Meanwhile, a federal judge on Monday threw a lifesaver to investors who may have been duped, saying they need the protection of a special government reserve fund set up to help investors at failed brokerage firms.
U.S. District Judge Louis L. Stanton ordered that clients of Madoff’s private investment business seek relief under a federal statute created to rescue cheated investors. Stanton also ordered that business be liquidated under the jurisdiction of a bankruptcy court and named attorney Irvin H. Picard as trustee to oversee that process.
Stanton signed the order after the Securities Investor Protection Corporation asked that steps be taken to protect investors in the scheme, which has ensnared several major banks and prominent figures as victims and could result in as much as $50 billion in losses.
Congress created the SIPC in 1970 to protect investors when a brokerage firm fails and cash and securities are missing from accounts. Funds can be used to satisfy the remaining claims of each customer up to a maximum of $500,000. The figure includes a maximum of up to $100,000 on claims for cash.
Not sure how I feel about this, especially considering this nugget from Atrios last week:
“I am shocked, as I know you are, by this fraud,” Merkin wrote. “As one of the largest investors in our fund, I have also suffered major losses from this catastrophe.” Analyst Henry Blodget wrote on his blog Friday that some savvy investors figured Madoff was up to something because his returns were so high. “Many Wall Streeters suspected the wrong rigged game, though: they thought it was insider trading, not a Ponzi scheme,” Blodget wrote. “And here’s the best part: That’s why they invested with him.”
The entire scam is having serious repercussions:
Around the country, the nonprofit community is reeling from the Madoff scandal. At least two other foundations have been forced to close their doors, having lost virtually all their assets to what authorities describe as a Ponzi scheme that depended on new investment money to pay off on earlier investments.
Charities that depended on those foundations for financing, like the Innocence Project and the UJA Federation, and wealthy donors like Norman Braman, Mort Zuckerman and J. Ezra Merkin have now added the Madoff scandal to the list of reasons that fund-raising has been crimped this fall. In some cases, the foundations had placed their money with Mr. Madoff directly; others had invested with funds that turned assets over to him. And some nonprofits relied on a steady stream of money from donors, like Ms. Levy-Church, with now vanishing fortunes.
Have there been any changes to any regulations, any changes to the way business is conducted since this slow-motion catastrophe started a few months ago? For this outsider, it really looks like the entire system is corrupted, there are no checks and balances, and the market is really looking like a government guaranteed casino. People invest their money in wild schemes, profit for a while, and then when it goes under, they get their money back from the taxpayer.
Correct me if my impression is wrong, but the entire system makes Enron look like a solid business model right now.