A recent New York Times article by Andrew Ross Sorkin
severely and unfairly criticizes Irving Picard, the trustee for the Bernard L.
Madoff Ponzi scheme. It states, "Mr. Picard has had much more success
collecting money for himself and a dozen law firms and consultants than any
victim of Mr. Madoff's crime."
These remarks appear to be intended to inflame the
public. Irving Picard is the neutral fiduciary charged with collecting funds
for investors. He is not Bernie Madoff. Picard did not run a Ponzi scheme. The
New York Times article makes sweeping, conclusory statements about Picard and
his professionals, sensationalizing the compensation paid to them, without
considering the facts, the law, or the process of unwinding a Ponzi scheme of
this size and scope. I have no affiliation with Picard or his firm, although he
did endorse a book that I co-authored, The
Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes (LexisNexis
2012). I do, however, have a strong
familiarity with Ponzi cases and the work required to unravel them. As a
rebuttal to the New York Times' attempt to unfairly prejudice the public
against the team charged with undoing Madoff's epic fraud, I present the
following insights into Ponzi schemes and the Madoff Ponzi scheme in particular.
First, the article states that Picard and his
professionals have been paid $554 million and that the victims have only
"actually received" $330 million. As written, this is quite misleading. Picard
has actually recovered $9.1 billion. This is not a small number. The reason he
hasn't paid that to victims is that those funds are tied up in connection with
The professional fees paid to date are 6.1% of the
recoveries. Picard himself has been paid $5.1 million, which is 0.06% of
recoveries. This is for 3½ years of work. Is this really so outrageous? It's a
good thing he didn't hire contingency counsel at the going rate of 40%. Those
fees would have been a whopping $3.64 billion!
Second, let's consider the size of the estate that Picard
is administering. As noted, it is $9.1 billion in recoveries so far, with
claims of about $17.3 billion in principal investments. Incredibly, the New
York Times criticizes Picard for attempting to recover more than the lost
principal, stating: "In the last several years, Mr. Picard has brought more
than 1,000 cases seeking more than $100 billion on behalf of victims, despite
acknowledging that only about $17.3 billion had actually been invested by
customers." Yes, Picard is trying to recover funds in excess of the investors'
principal investments. But clearly this is so that he can distribute recoveries
to investors due to their lost expected profits, which could be as much as $65
Wouldn't Madoff's victim sharply criticize Picard if he
decided to shut down recovery efforts when he had just enough to pay the
investors' principal claims, but not their lost profits? The investors lost the
use of their money by investing with Madoff. Shouldn't Picard at least try to
get them some interest if there are recoveries available under law for that
purpose? Is Picard to leave money on the table by not pursuing additional
recoveries for defrauded investors just because it is costing a small fraction
of those amounts to try to collect those amounts?
Third, the New York Times article adopts, without
question or analysis, the lower court decisions dismissing some of Picard's
claims. But those decisions are presently on appeal. The issues on appeal are
issues being raised by other trustees and receivers across the nation in other
Ponzi cases, and many of them have been brought with great success. So let's
wait to see the outcome of these appeals before we judge Picard's strategy.
Picard may or may not prevail in these appeals. Still,
can we really condemn him for trying to recover money from financial
institutions and others who he alleges knew or should have known about Madoff's
fraud and about the billions of dollars of fraudulent funds that passed in and
out of their accounts? If Picard's claims are dismissed on standing or in pari delicto grounds, he would be
merely one of many frustrated trustees denied the opportunity to recover money
for defrauded investors on arguably unfair technicalities, even in the face of
Perhaps it is not Picard whom we should be criticizing,
but rather the system that allows wrongdoers to escape liability while
defrauded investors are left with potentially shattered lives. The issues of
standing and in pari delicto are
complex issues, and they have been applied very unevenly by courts across the
country. Let's not disparage Picard for trying to recover money for investors.
Let's instead examine and reconsider the statutory and case law that mandates
these often inequitable results for defrauded investors.
Fourth, let's put the Madoff case in perspective in
relation to the rest of the world. A study prepared by the International
Monetary Fund for 2011 shows that 130 of the ranked 182 countries in the world
have a Gross Domestic Product greater than $9.1 billion. That means that Picard
now manages funds in an amount greater than the GDP of about 30% of the world's
countries. If we look at the total potential size of this estate of $65
billion, then Picard is working in the territory of the top 64 countries in the
world. 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.
Finally, the full scope of the services that Picard and
his professionals have provided is, frankly, overwhelming. Picard's Sixth
Interim Report filed last November reveals much about what Picard has been
doing. A small window into the size of the Madoff case is found in a few
interesting numbers from that report, as of September 30, 2011:
-Picard received and reviewed 16,518 customer claims.
-Picard and his professionals fielded more than 7,500
hotline calls from claimants and their representatives.
-Picard filed 2,310 objections to claims.
-In lieu of litigation and its expenses, Picard reached
agreements with approximately 440 customers, recovering over $1.7 billion.
-There is international investigation and litigation in
over a dozen countries.
And this is just a snapshot of what Picard did during one
reporting period. This does not include
the massive number of settlements and lawsuits that Picard and his
professionals have handled successfully to date in achieving recoveries for
concludes with this seemingly uneducated speculative remark:
Nobody is asking Mr. Picard or his legal team to do all
this work pro bono. But given the amount
of money at stake and the epic size of the crime, one would hope that he would
have pursued a more effective legal strategy that would have made a lot more
money for the victims than the lawyers.
The reader is left asking the following questions:
What is the concept for a "more effective legal
Will that "more effective legal strategy" recover funds
Will that "more effective legal strategy" cost any money
Let's remember that Picard is not the bad guy here. He is the court-supervised fiduciary managing
an estate the size of a small country with an army of necessary professionals
to assist him navigate his way through the morass that Madoff left behind.
Copies of the New York Times article and Picard's Sixth
Interim Report can be found at The Ponzi Blog, www.theponzibook.blogspot.com.
Ponzi Book: A Legal Resource for Unraveling Schemes by
Kathy Bazoian Phelps and Hon. Steven Rhodes is available for purchase at www.lexisnexis.com/ponzibook,
and more information about the book can be found at www.theponzibook.com.
Kathy Bazoian Phelps is the co-author of The Ponzi Book: A Legal Resource for
Unraveling Ponzi Schemes.
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