by John M. Curtis
(310) 204-8700

Copyright July 1, 2009
All Rights Reserved.

        Sentenced in the Lower Manhattan courtroom of U.S. District Court Judge Denny Chin, former Nasdaq chairman Bernard Madoff got 150 years for his record-breaking $65 billion Wall St. Ponzi scheme.  Facing his accusers, Madoff could only summons a sheepish, “I’m sorry . . .” not enough for the thousands of investors bilked out of their life’s savings.  Choking back rage, nine victims could barely contain themselves, pleading with Judge Chin to give the 71-year-old con artist the maximum sentence.  More than revenge, they should have focused on getting back their money, something Madoff knows something about.  Madoff’s Wizard-of-Oz-like empire crashed and burned during the latest stock market meltdown, losing seven trillion dollars in wealth for American investors.  Madoff’s scandal was especially egregious since, unlike other failed investments, he operated an outright scam.

            Ordinary investors, including some of the nation’s biggest funds, lost trillions in the last stock market crash, 90% more than Madoff.  Failed investment strategies at least offer investors the promise of better days when the market recovers.  Madoff’s scheme offered nothing other that the remote possibility that Madoff’s personal fortune could reimburse duped investors.  Madoff earned a sterling reputation delivering investors a consistent 10%-12% returns while other Wall St. investors made peanuts or lost their shirts.  Celebrities like Hall-of-Fame left-handed pitcher Sandy Koufax, Academy Award winning director Steven Spielberg, movie mogul Jeffrey Katzenberg and some of the nation’s most respected charities invested with Madoff losing endowments and sending institutions into insolvency.  All sought higher-than-expected-market returns, ignoring the possible risks.

            Before Madoff’s sentencing last Friday, Chin ordered him to liquidate $170 billion in assets, including all his family’s cash and real estate holdings, leaving his wife Ruth with a measly $2.5 million.  No one knows why the 71-year-old Madoff confessed to his sons and was arrested Dec. 12, 2008, rather than flee and seek asylum. It’s unclear whether or not Madoff has enough assets to repay the $65 billion lost by investors.  “Nothing I say can correct the things I’ve done,” Madoff told a packed courtroom sitting at a defense table some 20 feet in front of nine victims and their families. He should have reassured victims that his family will liquidate every asset to reimburse any and all victims.  Clearing his throat, Madoff read a prepared statement absolving his family of any responsibility.  Only recently, his wife argued to the court that millions in assets were not part of her husband’s fraud.

                Madoff’s statement, read in open court, indicated that none of his family knew that his investment firm was a giant hoax.  He told the court he “left a legacy of shame . . to my family and my grandchildren,” sharing on a personal note, “my wife cries herself to sleep every night,” eliciting little sympathy from the courtroom.  Madoff’s attorney argued for leniency, urging Judge Chin to ignore prosecutors to limit his sentence to 12 years.  “The unified tone of the victim statements suggests as desire for a type of mob vengeance,” said Madoff’s lawyer Ira Sorkin, urging Judge Chin to reduce the sentence.  Sorkin’s strategy backfired, prompting Chin to heed victims and mete out the maximum sentence.  Most victims wanted the maximum punishment because of the egregious nature to Madoff’s crimes.  Madoff lived too high on the hog to elicit victims’ or the court’s sympathy

            Madoff’s fraud strikes at the heart of Wall St. where most investors lost their nest eggs, life’s savings and retirements in legitimate businesses.  Investors in Bear Stearns, Lehman Bros., Fannie Mae, Freddie Mac, AIG, etc. watched investments go up in smoke, much the same as Madoff’s, despite having stock certificates.  Madoff had a 20-year track record paying investors back, making good on his promise to offer investors competitive yields.  When some of the nation’s biggest and most conservative banks invested depositors’ cash in risky “derivatives,” the Banks’ officers weren’t charged with fraud and misrepresentation.  When those companies declared bankruptcy, shareholders were wiped out.  There’s a fine line between “smoke-and-mirrors” and legitimate businesses practices in the securities industry.  Pointing the finger only a Madooff ignores Wall St.’s indiscretions.

            Madoff’s scandal should remind all investors that Wall St. carries heavy risks in even the most legitimate businesses.  It’s inconceivable that Madoff’s family was duped, professing ignorance of the fraudulent practices that only recently came to light.  “I do not agree with that the victims are succumbing to the temptation of mob vengeance,” said Judge Chin, acknowledging that they put their faith in the judicial system.  Prosecutors continue to pursue Madoff’s accountant 49-year-old David Friehling, who they believe conspired with Madoff to defraud the public.  Prosecutors should also pursue the Securities and Exchange Commission for the lax oversight that allowed Madoff to operate under the radar screen.  With all the warnings, the SEC bears responsibility for accepting audits from a boiler room accountant.  Had they done their job, Madoff would have been exposed long ago.

 John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.