entitled to $500,000 each by SIPC.

That is $2.35 billion of claims, on the $1.6 billion SIPC fund. Why do you think the trustee is drawing out this process? The government doesn't want to pay these claims!

Maybe SIPC should threaten to draw down JP Morgan's line of credit to SIPC! After all, didn't the taxpayer have to bail out AIG because Goldman Sachs was the party to AIG's credit default swaps?

At least that way, Treasury will pay up, and then SIPC can get funded, and maybe they can pay out these claims.

Yesterday, Morgan Stanley, which received $10 billion of TARP money, announced that they were going to pay $3 billion in retention bonuses, from their joint venture with Citigroup's brokers, who received $45 billion of TARP money, so the brokers would stay working at the firm.

And Morgan Stanley wanted to announce the $3 billion bonus before the weekend, so these brokers wouldn't suffer any undue anxiety.

But the Madoff's victims?

They let them sweat.


Richard said...

You said, "Madoff will have at least 4,700 claims. Since the money was never invested, these individuals are entitled to $500,000 each by SIPC."

You are terribly misinformed. The amount of each claim is simply based upon the cash in minus the cash out. If there was more cash taken out, there is no claim. That leaves thousands with no claim, and many others with claims under $500,000.

Palmoni said...

What you are saying is absolutely correct individually, but I was only using an estimated amount of victims regarding SIPC.

Since Madoff's list is here

and we have 162 pages with 85 victims per page, or about 13,700 victims.

Regarding the SIPC fund, I only estimated 4,700 claims for SIPC, or about 9,000 less than the total victims of Madoff where the claim is, as you said simply based upon the cash in minus the cash out.

We know that the Madoff claims are between $17 billion and $50 billion. You could estimate that one is the cash in claim, and one is the cash in plus the fake returns added in.

$17 billion is 34% of $50 billion. 4,700 claims is also 34% of 13,700.

I made the adjustment in my head but didn't clarify that when I wrote it down as my figures should already reflect the claims that wouldn't be made to SIPC as you have rightly pointed out.

But thanks for clarifying the point.

Anonymous said...

Richard and Palmoni seem to be in agreement that if you pulled out your original investment there is no SIPC claim. Are you sure? I haven't seen that anywhere. So if my retirement account showed a balance of $500,000 but I had already taken distributions over the years at least equal to my contributions I should not bother to make a claim? Worse it sounds like they can make me give money back!!

Palmoni said...

Here's a Bloomberg story on clawbacks/SIPC that may help.

He said the trustee would seek to recover money that investors withdrew over the amount they put in.
(clawbacks, however would be on a case-by-case basis)

Picard said he would not pay out a SIPC claim if he has a potential clawback claim against the investor.

Anonymous said...


Palmoni said...

Looks like the trustee is now going after the big fish and leave the public investor alone!

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