Ponzi Scheme Architecture and Pitfalls

Radio Shalom 1650AM , Money and Business Show 
October 24, 2012
Banking and Securities Regulatory Compliance
"Ponzi Scheme Architecture and Pitfalls"

MONEY AND BUSINESS

listen to show via Youtube

Introduction

Ponzi Schemes have proliferated and have caused widespread damage to capital markets and in wiping out investor wealth. Just south of the border in the US, in 2008, we saw Bernie Madoff who committed the largest financial fraud in history – bilking investors for over $60B, and sentenced to life in prison.

And these schemes are also taking place in Canada, where regulatory enforcement has been criticized as weak and lacks resources to sufficiently deal with it. We saw the episode with Vincent Lacqroix, right here in Montreal, who defrauded investors for over $40M. The common theme of investor trust and vulnerability is pervasive in these sophisticated schemes.

On this show, we will discuss this and other issues, risks, and concerns around Ponzi Schemes with a focus on steps investors can take to avoid being victims of such schemes with 3 different experts on the matter of ponzie schemes and there widespread use and What are some of the most common indicators or "red flags.

Ponzi Scheme:Architecture and Pitfalls

Program Name: Money and Business with Samuel Ezerzer

Hours : Wednesday live at 4pm, rebroadcasted Sunday at 3am and Monday at 7pm.

Description: The Money & Business Show is the only pure Business show, live in-studio direct from Montreal. The show focuses primarily on the Canadian, United States, and the international economy through a Canadian lens. The show is informative, exciting, and sometimes controversial, encouraging healthy debate.

My name is Samuel Ezerzer, your host to the Money & Business show on Radio Shalom, CJRS 1650 AM. Thank you for tuning in live with our Business studios headquarters in Montreal, the financial capital and the home to the greatest hockey team, the Montreal Canadians. We have another great show for you today and as always, you can call if you have any questions, comments, or criticisms on today's topic. Please call us direct at514 738 4100 ext 200or email me at moneyandbusinessshow@gmail.comif you have any inquiries. You can also visit our website at www.radio-shalom.ca– all our shows are archived there . 

Today’s topic of discussion: "Ponzi Schemes: Architecture and Pitfalls"

Jack Bensimon

Our guest today is Jack Bensimon, Managing Director of Black Swan Diagnostics Inc., an independent securities regulatory compliance consulting firm located in Toronto’s Bay St. core. He has worked in the securities industry for over 19 years, mainly acting as Chief Compliance Officer (CCO) for banks, investment banking and counselling firms, trust companies, and broker-dealers. He has testified as an expert anti-money laundering witness in federal court for a major banking litigation case.

He is a graduate of the University of Toronto, The Wharton School, University of Pennsylvania (Investment Management). Jack has a Master of Laws (LL.M.) in Business Law from the University of Toronto, Faculty of Law. Jack also has an LL.M. in Securities Law and an LL.M. in the General stream, both from Osgoode Hall Law School (York University). He is chair of the subcommittee and board member of the Canadian Technion Society. The Technion-Israel Institute of Technology is based in Haifa, Israel. He can be reached at jbensimon@rogers.com

Edward Nagel

Edward Nagel is Principal and founder of nagel + associates. He is a seasoned forensic accountant who has focused exclusively since 1998 on providing forensic and investigative accounting services to corporations, individuals, public sector and not-for-profit organizations and their legal advisors/boards, primarily in the area of corporate fraud

Edward’s experience encompasses leading and conducting financial investigations, investigating allegations of fraud and financial misconduct, providing anti-fraud consulting/training, conducting financial motive reviews and analyzing and quantifying economic damages.

In addition to being a Chartered Accountant (CA), 

Edward is recognized as a specialist in investigative and forensic accounting (IFA) by the Canadian Institute of Chartered Accountants and has testified as an expert witness before the Ontario Superior Court of Justice. Edward is also a Chartered Business Valuator (CBV).Before beginning his career in forensic accounting, Edward spent over three years (following two summer interships) as an auditor for a major international accounting firm, where he specialized in the financial services group.

In addition to his client responsibilities, Toronto forensic accountant Edward Nagel has lectured extensively to law enforcement groups, the federal and provincial government, peers in the accounting field, law firms and other professional organizations on fraud and forensic accounting topics. Edward has also participated an an expert witness in training sessions for litigators.

http://nagel-forensics.com/102710-radio-shalom/

Kathy Phelps

kphelps@ThePonziBook.com

Kathy Bazoian Phelps , she is a Partner at Danning, Gill, Diamond & Kollitz, LLP

Los Angeles, California

Kathy Phelps has over 21 years of experience as a lawyer in bankruptcy law and fraud litigation, has spoken and written widely on a broad range of fraud and bankruptcy related matters, and has co-written The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes.

She is a thought after keynote speaker on all issues relating to fraud, due diligence, compliance, and Ponzi schemes throughout the United States. Kathy speaks to hundreds of professionals, lawyers, accountants, bankers, financial advisors, investors, and others about mandatory due diligence and red flag warnings that simply cannot be ignored. Kathy has now also written a practical guide for investors and others containing specific tools and due diligence questions to ask, and insights into the marketing and sales tactics employed by the Ponzi perpetrator or other fraudster.

PonziBook

"The Ponzi Book is one-stop shopping for the facts needed to understand the complex fall-out from a collapsed Ponzi scheme as well as the legal strategies that exist and are required to unravel it."

Irving H. Picard,

Trustee of Bernard L. Madoff Investment Securities, LLC

The book, tentatively titled, Ponzi Proof Your Investments: An Investor’s Guide to Avoid Ponzi Schemes, is expected to be released soon. Kathy’s memberships include International Chamber of Commerce FraudNet; Advisory Board, Association of Certified Financial Crime Specialists; Advisory Board, American Bankruptcy Institute, American Bankruptcy Institute; National Association of Bankruptcy Trustees — at

Los Angles, California.

http://www.theponzibook.com/kathybazoianphelps.html

Video and Audio Presentations by Kathy Phelps

Audio podcast, Legal Issues in Ponzi Scheme Litigation, for the LexisNexis Bankruptcy Law Community on May 1, 2012. Available here.

Video, How to Avoid a Ponzi Scheme, with Michael Martin of the Huffington Post. On April 17, 2012, the video was published on the Huff Post Business website.

Audio podcast, Bankers That Bank Fraudsters Could Face Costly Liability to Victims, for the Association of Certified Financial Crime Specialists on April 8, 2012. Available here.

Video of panel discussion, All's Well That Starts Well: Prejudgment Remedies, for the National Association of Bankruptcy Trustees, Spring Seminar, March 29-31, 2012, in Las Vegas, Nevada. Available here.

Webinar, The Costly Collision of Financial Institutions with Ponzi Schemes, on March 15, 2012. Available here.

Webinar, Ponzi Schemes, Securities Fraud and Other Fraudulent Enterprises: From "A" (Asset Forfeiture and Avoiding Powers) to "B" (Bankruptcy) to "C" (Coordinating Multiple Court Proceedings), for the Business Bankruptcy Committee of the the American Bar Association Business Section on March 8, 2012. The powerpoint presentation is available here.

Video from the Annual Fall Conference of the National Association of Bankruptcy Trustees on September 22, 2011, in Amelia Island, Florida, on a panel addressing Non-Traditional Assets. Available here.

Video of a panel discussion on Fraudulent Transfer Claims and Defenses in Ponzi Schemes Cases at the Annual Fall Conference of the National Association of Bankruptcy Trustees on September 29, 2010, in San Francisco, California. Availablehere.

PonziBook

PUBLICATIONS 

Handling Claims in Ponzi Scheme Bankruptcy and Receivership Cases, 42 Golden Gate U. L. Rev. 567 (2012)

What Do You Do When the Feds Come For Your Assets? Third-Party Claims in Forfeiture Proceedings, American Bar Association Business Law Section's Online Resource, Business Law Today, June 21, 2012

Supplementing the Tools in the Trustee's Toolbox, NABTalk, The Journal of the National Conference of Bankruptcy Trustees, Spring 2012

The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes, LexisNexis (2012)

Liability of Professionals and Insiders in Ponzi Schemes, 27 CEB Cal. Bus. L. Prac. 22 (Winter 2012)

Emergence of Mareva by Letter: Banks' Liability to Non-Customer Victims of Fraud, co-authored with Lincoln Caylor, Martin S. Kenney, and Yves Klein, Business Law International, Vol. 12 No. 2, May 2011

In Pari Delicto and The Blame Game: Should Receivers Get Caught in the Fray?, Receivership News, January 2011

Opportunities for Trustees in Ponzi Scheme Cases, NABTalk, Journal of the National Association of Bankruptcy Trustees, Summer 2010

Bankruptcy Issues Arising in Ponzi Schemes, Century City Bar Association Newsletter, April 2010

______________________________________________________________________________

Protecting Your Assets , "How to avoid Madoff-like risk"

listen to MP3 show
http://www.radio-shalom.ca/mp3/Programs/1042/2012-08-29-Protecting-Your-Assets.mp3

Kostas Andrikopoulos & Kathy Bazioan Phelps

Live Show August 29^th 2012 AT 4PM

RADIO SHALOM 1650AM

http://www.radio-shalom.ca/site/emissions-1042

MONEY MONEY AND BUSINESS

Introduction

Developing substantial wealth is based on principles that need to be understood and followed. Most people actually approach the above principles in the order of building first, protection second and managing your assets third . Unfortunately that is one of the largest mistakes one can make.
Although it seems like a natural fundamental that you need to have or build wealth before you can protect and manage it, that view is very short sighted. To build and keep real wealth requires a plan and a structure to protect wealth . If you build wealth without already having a plan to protect and manage it in place then a good portion of the wealth could be lost in taxes or to fraud.
reference http://www.lawrynowiczlaw.com/resources/articles/3PrinciplesOf%20Wealth.pdf

Wealth preservation typically focuses on protecting assets, but it’s also important to protect wealth from erosion by fraud. There’s a common misconception that fraud victims usually are unsophisticated, but there’s no shortage of sophisticated investors who’ve been seduced by the promise of generous returns.
reference http://www.lawrynowiczlaw.com/resources/articles/3PrinciplesOf%20Wealth.pdf

Just consider the Bernard Madoff debacle. Madoff’s $50 billion Ponzi scheme snared corporate CEOs, wealthy celebrities, prominent investment funds, universities, not-for-profit organizations and other experienced investors. Many of these investors lost millions of dollars. 
Some lost billions. Although there are no guarantees in the investment world, the best way to protect yourself against fraud is to do your homework and seek professional advice.

Even in the Madoff scheme, there were warning signs that might have tipped off cautious investors, including: Returns that were unusually high and consistent given the volatility of the markets, Investment strategy explanations that likely wouldn’t have held up to closer scrutiny. Use of the same investment strategy for every investor, regardless of his or her circumstances.

It appears that many investors had an emotional response to the prospect of enormous monetary gains and disregarded there due diligence on the basis of Madoff’s reputation as a highly successful and well-respected investment advisor. So if someone is bound and determined to be a crook and steal your money they just may find a way to do it but you can make it really hard by following our guest advice coming up shortly!
reference http://www.abonelaw.com/2012/03/protecting-your-assets-against-fraud-and-identity-theft/

So is a qualified, independent investment firm can it help you take the emotion out of the equation and evaluate your investment options objectively and thoroughly? Yes of course !


   
 

Today live from his headquarters from Toronto is Kostas Andrikopoulos President & CEO of T.E.WEALTH, to discuss how you can protect your asset from unscrupulous investment firms and he will also explain what to look for in order to maximize your Return on investment in your portfolio! 

And later on the show we are going live to los Angeles California to discuss her latest book Ponzi Proof Your Investments: An Investor’s Guide to Avoiding Ponzi Schemes and Other Fraudulent Scams. And at the same time will have an update on the madoff case!

Stay tuned for an exciting show!






My name is Samuel Ezerzer, your host to the Money & Business show on Radio Shalom, CJRS 1650 AM. Thank you for tuning in live on the Money & Business show, with our Business studios headquarters in Montreal, the financial capital and the home to the greatest hockey team, the Montreal Canadians. We have another great show for you today and as always, you can call if you have any questions, comments, or criticisms on today's topic. Please call us direct at  514 738 4100 ext 200 or email me at moneyandbusinessshow@gmail.com if you have any inquiries. You can also visit our website at www.radio-shalom.ca – all our shows are archived there.

Out topic for today "Protecting your assets , "How to avoid Madoff-like risk"




Kostas N. Andrikopoulos, C.A., TEP
President and CEO, T.E. Wealth
D- 416-640-8567
www.tewealth.com

As a thought leader in the Financial Services world, Kostas Andrikopoulos has combined his passion for learning with more than 30 years of experience in this industry, to augment the model of excellence that T.E. Wealth is known for today. As President and CEO, he is responsible for leading a team of competitive, top-level executives in providing financial solutions to families, individuals and corporations across Canada.

Kostas began his C.A. career as a tax accountant with a major accounting firm in Montreal, which laid the foundation for a lasting financial planning practice. Later, he ran his own highly successful financial planning firm, giving him the opportunity to learn core principles for building a thriving, client-focused business from the ground up. This made him an ideal successor to T.E. Wealth after its President and founder, Tim Egan, stepped down in 2003.

In addition to being an alumnus of both McGill University and Concordia University, he was on staff for 6 years at the former as a lecturer in taxation. Kostas holds certifications from The Society of Trust and Estate Practitioners, past member of The Canadian Association of Financial Planners, Canadian Tax Foundation and The Institute of Chartered Accountants of Ontario. He is an avid reader and history buff, and is fluent in three languages, French, English and Greek.



Thank you Kostas for taking time off on your busy schedule, and I want to congratulate your firm T.E.WEALTH for turning 40 this fall?

In October of 2012, T.E. Wealth will celebrate 40 years in business and throughout the coming year, we will be holding anniversary celebrations across the country. Whenever we mark a significant milestone, it is a welcome opportunity to look back and reflect on how far we’ve come,and look forward to see where we are heading. During our anniversary year, I will be sharing my thoughts with you on how our experience, commitment to education, dedication to excellence and focus on growth will continue to benefit clients. In this issue of  Strategies, I want to take a step back and look at our shared history.

When you examine how the world has changed, how our clients’ needs have changed and how T.E. Wealth has changed over the past 40 years, the value of experience is abundantly clear. The
lessons learned over the years, through the various market cycles and economic challenges,have given us the insight and understanding necessary to provide our clients with the quality of
guidance they expect and value. Experience is not only a great teacher; it provides us with the knowledge and expertise for building a prosperous future.

(The new millennium saw the Dow Jones Industrial Average peak at 11,723 points. The TSE 300 wasn’t far behind – Nortel Networks at a share price of $124.50 occupied 34.2% of the index.

Following the attacks of 9/11, the oil price dipped to U.S.$17.50 a barrel. In 2002, stock markets corrected as the tech bubble burst and T.E. Financial opened offices in Edmonton and Halifax.

The following year, Jovian Capital Corporation acquired T.E. Financial and in 2004, T.E.I.C. introduced Prosperity, our proprietary pooled fund program. We launched the Aboriginal Services

 division in 2005 and T.E. Wealth was introduced as the umbrella brand for T.E. Financial and T.E.I.C. in 2006. The S&P/TSX hit 15,073 points by 2008, the same year T.E. Wealth expanded to

 St. John’s in Newfoundland.)

Questions

Kostas The sovereign debt crisis in Europe is a problem that has yet to find a workable solution. Every time it looks as though the European Union leadership has found a way to resolve the issues, another country lurches towards defaulting on its debt or has major debt issues. The case point being is how does it all fit, in the scheme of a wealth management solution for investors the European debt issue? It just too confusing for the average investor to manage there portfolio?

Kostas-

  There is clearly a lack of leadership in Europe. The problem is that the longer it takes to find a solution, the greater the probability that the world economy will be dragged down by Europe.

What investors need to remember is that there is no magic bullet.

The starting point is determining what your goals and priorities are:

·         Purchase a house

·         Put your kids through school

·         Have a child

·         Go back to school, etc

Once you’ve determined what your goals and priorities are, you should draft up a financial plan. A plan that includes not just investments, but cash flow projections, personal balance sheet, insurance and income tax planning.

Through the ups and down of the markets investors during the financial crisis invested there money in high rate savings account earning 1.5%-2.55 interest? A flight to safety is a typical in bear market reaction.

Kostas in your view this is not the time to invest in Guaranteed Investment Certificates, these investors may miss out on markets gains?

kostas 

  I don’t agree with the statement that this is not the time to pursue GIC – What will help determine what you’re invested in, will be your asset allocation. Your asset allocation will be determined by your:

·         Temperament

·         Your time horizon / age

Your goals, etc…..

Kostas one of the most exciting developments in the financial services industry recently has been the trend toward managed asset investment solutions. As an enhancement to the more traditional relationship between advisor and client, managed asset solutions shift the focus from the selection of investment products to a highly individualized approach of selecting and maintaining an appropriate investment strategy and portfolio?

kostas -

   Yes, asset investment solutions is a great development. It is something we do very well. Instead of trying to time the market we:

·         Gear a solution that is geared to the client

·         research and hire best in class managers

·         monitor their performance; and

Ensure they are following their stated objectives

 

There’s a common misconception that fraud victims usually are unsophisticated, but there’s no shortage of sophisticated investors who’ve been seduced by the promise of generous returns?

kostas- 

    When we look at investment decisions and we ask what drives these decisions, the answer is human behavior. Specifically:

·         Greed and fear

·         To avoid this you need to do your due diligence on the particular investment

·         If you feel you are not capable of performing due diligence hire an advisor to do it for you

·         Get a number of references

·         The advice I’ve always given my clients is the same as the principal we follow in deciding on an investment: If you don’t understand it, DON’T DO IT!

·         If it’s too good to be true, it probably isn’t true!

　

Kostas If the custodian of investor’s assets and the advisor are one of the same, than there is room for plenty of bad acting, on the other hand if the custodian is completely a separate institution, then there are safeguards in place? Most investors don’t have a clue how important a custodian is to there overall safeguarding of there assets?

kostas-
First off, not all advisors are bad. However, having a custodian adds another level of protection. In essence what you have is a separation of duties.

As I stated before in the introduction that you don’t have to be an unsophisticated investor who can be lured by big returns and a promise of huge returns, sophisticated investors can be lured by greed, So how can investors sophisticated or unsophisticated be protected from Madoff-like risk?　

kostas -

    You can protect yourself by:

·         Independent investment manager selection

·         Diversify – so if one manager goes rogue you don’t loose all your investable assets

·         Visit the provider’s premises

·         Find out who works for the firm – is it primarily family member?

·         Find out who the auditors are. Is it a one person firm? We use one of the Big 4 accounting firms. Highly unlikely that their independence will be compromised.

Kostas what should　Investors look for to maximize their Return on Investment?
 The key is the asset mix. We all know that the stock markets will go up and it will go down.  

Despite cautions from Bank of Canada governor Mark Carney and a rolling back of some of the more aggressive mortgage lending practices, Canadians have continued to pile on debt and are close to hitting their debt ceiling. At the same time, Canadians are facing cost-cutting and wage restraint. Kostas what can you suggest for Canadians who are indebted at this point to do, we are getting to a point that interest rates will rise in the future?

 Interest rates will eventually rise – but I don’t see this happening in the near term. That’s the silver lining. This gives people time to seek financial advice and get their debt under control before this happens.

The number of seniors in Canada is projected to increase from 4.2 million in 2005 to 9.8 million by 2036 representing ¼ of the entire population ( statics Canada) As baby boomers near retirement and life expectancies increase the importance of savings and retirement planning will be even more significant? What makes T.E. WEALTH unique in this space in the wealth management industry.

 The aging population needs to take responsibility for their financial well being. The government cannot be solely responsible for this. Individuals need someone to look at the whole picture and devise a strategy that meets their unique needs.

Many events motivate people to seek professional investment advice. For example, you may have recently received a large sum of money, gone through a major life change (such as marriage, divorce, the birth of a child, the death of a spouse), or recently retired. You may be dissatisfied with your progress toward investment goals or no longer have the time to manage your own investments. Do-it-yourself investors may not be as knowledgeable as professional financial advisers within the investment marketplace. Additionally, the demands and complexities of effective investment management can prove challenging even for the most diligent individual investor.. Can you suggest some criteria to our listeners for choosing a wealth advisor?

Select a financial planner  whose competence, integrity, outlook, and philosophies are well determined.

Is the Financial Advisor Properly Licensed?

How Much and What Kind of Service Do I Need?

What Is the Advisor's Designation?
Is the Financial Planner Competent?

Sam- Thank You Kostas

__________________________________________________________________________________________　

4:40pm -5pm

Kathy Bazoian Phelps

Kathy Bazoian Phelps , she is a Partner at Danning, Gill, Diamond & Kollitz, LLP
Los Angeles, California

Kathy Phelps has over 21 years of experience as a lawyer in bankruptcy law and fraud litigation, has spoken and written widely on a broad range of fraud and bankruptcy related matters, and has co-written The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes.

She is a thought after keynote speaker on all issues relating to fraud, due diligence, compliance, and Ponzi schemes throughout the United States. Kathy speaks to hundreds of professionals, lawyers, accountants, bankers, financial advisors, investors, and others about mandatory due diligence and red flag warnings that simply cannot be ignored. Kathy has now also written a practical guide for investors and others containing specific tools and due diligence questions to ask, and insights into the marketing and sales tactics employed by the Ponzi perpetrator or other fraudster.

The book, tentatively titled, Ponzi Proof Your Investments: An Investor’s Guide to Avoid Ponzi Schemes, is expected to be released soon. Kathy’s memberships include International Chamber of Commerce FraudNet; Advisory Board, Association of Certified Financial Crime Specialists; Advisory Board, American Bankruptcy Institute, American Bankruptcy Institute; National Association of Bankruptcy Trustees

http://www.dgdk.com/index.cfm/about-us/

For more information on The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes, go to

www.ThePonziBook.com and for more information about Kathy, go to www.kathybphelps.com. Kathy can be reached at kathy@kathybphelps.com.

Attached are: my photo; a photo of The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes; and my Bio. The Bio is a bit long, so feel free to cut if off after the first few paragraphs. I don’t have a picture yet of my next book, which is tentatively titled "Ponzi Proof Your Investments: An Investor’s Guide to Avoiding Ponzi Schemes and Other Fraudulent Scams".

 

The Madoff update ?

The Madoff Trustee, Irving Picard has previously distributed $335.5 million, or about 4.6% of the customer claim amounts.Picard has recovered about $9.144 billion, but has been unable to distribute all of those funds because of pending appeals and the uncertainty over the final claim amounts which will be allowed.

The issue over the total investor losses in this case relates to whether the claimants who have been sued for avoidable transfers will return the funds and whether their claims will ultimately be allowed. This could lead to a $10 billion swing in the numbers.  There are currently $7.5 billion of allowed claims, but that number might ultimately be about $10 billion higher.  

Picard just obtained court permission to distribute an additional $2.4 billion, which should occur in the next month or so.  He will hold a reserve of 3% of the funds he has for the purposes of paying Time Based Damages, if those damages are ultimately allowed by the court at a later date.  Picard believes that no such interest should be paid on the claims, while over 1,240 claimants contend that Picard should pay 9% interest.  The court settled on a 3% reserve at this time, which will enable Picard to distribute the $2.4 billion.  

Irving Picard, the trustee charged with unwinding the Bernie Madoff estate

2. What about the professional fees paid in the Madoff case? Are they fair, or too high?

The numbers are huge in the Madoff case - both the fees of the professionals, along with the amount of the recoveries.

The total fees to date of Picard and all of the professionals approximates half a billion dollars, with a “public interest discounted rate” of 10% off standard rates.

There is much criticism that fees are too high.  The numbers are admittedly big, but we must not lose sight that Irving Picard is the neutral fiduciary charged with collecting funds for investors.  He is not Bernie Madoff. Picard did not run the Ponzi scheme.

Let’s put the fees in Madoff case in relation to the rest of the world.

(1)  A study prepared by the International Monetary Fund for 2011 shows that:  -$9.1 billion is greater than 30% of the world’s countries’ gross     domestic product.  If we look at the total potential size of this estate of $65 billion,     then Picard is working in the territory of the top third.

(2)   So why all the criticism over Picard’s $850 hourly rate? CEOs of much smaller corporations are paid well over $5.1 million for just one year’s worth of work, and Picard has been working at this for well over 3 years now.

(3)  If we look at fees as a percentage of recovery, the fees are well under 10%.  Contingency counsel usually charges 30 to 40% of recoveries.  If that were the case here, the fees would be in excess of $3 billion.

The professional fees paid in the Madoff case are not paid from funds recovered by Picard. All fees and expenses approved by the court will be paid by the Securities Investor Protection Corporation (SIPC), a membership organization funded by the securities industry.

The scope of the services that Picard and his professionals have provided is overwhelming. Court describes it as:  “It is clear under the circumstances that a Herculean effort to follow those trails has been involved both with counsel herein the United States and counsel overseas.”

3. The Madoff Ponzi scheme went on for decades. What were some of the warning signs that the victims of Bernie Madoff could have seen before investing?

Madoff promised and delivered returns that defied the market.  They were too consistently good to be true.  Harry Markopolis noted that Madoff only lost money in 3 of the 87 months between 1993 and 2000. The  S&P 500 had been down 28 of those months.  So the question to ask is why hadn’t other firms duplicated his strategy?

Madoff delivered paper statements only, and did not provide real time electronic access to customer accounts. Madoff used a small 3 man auditor shop in a strip mall, which was disproportionately too small to be handling the auditing of a multi-billion business.

Madoff was very secretive and his investment program was an exclusive club that investors begged their friends to get them into.  Madoff made feeder funds and investors promise to not disclose they were involved with him.  Madoff explained that it was “too complicated” when people asked for an explanation.

4. What can an investor do prior to making an investment that would be considered "best-practice" from a due diligence perspective? What Lessons to be learned from Madoff?

5. Was it the SEC’s fault that the Madoff scheme went unnoticed for so long?

Again, we have to keep the perspective that the SEC didn’t perpetrate the fraud, Madoff did.  Having said that, though, the SEC should have detected the fraud.

 The SEC commissioned a report from its internal watchdog, the SEC Office of Inspector General.  The report, issued in August 2009, is entitled Investigation of Failure of the SEC to Uncover Bernard Madoff’s Ponzi Scheme - Public Version

The Report found: There were not any inappropriate relationships that influenced SEC.

There were 6 substantive complaints and 2 reports between 1992 and 2008 that warranted examination and/or investigation of Madoff and his company for operating a Ponzi scheme.

There were significant red flags raised that should have led to questions about whether Madoff was actually engaged in trading. Some of the red flags that were identified in the complaints and reports were:

-Unregistered securities

-100%” safe investments

-High and extremely consistent rates of return – no loss to “special” customers.

-Unrealistic volume of options Madoff represented he was trading.  One SEC examinier said ther was some suspicion as to whether Madoff is trading at all.”

-No one could duplicate his strategy

-No correlation to the overall equity markets in over 10 years

-Very secretive about the operations and refusal to disclose anything.

-One complaint in 2005 was entitled “The World’s Largest Hedge Fund is a Fraud

 -A “Concerned Citizen” said  “It may be of interest to you to that Mr.Bernard Madoff keeps two (2) sets of records. The most interesting of  which is on his computer which is always on his person.”

The SEC Report concluded that the complaints contained specific information so the SEC needed to thoroughly examining and investigating Madoff for operating a Ponzi scheme.   The journal articles should have reinforced the concerns about how Madoff could have been achieving his returns.  The SEC conducted two investigations and three examinations, but never actually conducted a Ponzi scheme examination or investigation of Madoff. The Report concluded that the SEC had sufficient information to inquire further and investigate Madoff for a Ponzi scheme back in 1992.

Judge Steven Rhodes (center) presents a copy of a book he co-authored with Kathy Bazoian Phelps called “The Ponzi Book: A Legal Resource For Unraveling Ponzi Schemes” to Chief Judge Gerald Rosen (right) of the United States District Court for the Eastern District of Michigan as Judge Avern Cohn looks on. Designed to be a comprehensive guide to the complex issues that arise in Ponzi schemes, The Ponzi Book includes a thorough legal analysis to support competing claims and defenses of affected parties, and contains a sophisticated discussion of the administrative practicalities that arise in Ponzi cases.

The Money and Business Show Talks to Kathy Phelps

Listen in tomorrow at 4 p.m. to 5 p.m. EDT to The Money and Business Show on Radio Shalom to hear Kathy Phelps, co-author of The Ponzi Book:  A Legal Resource for Unraveling Ponzi Schemes, talk about the latest issues in the Madoff case and what progress is being made in Ponzi scheme detection.  You can listen to the show at  www.radio-shalom.ca/site/emissions-1042. 

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Past Shows with T.E.WEALTH



2012-05-30
Alzheimer's, Can It Wreak Havoc on Family Finances 

                         

2012-05-30

Alzheimer's, Can It Wreak Havoc on Family Finances ;
A. Claudio Cuello, M.D., D.Sc., FRSC
Telecharger / Download

A. Claudio Cuello is currently the holder of the Charles E. Frosst/Merck endowed Chair in Pharmacology of the Department of Pharmacology and Therapeutics at McGill University,Montreal, Canada.

2012-05-30

Alzheimer's, Can It Wreak Havoc on Family Finances ; Debbie Gilbert
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Alzheimer's, Can It Wreak Havoc on Family Finances ;  Marcy Ages ;
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2012-03-21
Surviving Financially After Divorce

2012-03-21

Surviving Financially After Divorce.
Kathryn Jankowski’s ,
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2012-03-21

Surviving Financially After Divorce.,
Johane Ohanlon

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2012-02-29
De-Mystyfying Financial Education

2012-02-29

De-Mystyfying Financial Education ;
Ismo Heikkila, 
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2012-02-29

De-Mystyfying Financial Education ; 
Gilles Couterier

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2012-02-22

Canada's Aging Population ; Financial Tsunami Ahead

2012-02-22

Canada's Aging Population ; Financial Tsunami Ahead ; David Gillan, Debbie Gilbert, Dr. Kellie Leitch MP for Simcoe-Grey

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2012-02-22

Canada's Aging Population ; Financial Tsunami Ahead ; David Gillan, Debbie Gilbert, Dr. Kellie Leitch MP for Simcoe-Grey

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Presentations, Interviews and Articles for 2012 Include:

• Sam Ezerzer – Montreal Radio Shalom’s host of: Money and Business: Alzheimer’s Disease, its financial impact and current research
• Sam Ezerzer – Montreal Radio Shalom’s host of: Money and Business: eldercare issues and financial planning.  (Note:  The radio station has a new website.  The link is now working!  Just click and listen!)

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2011-12-07

Financial Wealth Strategies

2011-12-07

Financial Wealth Strategies with Gilles Couturier & Will the New Super Visa system for immigrants Decrease the Backlog? with the Honourable Rick Dykstra. Telecharger / Download

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