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This is the eighteenth in a series of installments on this blog that are discussing some issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff (“Madoff”). Installments 3 through 8, Installment 10 and Installments 14 through 17 of this series focused on the specific concerns of charities that were victims of Madoff and similar schemes. All potential stakeholders should consult professional advisors to have their positions evaluated.

On October 27, 2009, Irving Picard, the trustee in the Madoff liquidation proceeding under the Securities Investor Protection Act (the “Madoff Proceeding”), together with Securities Investor Protection Corporation (“SIPC”) President Stephen Harbeck, held a telephone briefing with reporters on progress to date of the Madoff Proceeding. During the course of his prepared remarks, Mr. Picard did not discuss efforts in the Madoff Proceeding to “clawback,” that is, recover assets from Madoff investors who received more in cash distributions than they invested with him.

During the course of the questioning by reporters, the “clawback” issue was raised and the following response was given by Mr. Picard:

At the moment, as I indicated of the accounts that were active at the end of last December, there were 2,568 accounts that received more than was deposited. . . . That’s an area that we are looking at. We’re not going to be suing people who don’t have money. We’re not going to be able to collect. We’re not going to sue people where we become familiar with the fact that they have hardships, medical problems, losing their homes and other things like that. No final decisions have been made; it’s a matter that again, over a period of the next six to eight or nine months, we’re going to be taking a very close look and, quite frankly, those will be looked at virtually on an individual basis before we make some final decisions. . . . if we determine that that’s a matter that we’re going to pursue, then we will pursue them for what we believe is the appropriate amount that we should be seeking from them.

It is noteworthy that Mr. Picard did not address in his response the widely-publicized “profits” from investing with Madoff that have been reported for charities like Hadassah, as discussed in Installment 14 of this series.  

Mr. Picard’s response may be compared to the report by Diana B. Henriques on May 28, 2009 in The New York Times that “[t]here is the widespread fear among some — unfounded, Mr. Picard says — that he will sue struggling charities or people of limited means for money they withdrew in the past but no longer have.”

Has Picard now evidenced by his silence a subtle shift from his earlier position with respect to not pursuing ‘struggling charities” that made profits from investing with Madoff? The October 29,2009 issue of The Chronicle of Philanthropy has disclosed that Hadassah suffered a decline of almost 50% in donations during 2008 to just over $85 million as compared to the 2007 level. Does that loss in revenues qualify Hadassah to be exonerated from clawback as a “struggling charity” under Mr. Picard’s earlier position? A significant portion of the decline in Hadassah donations may be due to the economy generally. However, ironically, some of the decline may be attributable to the adverse publicity for Hadassah from having invested with Madoff. Moreover, a number of its major donors may have incurred heavy losses with Madoff and could not maintain their contributions to Hadassah.

As the Madoff Proceeding continues to unfold, these issues should become clearer.

[To be continued in Installment 19]
 

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

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This is the seventeenth in a series of installments on this blog that are discussing some of the issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff (“Madoff”). Installments 3 through 8, Installment 10 and Installments 14 through 16 of this series focused on the specific concerns of charities that were victims of Madoff and similar schemes. All potential stakeholders should consult professional advisors to have their positions evaluated.

On October 21, 2009, an article in The New York Times by Ken Belson and Richard Sandomir disclosed that a Madoff bankruptcy proceeding report had contradicted earlier information about large losses with Madoff purportedly suffered by the New York Mets and their owners, the Wilpon family. The article states that the report shows that

Mets LP, one of the team’s financial arms, withdrew $570.5 million from two accounts it held with Madoff’s company, $47.8 million more than it put in. The accounts were part of a list of more than 30 in which more money was withdrawn than was deposited with Bernard L. Madoff Investment Securities. As a result, Mets LP and the others were deemed “net winners” ineligible for compensation and potentially liable to being sued by Irving H. Picard, the court-appointed liquidator who is trying to recover money lost in Madoff’s $65 billion Ponzi scheme. A spokesman for Picard declined to comment.

Thus the Mets and the Wilpon family may become the subject of “clawback” by Mr. Picard and end up losers, especially if they have paid now-unrecoverable federal and state income taxes on the illusory Madoff “gains.” This situation can be contrasted to the position stated by Picard with respect to seeking recovery from charities. As reported in Installment 16 of this blog series http://whitecollarcrime.foxrothschild.com/, Diana B. Henriques wrote on May 28, 2009 in The New York Times that “[t]here is the widespread fear among some — unfounded, Mr. [Irving] Picard [the trustee in the Madoff bankruptcy proceeding] says — that he will sue struggling charities or people of limited means for money they withdrew in the past but no longer have.”

Installment 14 of this blog series discussed reports of large profits by Hadassah from its investments with Madoff. Will Picard choose to pursue the Mets and the Wilpon family while passing on Hadassah? All charities, especially those providing social services like Hadassah, are “struggling” with materially reduced contributions because of the economy, increased demands by individuals who are unemployed and suffering financially, losses in endowment funds from the substantial market declines and increased regulatory activity.

While the position earlier stated by Picard as to charities may be humanitarian and emotionally appealing, there is little basis in the law for the disparity in treatment between charities and for-profit entities. This inequality of approach will more likely than not lead to protracted litigation and uncertainty in the Madoff matter.

[To be continued in Installment 18]
 

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

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This is the sixteenth in a series of installments on this blog that are discussing some of the issues arising in the aftermath of the long global Ponzi scheme of Bernard L. Madoff (“Madoff”). Installments 3 through 8 and Installments 10, 14 and 15 of this series focused on the specific concerns of charities that were victims of Madoff and similar schemes. All potential stakeholders should consult professional advisors promptly to have their positions evaluated.

On September 22, 2009, the Associated Press reported that federal prosecutors had disclosed in New York that approximately 50% of the Madoff stakeholders had withdrawn more money than they invested with him and about 50% had invested more money than they had withdrawn. There have been many reports that among those stakeholders which received more in distributions from Madoff than they invested were charities. Installment 14 of this blog series reported on allegations that Hadassah received $40 million more in distributions from Madoff than they had invested with him.

Diana B. Henriques wrote an article on May 28, 2009 in The New York Times  entitled “It’s Thankless, but He Decides Madoff Claims,” in which Ms. Henriques reported that “[t]here is the widespread fear among some — unfounded, Mr. [Irving] Picard [the trustee in the Madoff bankruptcy proceeding] says — that he will sue struggling charities or people of limited means for money they withdrew in the past but no longer have.”

The May statement by Mr. Picard now presents him with a fascinating quantitative and qualitative dilemma and conundrum. All charities, especially those providing social services like Hadassah, are “struggling” with materially reduced contributions because of the economy, increased demands by individuals who are unemployed and suffering financially, losses in endowment funds from the substantial market declines and increased regulatory activity.

While some smaller charities have already gone out of business from the Madoff fiasco, others large organizations like Hadassah still have meaningful endowment funds, even if depleted. The criteria that Mr. Picard will use to separate “struggling” charities and “people of limited means” from whom he will seek funds and those from whom he will not raises fundamental questions of fairness, size relative value that will likely lead to much more controversy.

[To be continued in Installment 17]
 

(With appreciation to Michael J. Kline, Esq., for contributing this entry and for his on-going analysis of the concerns of Madoff stakeholders)

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