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Madoff creditors get first report

Trustee finds no evidence of trades for at least 13 years

People wait to enter a meeting of Bernard Madoff's creditors in New York yesterday. People wait to enter a meeting of Bernard Madoff's creditors in New York yesterday. (mario tama/getty images)
By Beth Healy
Globe Staff / February 21, 2009
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Bernard L. Madoff did not make any trades in customer accounts for at least 13 years, the trustee in the Madoff bankruptcy case said at the first public meeting with creditors in New York yesterday.

The finding - which trustee Irving Picard presented to a room full of defrauded investors in an often emotionally charged meeting - was part of Picard's investigation into the alleged $50 billion Ponzi scheme. The trustee is examining thousands of financial records and e-mails in an effort to reconstruct customer account records that Madoff apparently fabricated over the years.

Picard said he has received 2,350 claims from investors so far and urged others to submit claims by the July 2 deadline. He has identified $950 million in assets that can be made available to customers who submit claims, in addition to the $500,000 that investors can apply for from the Securities Investor Protection Corp.

Some lawyers are counseling investors against submitting claims. Boston lawyer Pete Michaels said, "If you put in $300,000 and you've taken out $500,000, then you've got nothing to gain by filling out a SIPC form."

Indeed, customer claim forms will, in part, be the road map by which the trustee pieces together who may have received money that should be taken back, or subject to a so-called clawback. Investors who have taken out significant funds from their Madoff accounts over the years may have to return some of it.

Clawbacks were the subject of many questions yesterday from the audience in US Bankruptcy Court in Manhattan. A number of people voiced concerns that the trustee would try to take back money that they had withdrawn from their accounts. Picard and a lawyer for the trustee, David Sheehan, said investors were likely safe from clawbacks as long as they haven't withdrawn more money then they invested.

When some investors asked why they couldn't keep some of the returns they thought they had earned - in the neighborhood of 10 percent or more for many years - Sheehan reminded them that the profits were fake because a Ponzi scheme uses money from one set of investors to pay off another.

"It was all just made up," he said. "You got somebody else's money."

One investor who spoke at the meeting, Raymond Spungin, 77, of Staten Island, captured the resentment in the room. "We're not just the victims of Madoff. We're the victims of the incompetence of the SEC," said Spungin to a crowd that applauded him.

The SEC has acknowledged that it missed the Madoff scandal, despite the efforts of Whitman whistle-blower Harry Markopolos to tip off the agency a decade ago.

Madoff lured thousands of investors to his firm over the years, including hedge funds and the rich and famous. Locally, Boston philanthropist Carl Shapiro and his family foundation have lost hundreds of millions of dollars, and celebrities from TV host Larry King to actor John Malkovich have also been ensnared.

Picard and Sheehan said that while all claims were being treated equally, there would be some judgment involved. For example, charities and people with very small accounts might be less likely to be the subject of clawbacks, they said. And they are making a concerted effort to determine whether some people who withdrew large sums from Madoff accounts were "insiders" or people with knowledge that their gains were being made up by Madoff.

The Globe has previously reported that federal regulators at the Financial Industry Regulatory Authority had found no evidence of trades at Madoff's brokerage firm by his investment advisory group. Picard said yesterday that he also found no separation between Madoff's brokerage business and the investment advisory arm that lost as much as $50 billion.

"We have found nothing to suggest there was any difference, any separateness," Picard said. "It was all one."

FINRA had no immediate comment yesterday on Picard's finding.

Picard is selling Madoff's market-making firm, which traded stocks - a move that could raise more potential funds for defrauded investors. And, reacting to angry investors suggesting that the trustee should also be going after Madoff family members' personal assets, Sheehan said his staff is "looking at every Madoff family member and every insider associated with the Madoff firm."

The trustee's office has gone through records back to the mid-1990s so far and aims to go back "as far as we can go."

Beth Healy can be reached at bhealy@globe.com. Material from Globe wire services was used in this report.

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