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Two Years Later, Madoff Scheme Fallout Continues

December 13, 2010 at 4:58 PM EST
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Saturday marked the deadline for victims of Bernard Madoff's massive Ponzi scheme to file a lawsuit with the court's bankruptcy trustee. Ray Suarez discusses the latest developments with New York Times reporter Diana Henriques, who has covered the story from the beginning and is working on a book about it.
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GWEN IFILL: Next: the continuing fallout from the Bernie Madoff story and the multibillion dollar Ponzi scheme he set up.

Ray Suarez has our update.

RAY SUAREZ: This weekend marked two years since Madoff was arrested and the world learned of his grand fraud, one that may ultimately cost investors more than $50 billion in wealth.

It turned out to be a weekend of stunning news. On Saturday, one of Madoff’s sons, Mark Madoff, who worked for his father, was found dead after he hanged himself. Saturday was also the deadline for filing civil lawsuits to recover money paid out over the years by Bernie Madoff. Nearly 1,000 such suits have been filed. And Mark Madoff was one of several family members named as a defendant in those suits, which are being brought through the court’s bankruptcy trustee.

Diana Henriques has been covering the story from the beginning, and is working on a book about the case. She joins us from New York.

And, Diana, as the deadline grew closer, did the suits start to pile up? Did the pace of filings increase as Saturday approached?

DIANA HENRIQUES, The New York Times: It certainly did, not only filings of lawsuits, but announcements of settlements ahead of that deadline.

It almost seemed like we were getting two and three major stories a day, substantial lawsuits for $100 million, $200 million, a billion dollars, settlements of half-a-billion dollars, $600 million. It was quite a week, actually.

And it ended with a grand flourish on Friday with a major lawsuit seeking nearly $20 billion in damages from a whole assortment of defendants headed by a very flamboyant Austrian banker named Sonja Kohn. So it was quite a week. I haven’t seen anything quite like it.

RAY SUAREZ: How many filers are trying to get a share of whatever money is left?

DIANA HENRIQUES: Well, the way the money is being distributed in bankruptcy court is a little arcane. It bears a little explanation.

The only people, at present, who are eligible to share in whatever cash the trustee is able to gather are people who put more cash into the Ponzi scheme than they took out, that is people who have a net cash loss.

Those people will share in whatever assets can be gathered. But people, typically longtime investors with Bernie Madoff, who over the years had taken out more than they had put in, thinking they were withdrawing legitimate profits, those people don’t have a claim against this money.

Another set of investors in sort of a limbo are people who invested indirectly through one of these giant feeder funds we have heard about. The feeder fund may have a claim, but it’s not clear that the feeder fund’s investors do. And where that feeder fund is in liquidation or is in the Caribbean or is somehow defunct, their status becomes more uncertain.

And those are issues that the courts are going to be grappling with well into next year.

RAY SUAREZ: Has the trustee ended up going to some unexpected, even surprising, places trying to recover funds?

DIANA HENRIQUES: Well, there have been some interesting small lawsuits to retrieve money left in bank accounts in Gibraltar. The trustee has actually hired lawyers in, I think, something like 12 different countries now, everywhere from the British Islands to Austria to Ireland, England, and Luxembourg, of course.

So, there’s an enormous legal phalanx spreading out really all over the globe to try to track down people who withdrew cash from this Ponzi scheme before it collapsed. It’s an extremely elaborate litigation effort.

RAY SUAREZ: As we mentioned earlier, on the same two-year anniversary of the crime, Bernie Madoff’s son Mark was found to have killed himself.

Was Mark Madoff named as a respondent in a lot of these lawsuits?

DIANA HENRIQUES: He was a defendant. He, his brother, his uncle and cousin had all been sued last year by the trustee in their capacity as officers and executives of his father’s brokerage firm.

The trustee sued them to recover compensation and bonuses and investment gains that they had received over the years, which the trustee claimed were part of Madoff’s ill-gotten gains. That lawsuit was making its way through the courts.

And then Mark was sued again more recently as part of this late rush for his role as a director in Madoff’s London-based affiliate. And, apparently, even more troubling to him, his children, while not named individually, were sued by the trustee a few weeks ago, because some of the money that moved through the Ponzi scheme wound up in trust funds for their benefit.

And that had apparently been very upsetting to him, on top of all of the other anguish and anger that accompanied this anniversary.

RAY SUAREZ: With his death have the investigations on either the criminal or civil sides lost an important source of information, someone who would have been useful moving forward?

DIANA HENRIQUES: Well, it’s very hard to tell.

Obviously, we don’t know where the criminal investigation is going. There have been more than half-a-dozen indictments. All but two of — all but three of those, including Madoff himself, are pending trial. The defendants have insisted on their innocence. And those cases will move forward.

Because it’s not clear that Mark would have known about any of those crimes — certainly, there was no indication from the government whatsoever that they thought he did — he probably wasn’t going to be a witness there.

However, there remains the possibility that other senior executives, namely his uncle Peter, might face criminal charges. The prosecutors have said that he is the subject of a criminal investigation. His lawyers insist he knew nothing about the fraud.

But if that case had gone to trial, it was possible that Mark would have been a witness in that, just about the inner workings of the firm. But I think — I don’t think that his death is a great setback for the investigation, although it is, of course, a great tragedy for his family.

RAY SUAREZ: Diana Henriques, thanks for joining us.

DIANA HENRIQUES: Thanks.