- Bernie Madoff's two sons, a niece and a brother are being sued for nearly $200 million that they allegedly took from Madoff's investment firm
- The lawsuit was filed by a trustee for the Securities Investor Protection Corporation (SIPC) and claims that the family members neglected their duties as employees of Madoff's firm
- Federal bankruptcy code and Securities Investor Protection Act, and other laws, may give investors the chance to get back some of the money they invested in Madoff's Ponzi scheme
Bernie Madoff's in jail for running the most elaborate Ponzi scheme in Wall Street history. Investors in his investment firm lost nearly $90 billion. A civil (non-criminal) lawsuit was filed against Ruth Madoff, Bernie's wife, and she agreed to pay back $45 million to investors. The story's not over, though. The saga continues. Now, Madoff family members are facing a lawsuit for nearly $200 million that they allegedly took from Madoff's investment firm. So, there's a chance that investors in Madoff's scheme may get back some of the money they lost.
The lawsuit is against Madoff's two sons, a niece and a brother. They all held high-level positions in Bernard L. Madoff Investment Securities, LLC - Madoff's investment firm that ran the Ponzi scheme:
Peter Madoff, Bernie's brother, was the firm's senior managing director and chief compliance officer. Generally, he was responsible for running the company and making sure that it followed the law, particularly the rules and regulations of the Securities and Exchange Commission (SEC). He worked for the firm since 1965
- Bernie's sons, Mark and Andrew, were Co-directors of Trading since the mid 1980's. They were responsible for managing the firm's investments and activities in the stock markets
Sharon Madoff is Madoff's niece. As an attorney, she worked for the investment company since 1995 as compliance counsel and in-house counsel. In other words, she handled most of the firm's legal matters
The lawsuit was filed by the Irving H. Picard, the Trustee for the Securities Investor Protection Corporation (SIPC). He's in charge of closing down Madoff's investment firm and finding money that can be used to pay back Madoff's bilked investors. The SIPC works to protect investors when a brokerage firm fails and cash and securities are missing from investors' accounts.
The lawsuit claims that the Madoff family members used the investment as a personal "piggy bank." It describes nearly 400 separate transactions in which they took large sums of investors' money and used it for things like opening personal businesses and paying for homes, cars and yachts. The lawsuit also claims that Peter Madoff invested only $14 of his own money yet took over $16 million in profits.
Getting It Back
In simple terms, the lawsuit claims that the family members completely neglected their duties and responsibilities at the investment company and they either didn't notice or didn't stop the Ponzi scheme. In other words, if they had done their jobs properly, the Ponzi scheme may not have gone on for so long and may not have worked at all. The investors lost money because of their negligence, and they may be held liable for it.
The US securities and bankruptcy laws may also help the Trustee get back the money. These are complicated areas of law, but generally:
- Under the securities laws, the family members had a fiduciary duty to look out for the investors' best interests, and they may have to pay for their failure to do so
- In bankruptcy law, the Trustee has the power to set aside certain "fraudulent transfers." This is when money belonging to the bankruptcy debtor (Madoff's investment firm in our case) is transferred or given to someone so that it's hidden from hidden from creditors (Madoff's investors). If the Trustee is successful, the family members will have to return the money they took
The outcome of the Trustee's case is uncertain, but it seems obvious that the family members shouldn't be able to profit from the Ponzi scheme while thousands of investors lost so much. To some this may sound harsh for this family. Bernie's spending 150 years in jail. His family will be sued by investors; and his two sons refuse to talk to or visit their father and they've both filed bankruptcy. To others - particularly the investors - the lawsuit may mean justice, pure and simple: Wrongdoers are held accountable, and the victims get what belongs to them.
Questions for Your Attorney
- If the suit against Madoff's kin is successful, how much will investors get back?
- What should I do if I think I've invested in a Ponzi scheme?
- I was an investor in Madoff's scheme, but I cashed out long before it collapsed and it became obvious that it was a fraud. Can other investors sue me for money I made in the scheme?