Madoff Trustee Issues SubpoenasFeb 18, 2009 | Parker Waichman LLP
The trustee liquidating accused Ponzi schemer Bernard Madoff's brokerage has issued more than a dozen subpoenas to financial institutions. According to Bloomberg.com, the subpoenas are part of the trustee's effort to get some money back for Madoff's investors.
The 70-year-old Madoff was arrested on one count of securities fraud on December 11. Madoff - once a chairman of the Nasdaq stock exchange - is the founder and primary owner of Bernard L. Madoff Investment Securities LLC. The firm is primarily known for its business in market-making, or serving as the middleman between buyers and sellers of shares. However, Madoff also oversaw an investment-advisory business that managed money for high-net-worth individuals, hedge funds and other institutions.
According to the FBI complaint against Madoff, that business was largely a Ponzi scheme. The FBI said Madoff “deceived investors by operating a securities business in which he traded and lost investor money, and then paid certain investors purported returns on investment with the principal received from other, different investors, which resulted in losses of approximately billions of dollars.” Some estimates say those losses could reach as much as $50 billion.
Shortly after Madoff’s arrest, a federal judge ordered that his business be liquidated under the jurisdiction of a bankruptcy court and assigned a trustee to oversee that process. According to Bloomberg.com, the financial institutions recently subpoenaed by the trustee include the Chicago Board of Trade, the CME Clearing House, LaBranche & Co., Bats Trading Inc. and Clearing Corp.
The filings didn't say exactly what information the trustee was looking for, but Bloomberg said that it is likely the trustee is trying to document and recover assets that Madoff’s brokerage deposited with the institutions.
Earlier this month, the trustee said he had recovered $946.4 million in assets for Madoff customers - a mere fraction of their estimated losses. Experts have said that Madoff’s clients will be lucky to get as much as 10 cents on the dollar from the liquidation. Madoff’s businesses didn’t have many assets, and the money managed by his investment advisory firm has disappeared into thin air.
It could also take as many as three years for the funds from any liquidation of Madoff’s assets to be disbursed to investors. Experts told the Associated Press last month that Madoff could already have assets scattered around the world and therefore it might be difficult to track where all his money and wealth is being held, especially if he had been defrauding customers for decades.
In addition to the asset liquidation, some investors might be able to recover up to $500,000 each through the Securities Investor Protection Corp.(SIPC), the Associated Press said. The SIPC, which acts essentially as an insurance fund set up to help victims of securities fraud, sent out 8,000 claim forms to Madoff investors who might be eligible for recovery in early January. However, third-party investors - those whose Madoff investments were made through other entities - might not be eligible for the full SIPC benefit. Those investors could choose to sue the third party, and some hedge funds have already been named in such lawsuits.