The US Securities and Exchange Commission, which sued Bernard Madoff last month for allegedly directing a $50 billion fraud, won’t make public a list of his assets filed on Wednesday, the regulator said.
A federal judge ordered Madoff to provide the SEC an accounting of all investments, loans, lines of credit, business interests, brokerage accounts and other holdings. The court hasn’t authorised its public disclosure, said SEC enforcement official Andrew Calamari, who confirmed receipt of the list.
“I think one of the fears here is that much of this money may be in offshore funds,” Columbia Law School Professor John Coffee told Bloomberg Television, adding that the SEC wants to keep the assets secret to protect them. “There is the danger that foreign regulators and foreign creditors may seek to seize that money if the names and sources are made public.”
Madoff, 70, was charged in December by federal prosecutors with directing an alleged Ponzi scheme through his New York investment firm. Defence lawyer Ira Sorkin has said Madoff’s company is cooperating with the government. His client met with prosecutors last month, according to people familiar with the case.
Shortly before he was arrested, Madoff allegedly told employees that he had $200 million to $300 million left, according to an FBI complaint. Sorkin declined to comment on Wednesday on the amount of Madoff’s remaining assets.
Madoff’s firm collapsed after he was arrested Decemmber 11. He told his sons that he directed the Ponzi scheme, in which old investors are paid off with money from new ones, according to a lawyer for the brothers. The firm is liquidating under the Securities Investor Protection Corp, whose funds cover securities and cash claims of as much as $500,000 per customer, including as much as $100,000 in cash.
The December 18 court order that Madoff disclose his assets required the list be given directly to the regulator, Calamari said. It “does not authorise public release of materials related to the SEC’s ongoing investigation,” he said. The effort “seeks to preserve and recover money for investors and hold wrongdoers accountable.”
More From This Section
The catalog of Madoff’s assets may be attractive to angry investors including hedge funds, universities and charities as they sue to recoup lost money. Madoff’s investment advisory business may have had more than 4,000 customers, people familiar with investigation said last month.
Losses disclosed by some clients may have been inflated by purported gains in their accounts with Madoff. Yeshiva University, which had previously valued its holdings with Madoff at $110 million, said on December 30 that its net investment was about $14.5 million before inflation by “fictitious” profits.
“Madoff may very well have given money to other persons or other entities,” said Fred Longer, a lawyer suing hedge fund operator Tremont Group Holdings Inc over Madoff-related losses. He said the SEC list will be useful primarily to investors suing Madoff directly. “Those are the rabbit trails. They’ll need to trace all of them to find the cash and it will take a lot of forensic efforts.”
Longer filed a lawsuit in Manhattan federal court on Wednesday against Tremont Group Holdings Inc, a hedge-fund firm owned by Massachusetts Mutual Life Insurance Co.
The complaint seeks the recovery of losses suffered through the hedge fund firm’s investments with Madoff.
The lawyer represents Group Defined Pension Plan & Trust, a Jersey City, New Jersey-based investor. Also sued was Tremont’s auditor, Ernst & Young LLP. Longer claims the accounting firm missed warnings about the alleged scheme. The complaint seeks class-action, or group, status.
Congress is set to hold hearings next week on the Madoff scandal. Witnesses scheduled to appear before the House Financial Services Committee on January 5 include David Kotz, the SEC’s inspector general, Stephen Harbeck, president of the SIPC, and Harry Markopolos, a former investment firm employee who flagged suspicions about the alleged Ponzi scheme.
Madoff’s firm was the 23rd-largest market maker on Nasdaq in October, handling an average of about 50 million shares a day, according to exchange data. It took orders from online brokers for some of the largest US companies, including General Electric Co and Citigroup Inc.
Madoff, who hasn’t formally responded to the securities fraud charge, may have to appear in Manhattan federal court by January 12 unless he is indicted before then.
On December 30, the trustee now in charge of Bernard L Madoff Investment Securities LLC obtained court approval to use $28.1 million out of its accounts as it unwinds the firm.
“The estate requires the funding to get to the sale of certain assets,” said Richard Bernard, an attorney representing Irving Picard, the trustee appointed by the SIPC to supervise Madoff’s company.
The SIPC said that the use of some of the Madoff firm’s funds won’t diminish customer returns, according to a statement from the agency and Picard.
Picard reached a deal with Bank of New York Mellon Corp, which holds the funds, to have them released. US Bankruptcy Judge Burton Lifland in Manhattan said the court papers outlining the agreement were very basic and asked the lawyer for more information on the accounts.
Bernard said there are more funds and accounts, without being specific. Bank of New York is holding some funds because it may have “set-off rights” on certain claims, he said, adding he was limited in what he could say in open court because of ongoing criminal investigations.
Picard is tasked with maximising assets for the firm as investors that had about $36 billion with Madoff seek the return of their money.
Lifland last week gave him authority to share confidential information, such as proprietary trading programmes, with potential buyers of the Madoff firm’s market-maker unit.
Picard will mail claim forms to customers and creditors of Madoff Securities by January 9, the SIPC said.