Lawyers Summoned to Salvage Fortunes for Madoff's Investors

John Pacenti and Bud Newman

Daily Business Review

New Yorker Joel Sinkin said he flew to South Florida soon after learning his elderly parents had probably lost nearly $1 million in the collapse of one-time Wall Street wizard Bernard Madoff's alleged massive Ponzi scheme.

"It was the majority of their life savings," Sinkin said Monday from his parents' small Boynton Beach apartment. "This was a devastating blow for them."

His parents, both in their 70s, and more than a dozen other members of the family, including him, invested in Madoff's funds for 30 years, Sinkin said. His family's total loss probably will be "cumulatively millions" of dollars if they are unable to recover their investments once a receiver goes over the books to see how much, if any, money remains.

"I lost a little under $90,000, which was my kids' college education money," Sinkin said.

If there are any winners in the $50 billion scandal, it will be the community of lawyers and accountants. Professionals in both fields are sharpening their pencils to prepare for an onslaught of litigation expected to hit South Florida federal and state courts in the wake of Madoff's arrest last Thursday on fraud charges. Mark Raymond, managing partner of Broad and Cassel's Miami office, said he represents a number of clients who lost millions when Madoff's house of cards collapsed.

"There are people whose boat has capsized, and they are adrift," he said. "There are families who went to bed at night with multimillion-dollar networks. I'm talking about networks worth $30, $50, $70 million, and all they have left are their homes and their cars because they put all of their money with Madoff."

Raymond and other attorneys contacted for this story said the receiver, New York attorney Lee Richards of Richards Kibbe & Orbe, will take over what's left of the investment firm bearing Madoff's name and target investors who made money before the fall.

"They may have gotten out of the Titanic alive, but the ship may come back and sink them down the road," said Lewis Freeman, a forensic accountant and attorney with Lewis B. Freeman & Associates in Miami. A forensic accounting team set up by Richards will be crucial to recoup money, he said. The team must move fast before any more assets are lost.

"You have to find where the money went," Freeman said. "Everybody is going to tell you where it came from, and nobody is going to tell you where it went."

Edward H. Davis Jr., a name partner with Astigarraga Davis in Miami, agreed, saying he thinks there is a good chance Madoff squirreled away assets overseas.

In general in a Ponzi scheme, he said 25 percent to 35 percent coming from new investors is used to pay previous investors. From his calculations, payouts would be about $18 billion.

"Where's the other $32 billion?" asked Davis, who specializes in recovering money from offshore accounts for fraud victims. "My sense is that a lot of it was poured into a family trust or an offshore account. Some of it may have been lost in the market. He may have been like a guy at a casino trying to recoup his losses."

Davis said he wasn't surprised about the revelation of such a massive fraud and expects to see more as the economy worsens. He called Madoff a "harbinger of things to come."

"These Ponzi schemes die and collapse when no new investors can be found in a market like this," he said. "What makes this thing unique is the length of time it has gone on and that the types of investors were heavy hitters, sophisticated investors."

Ed Page, a Carlton Fields shareholder in the Tampa office, said Madoff no doubt was able to use the record-setting market to his advantage over the last few years until the Dow Jones Industrials and other closely watched indexes started to tumble.

"When you're in a bull market, it's easy to disguise a problem," he said.

Raymond said investors will sue hedge funds and other investment companies that put all or too much of their money in Madoff's hands. Ascot Partners of New York, for instance, reportedly invested all $1.8 billion with Madoff.

It appears Ascot failed to follow the bedrock rule of investing: Don't put all your eggs in one basket, Raymond said. "Their obligation to due diligence for their partners, investors and fiduciary duty is tremendous."

What will be interesting is finding out when Madoff "went rogue," Raymond said. That timeline will be important to investors who got out with a profit but could still be liable.

Miami bankruptcy attorney Jerry Markowitz, managing partner of Markowitz Davis Ringel & Trusty, said the government's ill-gotten gains rule means those who invested with Madoff but pulled their money out weeks, months or even years ago may have to give back some of their earnings "to pay it into the pot for the benefit of all."

Craig Rasile, a partner with Hunton & Williams in Miami, said the receiver most likely will take Bernard L. Madoff Investment Securities into bankruptcy to make it easier to recoup funds from those who profited under Madoff. A bankruptcy case also would make it easier to go after any money that Madoff set aside as his ship went aground for employees and preferred creditors, he said.

Rasile worked as an attorney in the Lancer Group hedge fund bankruptcy and filed lawsuits to target any profit made by investors. He said most people settled for the full amount of the profit, but the cases were not black and white. Some investors took money out and reinvested again with the same company

"Most of them settle," he said.

In the meantime, Madoff's downfall is only beginning to ripple throughout South Florida.

The 70-year-old Madoff owns a $9.3 million waterfront mansion that used to belong to Herbert and Hillary Pulitzer. He was a frequent flier on the Palm Beach social scene, often being photographed in society pages among the rich and famous. He attracted investors from the predominantly Jewish Palm Beach Country Club. "I look at it like he was a modern era Willie Sutton," Raymond said. "What did Willie Sutton say when asked why did he rob banks? ‘Because that's where the money is.'"

Auto magnate Norman Braman told the Miami Herald that he was one of Madoff's many investors. A Spanish newspaper reports Banco Santander placed $3.6 billion with Madoff.

Sources say Boston philanthropist and Palm Beach Country Club member Carl Shapiro talked up his investment success with Madoff to other club members, luring them into the Ponzi scheme.

When contacted, Shapiro would only say he is not selling his home on Breakers Row. "We are not selling anything," he said.

Nadine House of Northstar Homes of the Palm Beaches said she received one Breakers Row listing tied to the Madoff case and expects to get three more.

Palm Beach accountant Richard Rampell said he had several clients who had their money with Madoff. "Any client who wanted their money out, always got their money redeemed in a timely manner," Rampell said.

Now, it's possible that even family members who inherited the ill-gotten gains from the Ponzi scheme -- which takes money from new investors to pay those already established -- may end up having to pay back the money, Rampell said.

The mood on Palm Beach is very somber in social circles, Rampell said. There were reports of people breaking down in tears at a charity event over the weekend as they compared notes about how much they lost.

Many ruined or heavily damaged by Madoff's collapse will be shedding their luxuries, "and what's worse is they are liquidating in the worst market that has occurred in 40 years," Raymond said.

It's not just the rich who will be hurting.

Soon charities, personal secretaries, chauffeurs, dog walkers, yacht captains and florists will be feeling the pinch.

Raymond said none of his clients taken in by the Madoff scam want to publicly discuss their fates.

"The victims are embarrassed," he said. "Victims don't want others to know their personal financial information, and people don't want others to know they were taken down by this."

In Boynton Beach, Sinkin said his parents, Arnold and Joan Sinkin, will have to sell their New York apartment to ensure they have money for living expenses and their Florida mortgage.

He said his family had no reason to believe there was anything suspicious about Madoff's investment company. The family received lengthy, detailed reports every month about all the stock trades the company said it had done. A check of every listed trade against what really happened in the stock market on any given day would show exactly what Madoff's statement said.

"It was spot on," Sinkin said.