George S. May Business Blog

More Madoff madness

If you thought the whole Madoff thing was over after he plead guilty a couple months ago, think again:

“The latest: the WSJ’s Amir Efrati reports today that the criminal investigation into who knew about Bernie’s fraud has expanded to include some of his highest-profile investors, including Jeffry Picower and Stanley Chais, two philanthropists who invested heavily with Madoff, and Carl Shapiro (pictured) one of Bernie’s oldest friends. The group – along with at least five others – are being scrutinized by federal prosecutors in Manhattan.

Federal investigators have gathered evidence they think will show that Picower and Chais told Madoff how much in returns they wanted and that their accounts soon would reflect those amounts.

Prosecutors haven’t charged any Madoff investors with criminal wrongdoing. A lawyer for Picower, 67 years old, said his client wasn’t complicit in the fraud and suffered losses in the billions. A lawyer for Chais, 82, a money manager who channeled West Coast clients to Madoff’s firm, said he was unaware of a criminal probe of Chais and his client didn’t have knowledge of Madoff’s Ponzi scheme. Chais “has cooperated fully” with investigators, the lawyer said. A representative for Shapiro, 96, said Shapiro had no knowledge of the fraud.

Picower and Chais already have been accused of seeking fictitious gains in civil lawsuits brought against them by the trustee of Bernie’s firm. As part of his effort to recover assets for Madoff’s victims, Picard alleged that the trio sought – and then received – better returns than thousands of other Madoff investors.

In some cases, their returns reached 300% or 950% a year, Picard has alleged. The two men made withdrawals from Mr. Madoff’s firm of more than $6 billion in supposed profits above and beyond the principal they deposited for themselves, family members and foundations, the lawsuits allege.

It’s unclear why Madoff would allegedly have given some investors such high returns and why some investors allegedly made requests for specific gains. Picard’s lawsuit against Picower and Chais doesn’t speak to possible motive, only alleging that the defendants knew or should have known they were “reaping the benefits” of “manipulated purported returns, false documents and fictitious reports.” (source)

This is for me to decipher what I think is right. I mean, are the aforementioned guys passive criminals, so to speak, or are they really people who were fooled into thinking they were really getting a great deal? You have to assume that they, at least, thought something had to be fishy with the 950% returns, but to what point is it their own responsibility to investigate, if the money is coming in? I mean if the S.E.C. says this guy is clean then why should they have to do any further due diligence. It’s like the guy downtown that has a stand selling miscellaneous electronics. Do we know where that $400 video camera that he’s selling for $100 came from? Well, of course not. But is it your responsibility to look into the origin of the camera? Furthermore, if you take him up on his killer deal, does that make you a criminal? Hard to say, if you ask me.

Related posts:

1. Peter Madoff under fire from Manhattan U.S. Attorney’s office Another member of the Madoff family has found themself on the hot seat. The New York Post reports that Peter Madoff, brother of the infamous Ponzi Schemer, Bernard,...


2. SEC smacks JPMorgan Chase with $700 million fine My, oh my, this is quite a large fine. I wonder though, should JPMorgan fail to pay the fine on time, will the SEC hit...


3. Goldman Sachs’ Other Shoe Drops Goldman Sachs is suffering from a bit of a public relations problem, kind of in the same vein as the public relations problem cigarettes are...