In response to a post we wrote yesterday about how we disagree with certain Madoff’s victims who say their losses should be measured by the fictitious amount they thought they had in their accounts when the Ponzi scheme collapsed, we received an email from Ilene Kent, the coordinator for the Madoff Survivor Group.
Here’s what she has to say:
I am writing as the Coordinator for the Madoff Survivors Group, an online advocacy group consisting of hundreds of former investors of Bernard L. Madoff.
I applaud you for acknowledging the “net equity” debate — the difference between how we are valuing our accounts and how the Trustee, Irving Picard, is valuing our accounts. You also correctly noted that there are only a handful of investors out of thousands and thousands that agree with the Trustee. However, your headline that we are “still demanding that taxpayers reimburse them for fake returns” is simply not true.
We are simply asking that the government take responsibility for its abysmal failure to detect this fraud, and that the SEC live up to its mission to protect the US investor. Four weeks ago, the SEC’s Inspector General released a scathing report on the number missed opportunities to detect this fraud nearly two decades ago.
The Securities Investment Protection Corporation (SIPC) is a quasi-governmental organisation whose mandate is spelled out in the Securities Investment Protection Act of 1970. Until a rule change that followed the arrest of Bernard Madoff, member broker dealers paid a mere $150 per year for the privilege to advertise to its investors that they are protected against bankruptcy. That’s not $150 per account; it’s not $150 per month. $150 PER YEAR. It should also be noted that prior to the aforementioned rule change, the SIPC had not collected these monies for 8 years. Every single investor in BLMIS who received a statement saw the “SIPC” logo on the statement and felt assured that their account would be protected for up to $500,000. The law allows for a maximum SIPC payment of $500,000 … an amount that was set in 1978 and has not been increased in over 30 years. As a point of information, in today’s dollars, that $500,000 should be over $1 million. However, Chairman Mary Schapiro of the SEC (which oversees SIPC) acknowledged in a hearing before Congress that there simply is not enough money to cover all the claims. That is a stunning comment.
Further, there is current law as well as federal statute that supports our net equity position. Judge Burton Lifland, the Bankruptcy Judge assigned to the Madoff bankruptcy, has set a date of February 2, 2010 to hear these legal arguments and challenges to the Trustee’s definition. We are not suggesting full restitution; we are simply asking that the government — and the SEC — live up to its promise to protect the American investor. As a finance writer, I’m sure you understand the importance of restoring faith in US markets.
Finally, since you mentioned that we “shouldn’t get money you never had,” I would like to point out the Internal Revenue Service was probably the largest beneficiary of this fraud with billions of dollars paid in taxes on these fraudulent profits and investors are unable even to recoup these monies, even though Federal Statute prohibits the IRS from assessing tax on phantom income. The IRS Commissioner issued a “Safe Harbor” ruling back in March that allowed for a five-year carryback period, but that is not sufficient for many investors.
I have attached a couple of documents for your review and information. One is a “Key Issues” document about many of the issues of importance to the tens of thousands of former Madoff investors, the other is a Press Release that was sent out in response to the Department of Justice’s recent filing. I would be happy to review or discuss this further with you.
In any event, I appreciate your time and consideration.
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