JD Journal » Ponzi scheme

R. Allen Stanford Found Competent to Stand Trial

jim — Fri, 23 Dec 2011 19:56:24 +0000

On Thursday, a federal judge from Texas released a ruling that R. Allen Stanford is competent enough to face a trial. The charges filed against Stanford stem from an allegation that he helped put together a Ponzi scheme that ran for quite some time. The Ponzi scheme acquired over $7 billion from investors.

Judge David Hittner, a U.S. District Judge, reversed a ruling that was handed down back in January that said Sanford was not healthy enough to face a trial. He had undergone an evaluation for eight months at a medical prison center in North Carolina. To overturn the ruling, he also underwent a hearing for his competency, which began on Tuesday, according to Law360.

“Based upon the exhibits and testimony admitted at the hearing, the court determines, by a preponderance of the evidence, that Stanford has recovered to such an extent that he is able to understand the nature and consequences of the proceedings against him and to assist properly in his defense,” Judge Hittner wrote.

The schedule start date for Sanford’s trial is January 23, 2012.

Sanford is being represented by Robert A. Scardino, from Scardino & Fazel LLP. Scardino explained that continuance motion of the trial has been filed and is still in the pending process.

“We’re waiting to see what he’ll do in that regard,” Scardino said.

Stanford was originally ruled that he could not stand trial back in January following an attack while in jail in 2009 gave him an injury to his brain. Stanford was experiencing symptoms of amnesia and had been on prescription medications to aid in his recovery. Stanford was then transferred to the Bureau of Prisons Medical Center in North Carolina by the order of Judge Hittner.

The staff at the medical center declared Stanford fit to stand trial in November. The memorandum was filed by Kenneth Magidson, the U.S. Attorney for the Southern District of Texas.

Expert witnesses scheduled to testify on the behalf of Stanford claim that he is still exhibiting symptoms from the injury he suffered in September of 2009. Along with the amnesia, it has been reported that Stanford was originally left without the ability to communicate.

“The constitutional right to be present at one’s own trial exists at any stage of the criminal proceeding that is critical to its outcome if the defendant’s presence would contribute to the fairness of the procedure,” Stanford’s lawyers said in a previous motion.

Prosecutors claim that their experts say Stanford is faking the conditions he supposedly acquired during the attack in jail.

Stanford used to be the chairman of the Stanford Financial Group Co., based in Houston, Texas. He has been charged with multiple counts of wire fraud, mail fraud, obstruction and conspiracy charges. Stanford issued a not guilty plea to all 14 of those charges in June of 2009. Stanford used to be one of the wealthiest men in the Houston area.

Information also researched from The New York Times and the Wall Street Journal.

Controller in Madoff Case to Plead Guilty to Charges

jim — Fri, 16 Dec 2011 19:55:42 +0000

Enrica Cotellessa-Pitz, the former controller for Ponzi schemer Bernard L. Madoff, is expected to pleade guilty to charges of falsifying books, according to the Manhattan U.S. Attorney’s office and Law360. Cotellessa-Pitz reportedly is a member of Madoff’s inner circle who was recently charged in the scheme. She has indicated to those close to the case that she will plead guilty to four counts of accounting crimes, according to Attorney Preet Bharara said in a letter written to the court. It was also announced that she is cooperating with the government.

While working for the Bernard L. Madoff Investment Services LLC, Cotellessa-Pitz pulled in over $3.2 million in income. She made the money prior to the scheme collapsing back in December of 2008. The civil lawsuit against her was filed by trustee Irving Picard.

Cotellessa-Pitz used to be the lover of BLMIS Chief Financial Officer Frank DiPascali and continued to be a friend of Madoff aide Annette Bongiorno. Picard said of Pitz in a complaint filed in November of 2010, “Pitz played a key role in disguising the fraudulent Ponzi scheme.”

“Pitz had a number of roles, many of which exposed her to irrefutable evidence of fraud at BLMIS,” Picard said in that complaint. The complaint explains in detail Pitz’s doings in the scheme. While working as the BLMIS controller, Pitz was in charge of closing the company’s books each month, was responsible for preparing its audited financial reports, and communicated with the United States Securities and Exchange Commission.

Picard also explained that Pitz funneled money from the investment advisory section of BLMIS to the legitimate proprietary trading section of BLMIS.

Picard also said that there were complicated transactions conducted to hide the bankrupt nature of the investment advisory segment of the company. This was done by making the proprietary trading segment appear to be profitable.

An indictment from the U.S. Attorney’s Office has yet to be filed against Pitz. The office has indicated that Pitz will indeed plead guilty to the charges of falsifying books and records for a broker dealer, falsifying books and records for an investment adviser, making false SEC filings and conspiracy. The most serious of the charges against Pitz call for a maximum of 20 years in prison.

Another Madoff accountant, David Kugel, plead guilty to charges similar to those against Pitz back in November. Kugel is also working in conjunction with the government regarding the investigation.

DiPascali plead guilty back in August of 2009 and has been cooperating with prosecutors ever since. DiPascali has been romantically associated with Pitz for two years during the early part of her career according to Picard.

Madoff’s aide of four decades, Bongiorno, acquired over $14 million in money from investors during the life of the Ponzi scheme. Bongiorno has plead not guilty to charges of securities fraud. Pitz is represented by David M. Rody and Timothy J. Treanor of Sidley Austin LLP.

The case is U.S. v. Cotellessa-Pitz, case number 1:10-cr-00228, in the U.S. District Court for the Southern District of New York.

Chief of Criminal Division for U.S. Attorney’s Office Set to Join Munger, Tolles & Olson

rebneely — Mon, 05 Dec 2011 21:25:55 +0000

Munger, Tolles & Olson announced in recent days that John Owens, Chief of the Criminal Division for the U.S. Attorney’s Office in the Southern District of California, will join the firm’s litigation group as a partner, effective January 3, 2012.

Owens will leave his position with the U.S. Department of Justice in December 2011. As Chief of the Criminal Division, he has supervised over 100 Assistant U.S. Attorneys and all criminal investigations and prosecutions in the Southern District, which is one of the busiest and most productive districts in the country.

Owens has prosecuted a number of high profile cases in both the Southern and Central Districts, concentrating on white-collar criminal matters. In 2010, he successfully prosecuted Thanh Viet Cao, who was running a massive Ponzi scheme, in a jury trial. Mr. Cao received a 360-month sentence, thought to be the longest white-collar sentence in Southern District history. That same year, he prosecuted investment advisor Mark Hauze, who bilked his clients out of millions of dollars and received a 108-month sentence after trial. In 2009, Owens was the recipient of the prestigious Director’s Award for Superior Performance for his work on U.S. vs. Treadwell, in which the lead defendant received a 300-month sentence after a month long trial. In 2011, Owens received another Director’s Award for his work as criminal division chief.

Owens has tried cases and handled appeals in jurisdictions nationwide, including as a criminal defense attorney, plaintiff’s lawyer and prosecutor. Before joining the U.S. Attorney’s Office in 2001, Owens was an associate with O’Melveny & Myers in Washington, D.C., where he was part of Walter Dellinger’s appellate team. In 2001, he became an Assistant U.S. Attorney in Los Angeles and relocated to San Diego in 2004. He was named criminal division chief in June 2010.

Owens was quoted as saying: “I have long admired Munger Tolles and am honored to be joining one of the nation’s premier litigation practices. I look forward to representing clients both inside and outside the courtroom.”

Name partner of the firm Ronald L. Olson was quoted as saying in a press release at the firm’s website: “John’s demonstrated trial and leadership skills and ability to produce results adds strength to our litigation practice. John is the latest in a long tradition of hiring highly accomplished trial and appellate attorneys at the conclusion of their government service. We are proud to have John as a partner.”

Owens graduated first in his class from Stanford Law School. Following graduation, he clerked for Judge J. Clifford Wallace of the 9th U.S. Circuit Court of Appeals and then for U.S. Supreme Court Justice Ruth Bader Ginsburg. He also served as executive editor of the Stanford Law Review and received the Stanford Law Review Board of Editors’ Award. His articles have appeared in the Journal of Supreme Court History, Northwestern Law Review, California Law Review, UCLA Law Review, and other publications.

Munger, Tolles & Olson LLP (MTO) is a California law firm that has offices in Los Angeles and San Francisco. Charles Munger founded the firm in 1962 with six other lawyers. The firm is known for its defense of corporations in civil law suits and individuals in criminal trials and investigations. In 2008, Munger, Tolles & Olson ranked as the nation’s top law firm on the American Lawyer A-List based on financial performance, pro bono practice, associate satisfaction and workplace diversity. With nearly 200 attorneys, MTO’s work is national in scope. The firm’s principal areas of practice include bankruptcy, corporate, environmental, labor and employment, litigation, real estate and tax.

Man Accused of Massive Ponzi Scheme to Remain in Jail to Await Trial

aostler — Wed, 16 Mar 2011 00:40:07 +0000

R. Allen Stanford, former Texas financier, tried to post bond and be released from jail while awaiting trial, but was refused by a federal appeals court. Stanford has been accused of a massive Ponzi scheme, which he was arrested for in 2009. He was charged by the SEC with “massive ongoing fraud” that involved a total of about $8 billion in certificates of deposits. His company, Stanford Financial Group, is accused of being a front for his Ponzi scheme, allowing him to misappropriate the money given to him by investors.

Stanford’s trial date was originally set for January 2011, but due to health problems it has been delayed until a later court appointed date. Psychiatrists examined him and said that he has been suffering with delirium associated with an addiction to a strong medication he has been taking for anxiety, and has suffered an injury to his brain after being beaten by a prison inmate in 2009, which would make him incompetent to stand trial.

There have been 21 counts of money laundering, fraud, and obstruction charged against Stanford, although he has pled not guilty to all of them. If he is convicted, he could face up to 375 years in jail. He is currently awaiting his trial at the Federal Detention Center in Houston.

Morning Roundup

joshua — Thu, 10 Jun 2010 10:47:46 +0000

Good morning everyone! Today is Thursday, June 10th. Here’s a quick recap of yesterday’s stories.

Scott Rothstein, who admitted to operating a $1.2 billion Ponzi scheme, was sentenced to 50 years in prison by a Florida judge…

The proposed transatlantic merger between Sonnenschein Nath & Rosenthal and Denton Wilde Sapte was approved by the firm’s partnerships…

According to the quarterly Robert Half Legal Hiring Index the legal world is optimistic more jobs will be forthcoming in the third quarter of the year…

Former Lindquist & Vennum partner Michael Scott Margulies pled guilty to embezzling around $2 million from his clients and the firm…

Dechert announced plans to open an office in Dublin, Ireland…

Trovillion, Inveiss & Demakis added two partners…

Disbarred Florida Lawyer Gets 50 Years for Ponzi Scheme

joshua — Wed, 09 Jun 2010 21:02:37 +0000

Scott Rothstein, the disbarred South Florida attorney who admitted to operating a $1.2 billion Ponzi scheme, was sentenced to 50 years in prison by a Florida judge Wednesday.

The sentence imposed by U.S. District Judge James I. Cohn was actually longer than the 40 years prosecutors had been seeking. Rothstein, 48, was hoping for a 30-year sentence given the fact he offered extensive cooperation with investigators.

Reuters reports Rothstein’s scheme, which first began to disintegrate last fall, involved selling investors discounted stakes in fraudulent settlements of sexual-harassment and whistleblower lawsuits. He promised investors the full proceeds once the cases were settled, but instead Rothstein used money from new investors to pay back old ones.

The money Rothstein acquired from the scheme was used to fund his 70-attorney law firm, Rothstein Rosenfeldt Adler, as well as a lavish lifestyle that included at least two dozen homes.

Rothstein admitted to the scheme in January.

Donchess & Notinger, P.C. Claim Bankruptcy of Financial Resources Mortgage and CL&M Creating Financial Hardship

joshua — Fri, 26 Feb 2010 14:32:47 +0000

The law firm of Donchess & Notinger P.C., representing business clients throughout Massachusetts and New Hampshire with expert legal counsel in the areas of financial restructuring, bankruptcy, employment law and commercial litigation, and appointed to help the trustee overseeing the bankruptcy of Financial Resources Mortgage and CL&M, stated in court filings yesterday the case has “created financial hardship for the firm.”

Per officials, both Financial Resources Mortgage and CL&M perpetrated a years long, massive Ponzi scheme, and shut down last November, cash poor.

Since that time, Donchess & Notinger has recovered only $60,000 in loan payments from a few of the companies’ borrowers and their former law firm.

Donchess & Notinger yesterday asked the judge in the case to authorize the payment of $125,000.

The firm “has spent a lot of time working through the tangled web of transactions and transfers set up by CL&M and (Financial Resources Mortgage) to further its Ponzi scheme,” the firm’s request stated.

The circumstances surrounding the closure of Financial Resources Mortgage and CL&M are being investigated by the FBI, U.S. attorney’s office, and the SEC.

The companies’ convoluted means of conducting business included soliciting money from investors to finance private mortgage loans, mostly in commercial construction. Many of these projects appear never to have existed. They were then promised high returns on their deposits. In many cases, they secured the investments with promissory notes or mortgages.

Steven Notinger, the trustee overseeing the case, said the companies solicited nearly $80 million from hundreds of investors over the years. Because Financial Resources Mortgage and CL&M mingled all the funds they received, and because the companies’ bank records and ledger were missing when they closed, tracing the investments has proved extremely difficult.

“Every step of the case results in protests and legal pleadings from some corner,” the firm’s filing said. “The case has been very contentious, with (Donchess & Notinger) having to fight people on all sides who the trustee believes are trying to liquidate assets . . . in violation of the bankruptcy code.”

“Some investors are fighting us tooth and nail on every point, rather than sitting down and trying to resolve the estate for the benefits of all investors,” said Jim Donchess, an attorney in the firm. “To the extent that certain investors fight us, the costs of doing this go up exponentially. If we have to fight over every trust, every asset, if we have to bring suit and go to court, it’s going to cost us a lot of money.”

Scott Rothstein to Plead Guilty Today

sara — Wed, 27 Jan 2010 13:49:00 +0000

Disbarred attorney Scott Rothstein will plead guilty to running a $1.2 billion Ponzi scam in a Fort Lauderdale , Florida federal court today. Rothstein was charged in December with five counts of racketeering, fraud and money laundering. He faces up to 100 years in prison. He may only receive a 30 year sentence because he returned to the United States after fleeing abroad and cooperated with authorities.

Rothstein cofounded Rothstein Rosenfeldt Adler in 2002. He made hundreds of millions of dollars selling fake employment discrimination and other civil settlements to wealthy investors. Rothstein looted 40 investor and client trusts at TD Bank and was given almost uninhibited access to their accounts. Rothstein kept his con afloat by paying off old investors with money from new ones, until one investor reported his growing suspicions.

Investigators are scrutinizing others involved with Rothstein’s operations at this time.

Rothstein Firm’s Furnishings to be Auctioned

aostler — Tue, 29 Dec 2009 17:44:16 +0000

Scott Rothstein’s office furniture inside the office of Rothstein Rosenfeldt & Adler, will be sold to the highest bidder at an auction on Jan. 23 in Tamarac, Fla.

U.S. Bankruptcy Judge Raymond B. Ray approved a request last week by the firm’s bankruptcy trustee to allow Fisher Auction to sell everything inside the office, including oriental rugs and some personal effects. Former attorneys at the firm and other employees have already removed their personal items.

Rothstein, who is accused of running a $1.2 billion Ponzi scheme tied to nonexistent settlements through law firm bank accounts, has been jailed since Dec. 1.

The proceeds from the auction will be added to the bankruptcy estate and be used to compensate victims of the alleged fraud.

Among the items that will be auctioned: Queen Anne wing chairs, a Louis XIV tapestry, Oriental rugs and marble-top tables.

Records Show Rothstein’s Law Firm Gave More than $6 Million to Non-profits Last Year

Aine Ford — Wed, 23 Dec 2009 21:56:20 +0000

According to financial records made public late Tuesday, the law firm of accused financial swindler Scott Rothstein gave a whopping $6.06 million to non-profit groups and other foundations last year.

Records show that the bankrupt Rothstein Rosenfeldt Adler firm made these contributions to at least 113 organizations. These documents were part of a filing in U.S. Bankruptcy Court by law the law firm’s trustee, Herbert Stettin.

Rothstein, accused of running a $1.2 billion Ponzi scheme out of his law office, is now sitting in the Federal Detention Center in Miami and at least thirty charities received letters last month warning them to return any money donated by Rothstein’s firm. Charities that do not return the money are at risk of being sued.

Of the money donated, the firm gave $2.5 million to the attorney’s own foundation, the Rothstein Family Foundation, and another $1 million went to the Florida Care Foundation, who have agreed to return the money.

Rothstein to Face Criminal Charges

joshua — Tue, 01 Dec 2009 17:00:38 +0000

Scott Rothstein, the Florida attorney whose alleged ponzi scheme has been chronicled here over the last two weeks, will be charged today with criminal racketeering according to a story from the AP. The government has already initiated seizures of his property, including a large and valuable car collection and a New York condo in the same building as the one seized from Marc Drier.

Rothstein is accused of operating a ponzi scheme based on selling shares in structured payouts from fictitious lawsuits. The FBI has estimated the proceeds from the fraud at $1 billion.

Rothstein Disbarment Official

joshua — Wed, 25 Nov 2009 21:31:41 +0000

In an update to this story, Scott Rothstein, the Florida lawyer accused of running a massive ponzi scheme, has been officially disbarred. Although he submitted his request to the Florida Bar Association earlier this week to have his license stripped, it did not become official until action was taken by the State Supreme Court. The Florida Bar has removed Rothstein from a grievance committee that considers ethics complaints against lawyers as well.

Rothstein also lost his seat on the Fourth District Court of Appeal Judicial Nominating Commission. Governor Crist, who appointed Rothstein to the seat a few days before Rothstein donated $140,000 to the state Republican Party, suspended him on Tuesday. There is no requirement that a member of the commission be a lawyer. The Republican Party, along with several individual politicians, has returned the donation.

Scott Rothstein Requests Disbarment

joshua — Thu, 19 Nov 2009 21:51:52 +0000

Bowing to the inevitable, Scott Rothstein has formally requested his own permanent disbarment. The south Florida lawyer whose firm has dissolved under a cloud of scandal after a ponzi scheme run by Rothstein came to light sent the Florida Bar a written request to be disbarred rather than face a certain disciplinary hearing. In what can only be called a monumental understatement, the president of the Bar, Jesse Diner, said “”While the case is very complex, it became evident that bar rules may have been violated”.

Rothstein is accused of selling investors shares in structured settlements that did not exist.

New Allegations Against Scott Rothstein

joshua — Wed, 11 Nov 2009 21:57:02 +0000

New allegations have emerged against Scott Rothstein, the Florida lawyer accused of running a ponzi scheme and dragging his firm down in the process. These new allegations are a little hard to believe, if only because it’s hard to imagine that Rothstein could have possibly expected to get away with it.

The story comes from the Miami Herald. According to the Herald, Rothstein’s friend Ed Morse hired Rothstein to sue an interior decorator for breach of contract. After losing the case, Rothstein is alleged to have told Morse that he won the case and that the interior decorator owed $23 million. To collect on the judgement, Rothstein suggested they seize a Cayman Island’s account belonging to the decorator. The catch is that in order to seize the money, Morse would first have to post a bond for 2.5 times the amount to be seized, or $57 million. In fact, there was no bank account, no court order to seize it, and no bond. Morse handed over the money to Rothstein and appears to have become yet another of his victims.

Here’s hoping Rothstein does the right thing.

More Bad News for Scott Rothstein

joshua — Tue, 10 Nov 2009 01:26:24 +0000

Scott Rothstein, the lawyer whose firm has gone into receivership after he was accused of defrauding investors through a ponzi scheme, faces more bad news today. The government is seeking civil forfeiture of eight properties belonging to Rothstein, alleging that they were financed with ill gotten gains.

Meanwhile, the court has ordered Toronto Dominion Bank to turn over all records related to Rothstein and his firm to the cour appointed receiver.

This is an update to a story we’ve been following for a week. Earlier reports can be found here and here.

More Details in Rothstein Story – UPDATED

joshua — Tue, 03 Nov 2009 18:21:49 +0000

For our original article on the story, click here. Scott Rothstein, founding partner of the Florida firm Rothstein Rosenfeldt Adler, remains incommunicado after taking off last week. He is believed to be in Morocco, and his attorney has said he would return today. The firm has hired a former US attorney to investigate allegations that Rothstein did something improper with an investment vehicle, and has asked the Florida court to dissolve the firm, putting its assets in the hands of a receiver.

Now we have more details on the alleged misconduct of Rothstein. Rothstein is reported to have set up a side business selling shares in settlements. Investors would buy out structured settlements from clients at a discount and in turn receive payments as the structured settlements resolved over time. The problem is that Rothstein may have been selling shares in fictitious settlements and is alleged to have disappeared with anywhere from $200 to $300 million.

Rothstein has been a major contributor to Republican politics in Florida. Ellyn Bogdanoff, a member of the state legislature who was the biggest benefactor of Rothstein’s donations, said today that she would be returning any political donations from Rothstein.

The firm’s website, rra-law.com is currently blank, and the pages linking to Rothstein are now inactive.

UPDATE:

Rothstein is back in Miami and police have surrounded his firm.

Disbarred Attorney Caught in Madoff Web

Erik Even — Wed, 28 Jan 2009 17:01:11 +0000

A former lawyer, who was disbarred in the 1980s taking client escrow funds, has been charged with defrauding investors of out of millions of dollars as a hedge fund manager.

Say, Buffy, let us invest our wealth with the fellow who was disbarred for stealing funds!

Arthur G. Nadel, 76, made his initial appearance before a federal magistrate judge in the Middle District of Florida in Tampa. He turned himself in after spending two weeks on the lam. Next he will be charged in New York’s Southern District, where he faces securities and mail fraud allegations brought by prosecutors who say more than $200 million is missing.

Nadel, prominent in Sarasota, Florida social and philanthropic circles, claimed to investors and partners that returns on investments in two groups of funds he managed from 1999 through 2007 averaged more than 20% per year. Sound familiar?

FBI Special Agent Kevin G. Riordan tied Nadel’s flight to the publicity from the December arrest of Bernie Madoff in a multi-billion dollar Ponzi scheme. Nadel fled after a business partner, concerned about the Madoff affair, asked Nagel to audit the funds he ran.

Nadel left a note telling his family he would not return, and advising his wife to get a hold of certain funds before it was too late. He also said he might kill himself.

Nadel advised six funds divided into two groups. Hundreds of investors put $210 million into one group, several gave $60 million to Nadel to invest in the other. But by the end of 2008, there was less than $125,000 left in the two groups.

A 1957 graduate of New York University School of Law, Nadel was admitted to the New York bar in 1958, but lost his license to practice for taking client escrow funds.

Photo via May Blog.

More Notable Lawyers Involved in More Ponzi Schemes

Erik Even — Sun, 25 Jan 2009 18:10:30 +0000

What is it nowadays with notable lawyers and their Ponzi schemes?

Two well-known Fort Lauderdale, Florida attorneys have been indicted in a nearly $1 billion Ponzi scheme known as Mutual Benefits. Michael McNerney and Anthony Livoti Jr. are well-respected advocates and have been fixtures in the legal community for decades.

McNerney served as chairman of the University of Florida Law Center Board of Trustees and the Fort Lauderdale Chamber of Commerce’s downtown council, among many trusted positions.

Livoti was a well-known litigator in Broward County courtrooms who served on the boards of directors of such causes as the Art for AIDS Auction, and was a nominee for a Florida Bar pro bono award.

“I am in suspended disbelief over the allegations,” said attorney Stuart Grossman of Miami’s Grossman Roth, who doesn’t understand what “suspended disbelief” means. He worked with McNerney.

Mutual Benefits dealt in viaticals, buying life insurance policies from the terminally ill, elderly and people with AIDS. It made money if the policyholder died ahead of actuarial schedules or on time.

But scientific advances prolonged the lives of many HIV-positive people. Soon enough, the company was paying premiums with money from new investors to keep the venture afloat.

McNerney and Livoti are charged with money laundering and wire fraud conspiracy. But both face trial with strong supporters.

Probably the same kind of people who fall for Ponzi schemes.

Via Daily Business Reveiw.

8,000 Claims in Madoff Fiasco?

Erik Even — Mon, 05 Jan 2009 21:12:40 +0000

The Securities Investor Protection Corporation and the trustee handling the liquidation of Bernard L. Madoff Investment Securities LLC have mailed more than 8,000 claim forms to customers who lost money in the alleged investment fraud scheme of Bernard Madoff.

Madoff is accused of running a giant Ponzi scheme that could have duped investors out of as much as $50 billion.

The bankruptcy court overseeing the liquidation has set an initial deadline of March 4th for claims to be filed. Any forms received between March 4th and July 2nd will be subject to delayed processing and possibly less-than-favorable satisfaction of terms.

Forms and instructions are also available on the SIPC’s Web site.

Trustee Irving Picard will oversee the liquidation of assets from Madoff’s investment firm, as the SIPC attempts to help investors recoup their money. The SIPC was created by Congress in 1970 to protect investors when a brokerage firm fails. 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.

Aside from recovering money through the liquidation of Madoff’s investment firm and the SIPC, investors could get some money back if some of Madoff’s personal assets are sold. Last week, Madoff provided a list of his personal assets to the SEC. Details of the asset list were not disclosed.

Madoff’s personal wealth is said to be substantial. He has mansions in the Hamptons and Palm Beach, a penthouse in Manhattan and a handful of luxury yachts. His firm operated proprietary stock trading desks in New York and London that were supposedly investing the family’s vast fortune.

Madoff, 70, a former Nasdaq stock market chairman, is accused of running a scheme that paid fictitious returns to certain investors out of the principal received from others. Madoff remains under house arrest in his apartment in New York as part of an earlier bail agreement.

Attorney General Recuses Self from Madoff Probe

Erik Even — Fri, 19 Dec 2008 01:37:54 +0000

US Attorney General Michael Mukasey has recused himself from the Department of Justice probe into the Madoff investment scandal. Mukasey’s son, Marc Mukasey, a partner at Bracewell & Giuliani, is representing Frank DiPascali, a top financial officer at Madoff Investment Securities.

Congress will also investigate the alleged $50 billion pyramid scheme run by Wall Street money manager Bernard Madoff.

Democratic Representative Paul Kanjorski (D-PA), chairman of the House Financial Services subcommittee on capital markets, will convene a congressional inquiry early next month to examine the alleged fraud and to determine why the Securities and Exchange Commission and other regulators “failed to detect these substantial evasions.”

The planned congressional inquiry follows a stunning rebuke that SEC Chairman Christopher Cox leveled against his agency’s career regulators, blaming them for a decade-long failure to investigate Madoff and for failing to detect one of the largest pyramid scams ever.

In other news, New York Southern District Magistrate Judge Gabriel Gorenstein has set new conditions for Madoff’s bail, including an ankle-monitoring bracelet and a curfew that will require him to be in his Park Avenue apartment from 7 pm to 9 am. The magistrate judge also ordered Madoff and his wife, Ruth, to surrender their passports.

Judge Questions Dewey & LeBoeuf’s $600 Per Hour

Erik Even — Thu, 18 Dec 2008 00:40:32 +0000

Manhattan federal judge Denny Chin would like to know how New York City’s Dewey Cheatham & Howe & LeBoeuf can justify charging a $600 hourly rate for associates on a securities lawsuit.

Dewey & LeBoeuf served as reciever for WexTrust Capital in an SEC lawsuit. WexTrust ran a Ponzi scheme that raised $225 million by targeting the Orthodox Jewish community (a popular tactic these days).

Judge Chin froze WexTrust’s assets, and appointed Dewey to serve as receiver. Last month, Dewey submitted an application to collect compensation and expenses for the first twenty or so days it served as receiver. The firm asked for $2.2 million.

G&H Partners, one of the larger creditors in the receivership, objected to the request. Now Chin has asked Dewey & LeBoeuf to justify the amount:

It is difficult to evaluate the reasonableness of the hourly rates for most of the lawyers listed. For example, [five attorneys] — all simply described as “Associate” — have substantial hours billed at hourly rates of, respectively, $605, $605, $550, $605, and $605. Without knowing anything about their backgrounds, it is difficult for the Court to determine whether the requested hourly rates are reasonable. …

While I accept the representations that the requested hourly rates are D&L’s standard hourly rates for the individuals involved, I wonder whether the rates are high for legal services rendered in connection with a securities receivership proceeding. Is it reasonable to bill at hourly rates of $700 to $950 for partners and $425 to $550 to $605 for associates in the context of a securities receivership? Is it reasonable to bill at hourly rates of $285 for summer associates & $175 to $275 for paralegals? Have courts in other receivership cases awarded fees applying such rates?

Dewey & LeBoeuf declined to comment — their mouths were full of Almas caviar while they cavorted on a solid gold yacht.

Via WSJ Law Blog via Patrick Lamb.

New York Law School Files Investor Suit Against Merkin

Erik Even — Wed, 17 Dec 2008 18:46:11 +0000

As we reported earlier today, New York Law School has filed an investor lawsuit against J. Ezra Merkin, one of his funds and its auditor over investments made through Bernard L. Madoff Investment Securities LLC, whose founder has been charged in a massive Ponzi scheme.

Filed in US District Court in Manhattan, the suit alleges recklessness, gross negligence and breach of fiduciary duties by Merkin; the fund, Ascot Partners; and its auditor, BDO Seidman LLP.

New York Law School, through its endowment entity, invested $3 million in Ascot in 2006 and the investment is now worthless, according to the lawsuit.

The complaint is seeking class action status for persons and entities who invested in Ascot between 2002 and 2008. It was filed on the law school’s behalf by law firm Abbey Spanier Rod & Abrams LLP.

The complaint alleges Merkin abdicated his responsibilities and duties as Ascot’s general partner and manager in entrusting substantially all of its assets – $1.8 billion – to the Madoff firm, and that Seidman failed to recognize “red flags” at the Madoff firm.

BDO Seidman insists that its audits of Ascot Partners “conformed to all professional standards,” and they intend to “vigorously defend ourselves against these unfounded allegations.” BDO Seidman says it “is not and has never been” the auditor for the Madoff firm.

“Mr. Merkin and his family are personally among the largest victims of the massive fraud confessed by Bernard Madoff,” said Andrew J. Levander, a lawyer for Merkin. “Like the other victims and the entire financial community, Mr. Merkin is shocked by these events. He intends to defend the lawsuit vigorously while seeking redress for himself and his investors from whoever perpetrated this fraud.”

Since Bernard Madoff’s arrest last week, dozens of investors, charities and companies have emerged as victims, including the foundation of Nobel laureate Elie Wiesel and a charity of Academy Award-winning director Steven Spielberg.

Via CNN Money.

Jewish University Loses $110 Million in Madoff Mishegoss

Erik Even — Wed, 17 Dec 2008 18:07:33 +0000

Yesterday we reported that the Jewish community is a little bit broygez over Bernard L. Madoff’s decision to rip off various Jewish charities for millions of shekels.

Today we learn that New York’s Yeshiva University lost about $110 million in investments made with the gonif Madoff; and a second trustee whose money-management firm had ties with Madoff’s securities business has stepped down.

Madoff was arrested last week and accused of defrauding investors of $50-billion in what has been called “a giant Ponzi scheme.” He resigned as a member of Yeshiva’s Board of Trustees and chairman of its business school after his arrest.

Most of Yeshiva’s losses were invested through hedge funds controlled by that nuchshlepper, J. Ezra Merkin, who was a Yeshiva trustee and chairman of the university’s investment committee. Merkin resigned from both positions on Friday.

Merkin is chair of GMAC Financial Services, but the investment losses are related to a money-management firm that he also runs, Gabriel Partners. In a letter to clients last week, Merkin revealed that one of Gabriel’s funds, Ascot Partners, had invested all of its assets with Madoff and had suffered “major losses.”

The New York Law School, instead of just kvetching, sued Merkin and Ascot Partners today, along with the fund’s auditor. The school said the $3 million it had invested with the fund was now worthless because of the “wrongful conduct” of the defendants.

A lawyer for Merkin said that Merkin himself was a victim “of the massive crime confessed by Bernard L. Madoff” and that he would vigorously defend the lawsuit.

Via The Chronicle of Higher Education.

Madoff’s (Alleged) Crimes Hit Charities Hard

Erik Even — Tue, 16 Dec 2008 22:21:36 +0000

Altman & Altman’s Boston Criminal Lawyer Blog is unamused by the illegal shenanigans of investor Bernard Madoff:

Ironically, the Defendant’s [Madoff's] gift of restraints and forced government housing was connected to charity and gift work throughout the nation. His actions have apparently brought about the destruction and near-destruction of various charities and philanthropies throughout the country. That’s right… that means fewer gifts for the under-privileged. It also means the same thing for victims of every financial level because they all have one thing in common now. They have been victims of white collar crime in a big way to the tune of approximately fifty billion dollars.

They also find a Boston connection (apart from the Bostonians who have lost their investments to Madoff):

You may be unfamilier with the term “Ponzi scheme”. For those so uninitiated, it is a fraudulent investment operation that involves paying abnormally high profits to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. It is named after Charles Ponzi who apparently introduced the scheme to the United States in the early 1900’s from…of all places…Boston.

The post details some of the charities hard hit by Madoff’s alleged crimes:

The Defendant’s clients include philanthropists Carl and Ruth Shapiro, major donors to the Museum of Fine Arts, Brandeis University, and Beth Israel Deaconess Medical Center. The Shapiro family foundation lost almost half its money, or about $145 million, to the Defendant.

…the Robert I. Lappin Charitable Foundation, a private family organization that financed trips for Jewish youth to Israel for many years, as well as also supporting various Jewish educational and cultural services on the Boston’s North Shore, said it was forced to shut down and lay off employees after losing all of its estimated $8 million to the Defendant

Officials at the New York-based JEHT Foundation, a nonprofit focused on juvenile justice and fair elections, said it was freezing all its grants and would shut down at the end of January. The group gets all its funding from a couple, Jeanne and Kenneth Levy-Church, whose personal investments were managed by the Defendant.

Link.

Guess What? I Gave Your Money To Madoff, And Now It’s Gone

Erik Even — Tue, 16 Dec 2008 19:33:44 +0000

Last week, investment fund manager J. Ezra Merkin sent a very interesting letter to investors in his Ascot Partners fund.

In the letter he just happened to mention that he might have accidentally given a very small amount of the investor’s money to Bernard L. Madoff. Not very much. Just almost the entire $1.8 billion.

Merkin’s investors may also have noticed that Madoff was arrested last week for losing all of his investors’ money in a massive Ponzi scheme.

Now Merkin’s investors are a tad upset, especially since Merkin had provided investors with a detailed investment plan. And that plan somehow failed to mention “or I’ll just give all your cash to Madoff.”

The Ascot Partners investors are now planning to sue Merkin back to the Stone Age, although the agreement they signed with Merkin specifies that he has the right to give money to “third party managers.” But investors are asking why they bothered to pay Merkin anything, if all he was going to do was give the money to Madoff.

Clients also claim they had conversations with Merkin about Madoff, at no point during which did Merkin mention “oh yeah, I gave that guy all your money.”

New York’s Yeshiva University invested $100 million in the fund, and now the Jewish community is out for Merkin’s head. If only religious Jews like Merkin had some sort of book that would school them in ethical behavior.

Speculation is rampant on what Merkin was doing all day while supposedly managing his clients’ money. I suggest that maybe he was soloing Zul’Gurub with his level 80 Death Knight.

Via NYT and The Jewish Week.

Madoff Charged in $50 Billion-with-a-”B” Fraud, Sued by SEC [UPDATE]

Erik Even — Sat, 13 Dec 2008 00:36:03 +0000

Bernard Madoff, founder and president of a New York firm that invested funds for wealthy individuals, hedge funds and other institutions, has been charged with operating what he told employees was a long-running $50 billion Ponzi scheme, in what may be one of the largest frauds in history.

Madoff, 70, head of Bernard L. Madoff Investment Securities LLC, was arrested this morning by the FBI.

US Magistrate Judge Douglas Eaton released Madoff on $10 million bond. Madoff faces as much as 20 years in prison and a $5 million fine if convicted.

The New York-based firm was the 23rd largest market maker on Nasdaq in October, handling a daily average of about 50 million shares a day. It specialized in handling orders from online brokers in some of the largest US companies, including General Electric and Citigroup.

Madoff was also sued today by the Securities and Exchange Commission. The complaint, also filed in Manhattan federal court, accused Madoff of a “multi-billion dollar Ponzi scheme that he perpetrated on advisory clients of his firm.”

The agency said it’s seeking emergency relief for investors, including an asset freeze and the appointment of a receiver for the firm.

Madoff ran his investment advisory business from a separate floor of his firm’s office, keeping financial statements “under lock and key,” prosecutors said.

While meeting with co-workers at his home yesterday, Madoff conceded that he was “finished,” that his advisory business is “all just one big lie” and “basically, a giant Ponzi scheme,” the government said. The business had been insolvent for years with losses of about $50 billion, he told the employees, according to the criminal and SEC complaints.

Madoff said he had about $200 million to $300 million left and planned to distribute money to select employees, family and friends before surrendering to authorities in about a week, the government said.

UPDATE

From MarketWatch:

Milberg LLP and Seeger Weiss LLP announced today that the two firms have been retained by dozens of individual investors in Madoff Investment Securities. Collectively, these investors have lost hundreds of millions of dollars–and possibly more than a billion–due to the stunning fraud allegedly perpetrated by Bernard Madoff.

“We are moving quickly and decisively to represent the interests of outraged investors–both individual and institutional–who were persuaded to entrust their money with Madoff Investment Securities and its founder, Bernard Madoff,” said Brad Friedman, a partner at Milberg LLP.

“Those taken in by this Ponzi scheme who have turned to us for help include a senior citizens center, corporate executives, banks, hedge funds and a wide variety of others,” according to Stephen Weiss, a partner at Seeger Weiss LLP.