Hundreds argued they were victimized a second time by that system. To them, they were spending money they had every right to believe was theirs. Ultimately that’s not how the courts saw it, and hundreds of former Madoff customers sued by Picard have reached settlements to help pay victims who didn’t withdraw their principal. Picard has recovered more than $14 billion, much of it from large early investors who reaped billions from Madoff’s fraud, as well as from banks that effectively did business with a con man and allowed his scheme to continue.
Madoff’s admission that he spent years running the massive fraud under the noses of financial regulators was a huge blow to the Securities and Exchange Commission, compounded by the revelation that whistle-blower Harry Markopolos’s repeated warnings to the agency about Madoff fell on deaf ears.
Although the scandal broke amid a far larger financial crisis, the SEC has said many of the reforms that followed were in direct response to weaknesses exposed by Madoff.
A Damaged Industry
Among those reforms were efforts to strengthen the SEC’s enforcement division and safeguard investor assets through surprise exams and stricter rules involving account statements and custody of assets. In addition, a whistle-blower office was created at the SEC and at the Commodity Futures Trading Commission to reward insiders and others who provide tips about financial wrongdoing that result in recoveries.
Beyond the U.S., investors in Switzerland were among the hardest hit by the scandal, which eventually helped trigger the collapse of the fund-of-funds industry. Such funds, which track and research hedge funds and allocate investors’ cash to them, have seen outflows every year since 2008, while their number has been more than halved since then, according to data compiled by Hedge Fund Research Inc.
The Madoff Effect
When investors learned about such exposure to Madoff, they scrambled to pull their money out, sparking a frenzy of withdrawals akin to a bank run and hurting those without exposure. Madoff was poison to funds of hedge funds “that pride themselves on giving investors access to top managers,” said Nicolas Roth, head of alternative assets at Geneva-based private bank Reyl & Cie.
Meerow, the Vermont victim, said he’s been more careful and now invests only in what he understands—though he hasn’t lost all trust in Wall Street.
“I don’t think there are a lot of Madoffs running around,” he said.
—With assistance from Neil Weinberg, Amanda Gordon, Nishant Kumar and Felipe Marques.
This article was provided by Bloomberg News.