Getting your money back from Madoff

Small-scale investors could get compensated fully, thanks to brokerage protections; multi-million dollar victims will certainly take a hit.

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By Aaron Smith, staff writer

Mug shot: Bernard Madoff was thrown in jail on March 12, after pleading guilty to the biggest Ponzi scam in history.

NEW YORK ( -- Small-scale investors in Bernard Madoff's Ponzi scheme -- claimants with a half-million dollars or less at stake -- will eventually get all their money back, according to the Securities Investor Protection Corporation.

"If their losses are less than a half a million dollars, then their losses should be made completely whole by SIPC," said Steve Harbeck, chief executive of the corporation.

But larger investors are almost certain to take a hit, he said.

Here's how it works:

SIPC, an organization that protects investors in brokerage firms, will pay up to $500,000 for any eligible claimant who lost money to Madoff. This coverage comes from dues paid by brokerage firms, not taxes, according to Harbeck.

Madoff, in federal court in Manhattan last week, pleaded guilty to operating the biggest Ponzi scheme in history. A Ponzi scam uses fresh investments from unsuspecting investors to make payments to more mature investors, to create the false appearance of legitimate returns. In reality, Madoff never bought securities and therefore never invested the money, according to his courtroom confession.

Madoff, currently locked up in a Manhattan jail, faces a sentence on June 16 of up to 150 years. On Thursday, he will make an appearance in the U.S. Court of Appeals for the 2nd Circuit to appeal the decision to revoke his $10 million bail.

Some investors have said they're more interested in recouping their losses than seeing this 70-year-old financial menace spend the remainder of his days in prison.

SIPC protection and recovered loot

In addition to the $500,000 from SIPC, anyone who donated more than that to Madoff's long-running scam is dependent upon the recovery of stolen funds to get more money. These funds are paid into a pool, and will eventually be divvied to investors, commensurate on how much they put in, according to Irving Picard, the court-appointed trustee who explained the process to victimized investors at a hearing last month.

An investor who gave Madoff millions of dollars is likely to get only a fraction of that, even with the $500,000 from SIPC.

If the investigators recover only one-tenth of the funds, then a million-dollar investor would get back one-tenth of what he put in, which would be $100,000, plus the $500,000 from SIPC, according to an arbitrary example from Harbeck. In a one-tenth recovery, a smaller-scale investor who lost a total of $100,000 would get back $10,000 from the recovered funds, and $90,000 from SIPC, said Harbeck.

If the investors have accepted payments from Madoff, that could further complicate the recovery effort and also reduce their claim.

Some of the SIPC payments have already gone out. Harbeck said that twelve -- out of the estimated thousands of investors -- have received a total of $6 million from SIPC.

"It's my understanding that these people were easy claims, that they each put more than half a million in, and they did so very recently, and they never took money [out,]" said Harbeck.

The deadline to file claims is July 2. After that, investigators should have a better understanding of how much money was stolen from how many victims.

Also, the Internal Revenue Service on Tuesday issued tax-filing guidance for Madoff victims. The IRS said it provides safe harbor procedures for taxpayers to deduct theft losses from criminally fraudulent investment arrangements.

Madoff: his (and her) money

According to a recent courtroom filing, some $823 million worth of assets have been recovered from Madoff, with much of it under the name of his wife Ruth.

A spokeswoman representing the prosecution declined to comment as to whether Ruth's items are subject to seizure. The court document, filed by the prosecution, inventories all items, his and hers, implying that all items are vulnerable to forfeiture.

Ira Lee Sorkin, an attorney representing the Madoffs, sees it otherwise. "If it's Ruth Madoff's money, it's not subject to seizure," he told on Tuesday.

The bulk of the tally comes from the $700 million valuation for the firm, Bernard L. Madoff Investment Securities, which is being liquidated.

"The view that we're going to take is that every paper clip found in that office was paid for with stolen money," said Harbeck of SIPC.

More than $17 million in cash was deposited at Wachovia under Ruth's name and investigators also recovered $45 million worth of municipal bonds. The real estate includes their $7 million Manhattan apartment and his wife's properties in Montauk, N.Y., and Palm Beach, Fl., as well as a collection of yachts, luxury cars and other pricey possessions, like Ruth's silverware and her Steinway piano.

Court documents filed Tuesday at the Southern District of New York add to the inventory of items the prosecution is asking to be forfeited. The additional items they want to seize include Madoff's ownership in 20 companies, $9.55 million worth of loans to Andrew Madoff, and $22 million worth of loans to Mark Madoff.

The court documents also cite more than $2.6 million worth of jewelry owned in Ruth's name and around 35 sets of watches and cufflinks, value unspecified.

The government is still trying to track down Madoff's money, and the tally is expected to run into the billions of dollars. The largest estimate, of approximately $65 billion, is almost certainly erroneous, as it was based on Madoff's statements to investors tallying their returns, which were based on securities that he never bought.

In a recent interview with, Raymond Spungin, a 77-year-old investor, said he and his wife invested $700,000 to Madoff's firm, and received statements saying that their assets appreciated to about $1.8 million.

"The estimates that come from customers' statements are completely fictitious," said Harbeck.

Where's the rest of the money?

There is little doubt that some of Madoff's money is yet to be recovered or will never be recovered. Investigators are scouring various parts of the world looking for it, including France and Gibraltar, based on recent court filings.

This has lead to much conjecture -- still unproven -- that Madoff placed money into offshore accounts, protected from the outside world.

Kenneth Rubinstein, wealth protection lawyer, theorized that Monaco, unlike smaller tax havens in Africa and other parts of the world, is the only country "with a banking infrastructure large enough to swallow Madoff's money without raising a red flag."

Robb Evans, partner at Robb Evans & Associates, has hunted down scammed money all over the world, including the South Pacific archipelago of Vanuatu, where he's been trying to recover funds for years.

"Finding [the money] and recovering it are two different things," said Evans, who served as a trustee hunting down funds in hundreds of cases, including the fraud-ridden Bank of Credit and Commerce International in the 1990s.

Evans said his success rate varies widely, from 20% to 70%, for the recovery of funds. One of the problems is that some of the money has already been scattered among investors under the guise of profits. This, he said, is the very essence of Madoff's scam.

"Inevitably, in a Ponzi scheme, the bulk of the money goes to other investors," said Evans. To top of page

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