Dozens of Bernard Madoff’s early investors are getting help from an unlikely source in a fight to keep their profits: the con man himself.
From his federal lockup in Butner, North Carolina, Madoff said at a recent deposition he was a legitimate securities broker for decades, until 1992. Before that, he said, he was mostly clean as a whistle. Madoff made a similar claim in his guilty plea eight years ago, but the issue hasn’t really mattered until now.
It’s become crucial to resolving some 80 lawsuits in which Irving Picard, the trustee appointed to handle the firm’s dissolution, is seeking about $100 million in profits from a group of customers who invested before 1992. The central issue is when the fraud started. If it began after 1992, those customers may get to keep their profit. If it started before, they lose out.
The cases pit the word of Wall Street’s most notorious liar against the claims of a trustee with mountains of evidence from a sweeping probe that found no evidence of trading for decades. There’s an added twist: Records gathered from recently restored microfilm have given customers hope that evidence of genuine transactions may exist.
The fight forces the lawyers to confront one of the biggest mysteries of Madoff’s scam. For Madoff, though, what matters is salvaging some shred of his reputation — something he says he could have done had he taken his case to a jury.
‘Biggest Mistake’
“The biggest mistake I made was not going to trial,” Madoff said at his April 26 deposition, according to a transcript now in court papers. “I would have called in any number of expert witnesses” to prove he was once a savvy trader.
The prosecutors who sent Madoff to prison for 150 years presented evidence at a trial of his five top aides that almost no trading took place while the con man managed money. Picard has made the same claim in hundreds of lawsuits seeking to recover fake profits from Madoff investors.
So far, he has recovered more than $11.5 billion for investors who lost $17.5 billion in principal. He’s now seeking almost $500 million more in 213 lawsuits against former customers, including the group who says it invested while Madoff’s operation was legitimate.
Picard has used a straightforward method to calculate where customers stood financially: their deposits with Madoff minus money withdrawn. Those who were “net losers” got claims for repayment, while “net winners” were sued for the return of bogus profits. But some of those who invested before 1992 say the calculation should begin in 1992 because Madoff was actually trading and generating true profits until then. Because there’s been little conclusive evidence one way or the other, a judge ordered the deposition.
Investing Skill
Picard’s lawyer, David Sheehan, spent hours questioning Madoff, who touted his early investing prowess.
“I started my business with literally $500,” Madoff said. “By ’87, I was a rich guy.”
At another point, Madoff was asked about his statements to the FBI during questioning at his apartment. In the agents’ notes, Sheehan said at the deposition, they wrote that Madoff said the fraud began in the 1960s and that it got going “in earnest in the ’70s” and “grew much larger in the ’80s.”
“I certainly never said that,” Madoff, now 79, testified.
“So they’re lying?” Sheehan asked of the agents.
“Maybe they misunderstood me,” Madoff said, adding the agents appeared at the time to be looking at family photos on his piano. “They didn’t seem to have much of an interest in what was going on. I don’t know why they were even there, quite frankly.”
Microfilm Records
Millions of pages from microfilm reels at Madoff’s firm, which were painstakingly restored by Picard this year, may show that the trading was once legitimate, said Helen Davis Chaitman, a lawyer for the early investors. Picard says they’re merely internal documents about purported trades, none of which are backed by third-party records. A jury may eventually decide the matter.
“I think these records will show that real securities were purchased with the money of the investment advisory customers in the 1980s and thereafter,” Chaitman said.
The strongest case against Madoff’s 1992 claim is his history of lying, Picard said in court filings. Madoff, he added, is “a witness who admits to lying for a living.”
“Every bit of evidence and every lick of testimony supports the argument that it was fraudulent from very early on, at least since the mid-’70s,” said Matthew Schwartz, who was the longest serving prosecutor on the case, in a recent interview.
The burden rests with Picard, as the plaintiff, to prove that no legitimate trading took place, said Jon Barooshian, a former prosecutor in Massachusetts who isn’t involved in the case. He said his “gut feeling” is the early investors are trying to leverage a settlement.
“A jury will never go with anything Madoff has to say,” he said.
Two heirs of one of Madoff’s early French customers, Albert Igoin, opted to settle rather than continue fighting as part of the pre-1992 investor group, their lawyer said. Laurence and Emilie Apfelbaum, his daughter and granddaughter, agreed to pay $7.49 million after Picard sued them for $150 million, an amount a judge later cut to $25 million.
Madoff doesn’t deny his guilt. In his deposition, he recalled thinking to himself that pleading guilty would “eliminate the government spending millions of dollars and years in a trial,” he said. “I’m just going to admit that I was guilty because I was from 1992 on — which was bad enough.”
This article was provided by Bloomberg News.
