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Bernie Madoff's "Red Flag" Pals May Get Off

When Bernard Madoff was arrested on December 11th, 2008, it signified what could be the largest fraud in Wall Street and United States history. The government estimates that over $65 billion was lost in an elaborate Ponzi scheme, bankrupting and ruining investors. The investors that lost their money ranged from average working-class adults who had poured their life savings into the fund to large multi-billion-dollar charities who are now facing bankruptcy. And considering there were nearly 5,000 Madoff clients, many of whom can directly tie Madoff to their personal ruin, it's not surprising that a number of class action lawsuits have surfaced that attempt to claw back whatever they can.

So in the first of our series covering major litigation cases in news today, we explore the class action lawsuits being pelted at Bernie Madoff - the biggest fraud in finance history.

Exploring the Class Action Lawsuit Against Madoff

In March of 2009, Madoff pled guilty to a range of felonies that included perjury, securities fraud, money laundering, wire fraud and many more, in total amounting to 11 different charges. If convicted, he will face a maximum sentence of 150 years in prison in addition to restitution of twice the value of the lost money, which in this case would be close to $170 billion.

But because of the economic recession and the fact that most of that money was lost (or never existed), recovering the money in lawsuits has proven difficult. This is made especially difficult considering that Madoff has claimed to be solely responsible for the scheme, despite the massive nature of the fraud, which makes it difficult to go after colleagues or acquaintances that might have been complicit.

However, this hasn't stopped the prosecutors.

In the lawsuit filed on behalf of Irwin Kellner, it not only targets Benard L Madoff Investment Securities, but also "John Does 1-100 consisting of individuals, corporations, partnerships and entities to be determined (collectively, along with Madoff and BMIS, "Defendants")."

This means that if there is ample evidence that many profited knowingly from Madoff's scheme, then they can be included as liable. And already several firms and individuals have been lassoed into the Madoff pool of Defendants, now finding themselves looking down the barrel of a lawsuit.

One of the most high-profile cases involves the Florida couple Jeffrey and Barbara Picower, who run the philanthropic foundation the Picower Foundation. The Picowers are accused of having raked in over $7 billion from the scheme and were friends of Madoff's for decades.

Irving Picard, the trustee who is overseeing the liquidation of Madoff's companies, filed the lawsuit alleging that the Picowers "knew or should have known they were benefiting from fraudulent activity." He identifies the improbably large returns on investments as a clear sign that there was foul play involved, at one point earning as much as 950% in returns, though the Picowers' lawyer claims they were unaware of any wrongdoing and has adamantly denied complicity.

This concept of the defendants not having detected obvious "red flags" is amongst the leading arguments in pursuing litigation. And it isn't just Bernard Madoff and his friends that are the target of the lawsuits, but several investors are taking their fight to investment firms for having ignored these various "red flags" that eventually led to their loss.

Such is the case with the Tremont Group Holdings Inc and the Fairfield Greenwich Group, the two largest stake-holders in the Madoff scheme, both of which are being sued by investors for negligence in ignoring these red flags. One of the investors involved in the lawsuit claim that "Tremont did not act as a reasonably prudent investor would have," specifically citing the fund's decision to invest solely in Madoff, the equivalent of "putting all the eggs in one basket."

But with a client list nearing 162 pages, and over 13,000 accounts affected, the legal complications involved in retrieving the money can hardly be underestimated and Madoff's personal combined assets only amount to roughly $826 million - which has since been frozen. Additionally, many believe that the majority of his funds are being held in offshore accounts.

The end result of the Madoff scheme has been catastrophic and the class action lawsuits are just the first step in recovering what was loss, both financially and emotionally. How much will ultimately be recovered is still unknown, though when dealing with a fraud this large, you can bet that some people are just gonna lose.

About the Author

Ben Goldman is a writer for Yodle, a business directory and online advertising company. Find a contractor or more office care articles at Yodle Consumer Guide. Bernie Madoff's "Red Flag" Pals May Get Off

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