Richard Beales of BreakingViews had the excellent idea of running some numbers to figure out how much money Bernie Madoff’s victims might eventually get back. We’ve added some of our own assumptions and dumped everything into a spreadsheet, which we’ve embedded below.
If they’re lucky, average Madoff victims might eventually see 20 cents on the (fictitious) dollar. Small, direct Madoff clients might get a lot more than that, courtesy of SIPC payouts (up to $500,000 per account). Huge, indirect Madoff clients, especially those who don’t live in the US, might not get much of anything.
We ran 10 years worth of numbers. Here are our assumptions:
Starting (fictitious) asset base in 1998: $12 billion
Annual (fake) growth: 15%
Annual (real) withdrawals: 10% of starting assets
Annual (real) new investment: 10% of starting assets
Ending (fictitious) asset base: $49 billion
Average Fees (to FGG, brokers, etc.): 1.5% of starting assets
Taxes paid on fake gains (6 yrs): 20%, $6 billion (Assumes half of assets are international)
Seized Madoff assets: $1 billion (the firm, hidden capital, houses, watches, etc.)
Possible Sources Of Recovery
Seized Madoff assets: $1 billion
Tax refunds (6 years): $6 billion
1 year of withdrawals: $5 billion (Lawyers may go after 6 yrs, but won’t get it)
1 year of fees: $750 million (Ditto)
SIPC Payouts: $500 million ($500,000 on 1,000 accounts)
SUB-TOTAL: $13 Billion
Less: Legal Fees (30%)
TOTAL: $8 Billion
% Recovery Of Fictitious Assets: 18%
% Recovery Of Paid-In Capital: 30%
It’s worth noting that the biggest source of recovery here is withdrawals and tax refunds. On the withdrawals, Ponzi precedent suggests that lawyers might be able to go after any funds withdrawn in the past 6 years. Those lucky enough to have pulled money out, however, will likely fight this tooth and nail. Given that many victims are charities, some of which gave all their withdrawals away, we can’t imagine victims will recoup much here. So we’ve used a single year.
It’s also worth noting that, using these assumptions, the loss on invested capital is only 70%. That’s not much worse than a lot of hedge funds.
Here’s the spreadsheet: