For those who are interested in my previous posts regarding Madoff and clawbacks against charities (check out Madoff posts) , here are some interesting articles about this now old story.
This first article is really interesting - about how lawyers on behalf of net-winners from Madoff's scheme are fighting to be treated as victims! It's hard not to feel sorry for them but how could you take away recovered funds from the net-losers of the fraud!
http://dealbook.blogs.nytimes.com/2010/02/03/in-court-challenges-of-madoff-trustees-plans/
What is interesting about this next article, is that it is only in the 5th paragraph that it mentions a side point that Madoff stole $325 million from a friend as executor of his estate.
Who would have thought that a little theft of $325 million wouldn't get much prominence? Well, I guess if you are in the business of stealing billions, what's another few hundred million?
The real irony is that Madoff was only stealing back false profits from his own fraud, presumably to keep the fraud going a little further. Apparently family of the deceased friend didn't disagree (they settled with Picard).
http://online.wsj.com/article/SB10001424052748703410004575029762424298880.html?mod=googlenews_wsj
Showing posts with label Madoff. Show all posts
Showing posts with label Madoff. Show all posts
Sunday, February 7, 2010
Wednesday, November 11, 2009
Jeffry Picower Will
Ever look over the will of a billionaire? Someone facing claims of billions of dollars by a trustee in bankruptcy. Click this link (thanks to the New York Times):
http://graphics8.nytimes.com/packages/pdf/business/20091110picowerwill.pdf
What a strange story. Jeffry Picower was facing gargantuan claims (with a pretty good defense for withdrawals older than 6 years).
He signed a new will on October 15, 2009.
He died of a heart attack in his swimming pool on October 25, 2009.
What is most fascinating to me about this will is how many employees were set to receive bequests, as long as they were still employed by Mr. Picower at the time of his death.
The whole story sounds too incredible to be true. It seems too planned. It can't be life insurance motives - doesn't make that much sense to me since he was really rich. Or, maybe life insurance proceeds from irrevocable life insurance trusts would be the only funds completely free from potential clawback?
If he did have any big life insurance policies, and I was the investigator for the insurance company, I would be looking into this! Maybe he signed his new will, cleaned up his affairs, and stopped taking his heart medication. Who is to say that the trustee wouldn't be able to go beyond the 6 year limit since Picower was as close to a co-conspirator as you get.
http://graphics8.nytimes.com/packages/pdf/business/20091110picowerwill.pdf
What a strange story. Jeffry Picower was facing gargantuan claims (with a pretty good defense for withdrawals older than 6 years).
He signed a new will on October 15, 2009.
He died of a heart attack in his swimming pool on October 25, 2009.
What is most fascinating to me about this will is how many employees were set to receive bequests, as long as they were still employed by Mr. Picower at the time of his death.
The whole story sounds too incredible to be true. It seems too planned. It can't be life insurance motives - doesn't make that much sense to me since he was really rich. Or, maybe life insurance proceeds from irrevocable life insurance trusts would be the only funds completely free from potential clawback?
If he did have any big life insurance policies, and I was the investigator for the insurance company, I would be looking into this! Maybe he signed his new will, cleaned up his affairs, and stopped taking his heart medication. Who is to say that the trustee wouldn't be able to go beyond the 6 year limit since Picower was as close to a co-conspirator as you get.
Tuesday, November 10, 2009
All's Well That Ends Well
According to the New York Times, Jeffrey Picower's will is "expected to be filed" today (Tuesday). The legal wrangling around the late Mr. Picower's estate should provide us with plenty of insight into clawbacks and how they may effect charities and others.
Here is a link to the New York Times piece:
http://dealbook.blogs.nytimes.com/2009/11/09/trustee-may-win-billions-for-investors-in-madoff/
From reading this story, it sounds All's Well That Ends Well. Madoff is off brawling with drug dealers in jail for the next 150 years and the Picower estate is already negotiating with trustee Picard (hard to believe Picower only passed away a little over two weeks ago). If the estate can successfully negotiate a settlement with Picard - which they appear likely to do, then any speculation about third party beneficiaries of Picower's philanthropy would be mute.
My hunch is that Picard's clawback lawsuits will only go after direct beneficiaries of Madoff's operations, and only for large amounts (hundreds of millions and up).
Here is a link to the New York Times piece:
http://dealbook.blogs.nytimes.com/2009/11/09/trustee-may-win-billions-for-investors-in-madoff/
From reading this story, it sounds All's Well That Ends Well. Madoff is off brawling with drug dealers in jail for the next 150 years and the Picower estate is already negotiating with trustee Picard (hard to believe Picower only passed away a little over two weeks ago). If the estate can successfully negotiate a settlement with Picard - which they appear likely to do, then any speculation about third party beneficiaries of Picower's philanthropy would be mute.
My hunch is that Picard's clawback lawsuits will only go after direct beneficiaries of Madoff's operations, and only for large amounts (hundreds of millions and up).
Thursday, October 22, 2009
Madoff, Clawbacks and Charities
For those in the philanthropic world, seeing stories in the press about the bankruptcy trustee in the Madoff mess and his attempts to recover assets has to make us wonder what will be with charities potentially involved in clawback suits. The Forward and Bloomberg have already started to mention this issue in recent articles (see below for links).
What about charities that withdrew funds in the normal course of business and happened to exceed their initial investment in Madoff? Or, what about non-profits that divested their Madoff or Madoff feeder fund investments well before the discovery of the massive fraud? Or, what about charitable beneficiaries of Jeffry Picower's Foundation during the last few years? (Note: Jeffry Picower passed away yesterday, another sad chapter in Madoff tragedy.)
Thanks to the law firm of Drinker Biddle, I now have some idea how claw back suits work (see below link to their article on the topic). Here is a summary of the rules based on the Drinker Biddle memo:
1. Charities have to be treated like any investor - there is no point in discussing the ethics of clawbacks against charities. The trustee has an obligation to recover funds for those defrauded, starting with the biggest and closest who benefited. Where is the logic or ethics in agreeing to allow a charity to benefit at the cost of other defrauded investors?
2. All withdrawals made within 90 days of a bankruptcy petition are subject to full recovery by the trustee, whether or not the money taken was from "principal" or "earnings." Insiders under some circumstances may be required to return any withdrawals within a year.
3. Next comes withdrawals of "fictitious" profits made within 6 years of the filing (for Madoff, the date is 12/16/2008). Federal bankruptcy law actually proscribes 2 years but New York fraudulent conveyance law extends the clawback period to 6 years. Not being an expert in this area, I am guessing that attorneys may fight to get out of applying New York's law on jurisdictional grounds - possibly a way to save clients some money but for sure a serious legal battle.
4. How do we define "fictitious" profits? Very simple. Any penny withdrawn in excess of your original investment is fictitious profit. From reading the Drinker Biddle memo, it seems clear that if it can be established that you had already withdrawn your full investment in Madoff prior to December 16, 2002, then you would be obligated to return every penny withdrawn during the period of December 16, 2002 to December 16, 2008. That is pretty frightening for a place like Hadassah which all but admitted that they had long recovered their initial investments.
5. If you never reached the fictitious profit level, and you didn't withdraw any funds within 90 days (assuming you are not an insider), you should not have any clawback concerns. If you received a letter from Picard demanding return of funds, it would be time to seek legal counsel as soon as possible.
6. One last point for those who knew or should have known of the fraud taking place - the trustee in theory can seek to recover for even non-fictitious principal withdrawals in these cases. These will be a totally different kind of legal case and probably very weak if the trustee can't place you as a co-conspirator. If the SEC and the rest of the world didn't notice, how can the government claim that a non-conspirator should have known? My guess is that the trustee will not pursue these but for clear insiders who most likely knew something was wrong (ie..family).
With the sad passing of Jeffrey Picower, a huge philanthropist, I am wondering about indirect charitable beneficiaries of the Madoff scheme. Bloomberg.com reported that Picower made a $50 million donation in 2002 to fund a brain-research center at MIT. Was it early in 2002 or after December 16? Can these funds somehow be traced to Madoff profits?
What about charities that had invested with Madoff indirectly (through one of the "feeder" funds)? And, what if they had wisely chosen to send their investments to other managers and taking along fictitious profits, too?
In the end, Picard the trustee will have to pick his battles carefully based on size and likelihood of success. Big targets, charities or not, watch out.
http://www.theworldlawgroup.com/docs%5CUnited%20States-Clawbacks%20in%20the%20Aftermath%20of%20Madoff.pdf
http://www.forward.com/articles/116262/
http://www.forward.com/articles/112466/
http://www.bloomberg.com/apps/news?pid=20601103&sid=azCKA1yuc6sg
What about charities that withdrew funds in the normal course of business and happened to exceed their initial investment in Madoff? Or, what about non-profits that divested their Madoff or Madoff feeder fund investments well before the discovery of the massive fraud? Or, what about charitable beneficiaries of Jeffry Picower's Foundation during the last few years? (Note: Jeffry Picower passed away yesterday, another sad chapter in Madoff tragedy.)
Thanks to the law firm of Drinker Biddle, I now have some idea how claw back suits work (see below link to their article on the topic). Here is a summary of the rules based on the Drinker Biddle memo:
1. Charities have to be treated like any investor - there is no point in discussing the ethics of clawbacks against charities. The trustee has an obligation to recover funds for those defrauded, starting with the biggest and closest who benefited. Where is the logic or ethics in agreeing to allow a charity to benefit at the cost of other defrauded investors?
2. All withdrawals made within 90 days of a bankruptcy petition are subject to full recovery by the trustee, whether or not the money taken was from "principal" or "earnings." Insiders under some circumstances may be required to return any withdrawals within a year.
3. Next comes withdrawals of "fictitious" profits made within 6 years of the filing (for Madoff, the date is 12/16/2008). Federal bankruptcy law actually proscribes 2 years but New York fraudulent conveyance law extends the clawback period to 6 years. Not being an expert in this area, I am guessing that attorneys may fight to get out of applying New York's law on jurisdictional grounds - possibly a way to save clients some money but for sure a serious legal battle.
4. How do we define "fictitious" profits? Very simple. Any penny withdrawn in excess of your original investment is fictitious profit. From reading the Drinker Biddle memo, it seems clear that if it can be established that you had already withdrawn your full investment in Madoff prior to December 16, 2002, then you would be obligated to return every penny withdrawn during the period of December 16, 2002 to December 16, 2008. That is pretty frightening for a place like Hadassah which all but admitted that they had long recovered their initial investments.
5. If you never reached the fictitious profit level, and you didn't withdraw any funds within 90 days (assuming you are not an insider), you should not have any clawback concerns. If you received a letter from Picard demanding return of funds, it would be time to seek legal counsel as soon as possible.
6. One last point for those who knew or should have known of the fraud taking place - the trustee in theory can seek to recover for even non-fictitious principal withdrawals in these cases. These will be a totally different kind of legal case and probably very weak if the trustee can't place you as a co-conspirator. If the SEC and the rest of the world didn't notice, how can the government claim that a non-conspirator should have known? My guess is that the trustee will not pursue these but for clear insiders who most likely knew something was wrong (ie..family).
With the sad passing of Jeffrey Picower, a huge philanthropist, I am wondering about indirect charitable beneficiaries of the Madoff scheme. Bloomberg.com reported that Picower made a $50 million donation in 2002 to fund a brain-research center at MIT. Was it early in 2002 or after December 16? Can these funds somehow be traced to Madoff profits?
What about charities that had invested with Madoff indirectly (through one of the "feeder" funds)? And, what if they had wisely chosen to send their investments to other managers and taking along fictitious profits, too?
In the end, Picard the trustee will have to pick his battles carefully based on size and likelihood of success. Big targets, charities or not, watch out.
http://www.theworldlawgroup.com/docs%5CUnited%20States-Clawbacks%20in%20the%20Aftermath%20of%20Madoff.pdf
http://www.forward.com/articles/116262/
http://www.forward.com/articles/112466/
http://www.bloomberg.com/apps/news?pid=20601103&sid=azCKA1yuc6sg
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