Saturday, February 21, 2009


According to Irving Picard, the SIPC trustee handling the Madoff situation, Madoff purchased no securities for 13 years!! Irving, what does that mean?

Here is some speculation as to what it means. First, it means that for over a decade there were no profits. If there were no profits, then the distributions that investors have been receiving during that period came from new investors.

Second, the distributions that investors received then are subject to clawback. This means that investors have to give back some of the distributions they have received in excess of their original investment.

So imagine this nightmare scenario. A couple loses all their retirement monies in this scandal. They have nothing left except their two homes which they are selling. In the past couple of years, they took out distributions to buy their second home in Florida, pay for their daughter's medical school bills, her wedding, their two sons educations and so on. Now the SIPC sends them a notice that they have to return the distributions they received over the past six years. And they don't have the money anymore.

Third, if there were no investments over this time period, then others certainly knew of the fraud. The sons? Ruth, the wife? Peter, the brother? No wonder Ruthie took $10 million out the day before Madoff confessed to his sons.

Fourth, the tax implications of all of this for the investors is another nightmare. What is a loss? When did it occur? Do they file amended returns? Do they take the loss this year? On top of this the IRS has given no guidance at all yet.

What a mess.



  1. There has to more to this. Did it sit in a bank? Had to be somewhere.

  2. Yes, there has to be more. The amounts are just too large especially if that many people lost that much money to not have been invested somewhere. So far we have only seen bits of unconnected data.