Thursday, April 02, 2009

Letter To Judge Chin Regarding Madoff's Guilty Plea, And A Response To A Madoff Victim Regarding The Clear, Simple, Curative Bond Proposal.

April 2, 2009

Re: Letter To Judge Chin Regarding Madoff’s Guilty Plea, And A Response To A Madoff Victim Regarding The Clear, Simple, Curative Bond Proposal.

Appended below are two documents that were not initially posted on my site ( or on OpEd News. One is a letter to Judge Chin urging him not to accept Madoff’s guilty plea, and giving the reasons for non acceptance. Judge Chin did accept the plea, however, which I believe was a mistake for reasons given in the letter. The letter has now been released by the court to various national news organizations, and so I am now posting it for ready availability to persons interested in the propriety of acceptance of the guilty plea.

The other document is a response to a Madoff victim who (mistakenly) claimed the simple, clean, curative bond proposal contained in a posting of March 30th would have a present value of $88 billion, and that -- whether he was sarcastic or serious, I do not know -- the proposal would require the government to write a check for the $88 billion. The response to that erroneous claim was not posted previously because I did not think it of sufficient general interest. However, it appears that the bond proposal has been noted by a leading intellectual, so I have decided that the response to the mistaken claim should also be posted now.*

March 10, 2009

The Honorable Denny Chin
United States District Judge
Daniel Patrick Moynihan
United States Courthouse
500 Pearl Street
New York, NY 10007-1312

Dear Judge Chin:

I am a member of and am writing you on behalf of the Steering Committee of MadoffSurvivors. MadoffSurvivors is a Google group with approximately 300 members. They were investors with Bernard Madoff, and their accounts were wiped out by the revelation on December 11, 2008 that Madoff was running a Ponzi scheme. Our estimate, and it is only an estimate, is that the amount of money lost by MadoffSurvivors collectively is probably in the neighborhood of 500 to 700 million dollars.

The members of MadoffSurvivors are not the billionaires, “centamillionaires,” hedge funds, and banks that the celebrity-driven mass media focus on, thereby causing the public to believe that the victims of Bernard Madoff are all wealthy plutocrats. MadoffSurvivors are, instead, “little” people. They are people who usually started with little or nothing, as members of the working class or lower middle class, as immigrants, as children of holocaust survivors. They are people who worked like dogs all their lives, finally saved up enough money to make an investment in Madoff, and now find themselves wiped out. Many -- perhaps even most -- are elderly, in their late 60s, 70s, or 80s. Many had no other savings or income except what they had in or received from Madoff. Many are completely devastated, financially and psychologically. They are selling their homes in order to obtain money to live. They are attempting to reenter the work force, sometimes in menial jobs, in their 60s, 70s and 80s, in order to obtain money for food and shelter. (There is, as you may know, one man in his 90s who is reported to have taken a job in a supermarket passing out fliers, we believe, in order to sustain himself.) They are the victims of both a terrible crime and a terrible tragedy.

The crime and tragedy of which they are victims were not caused by Bernard Madoff alone. They also were caused by a widely circulated public statement by the SEC in December 1992 that there was no fraud involved, and by the subsequent conduct of the SEC from 2000 onward in failing to properly investigate Madoff when given a plethora of tips by Harry Markopolos and, it now appears, by some others as well. The SEC’s failure to pursue the (accurate) charges of a Ponzi scheme made by Markopolos is well known. The SEC’s public statement of December 1992 that no fraud existed, a public statement that was never retracted despite all the tips the SEC later received, is rarely if ever mentioned by the media, but was the cause of huge numbers of people keeping already-invested money in Madoff, putting initial monies in Madoff, and/or putting more money in Madoff. It is an unhappy fact, but a fact nonetheless, that the government itself, by publicly placing the imprimatur of honesty on Madoff in December 1992, and never retracting it thereafter, caused untold numbers of people to invest in and lose billions of dollars in Madoff, and enabled Madoff’s fraud to grow from less than half a billion dollars in 1992 to what Madoff claimed to be 50 billion dollars in 2008. The SEC contributed to disaster by incompetently failing to protect citizens who depended on it for protection -- for the very protection that was a fundamental reason for passage of the federal securities laws in the 1930s.

To the members of MadoffSurvivors, as to other “small people” victimized by Madoff, it is critical that the government uncover, and recover, every possible dollar of Bernie Madoff’s stash, and the stashes of his family members and guilty non family employees, so that as much as possible can be returned to the devastated victims of his fraud and of the government’s negligence or even, possibly, complicity. Very few people believe that all the many billions Madoff took in has been spent by him or his family, or redeemed by prior investors. Rather, it is widely believed, perhaps even universally believed, that there are billions of dollars, perhaps tens of billions of dollars or more, stashed away in banks in countries which in the past have served as secret repositories of ill gotten wealth (Lichtenstein, the Cayman Islands, etc.), in banks in Israel, in illiquid real estate in a number of foreign countries, and in other investments. There is also a deeply unhappy suspicion that branches of various mafias or cartels could have been involved and could have been siphoning off billions of dollars.

For these reasons, the Steering Committee of MadoffSurvivors urges that no sentence be pronounced upon Madoff until, and if legally possible there should even be a suspension of a plea until, the government -- including the Department of Justice, its component the FBI, the SEC, and any other relevant federal bodies -- is willing to formally attest that Madoff, his family members, and his culpable employees have fully told it where every dollar stolen from investors by Madoff has gone, insofar as it is possible to know this, from 1960 or 1962 -- whichever the year Madoff began taking in money from investors -- until the present time; to formally attest to the identity of the persons, institutions, banks, partnerships, trusts, real estate or other property which have or do possess the stolen money or in which it is invested, and will formally attest to and identify every step it used to recover the money; and will formally attest to and identify all evidence of guilt in its possession, as well as remaining locations of the money or the property in which it is invested, in order to aid the efforts of desperately injured investors to obtain more complete restitution through private actions.

With regard to the foregoing, we note that not only should Madoff family members be required to give up their wealth because it is attributable to a fraud, but it was impossible for family members not to have known of the fraud. For at minimum they had to be aware that Madoff was telling many people that the reason he was not charging investors more for his investment “services” was that he was content to have the broker-dealer arm of his company make huge amounts of commissions executing the claimed trades, and they also had to be aware that the broker-dealer arm, which they supervised, was not in fact executing the purported trades and making the commissions. As well, the family members had to have lied to the SEC about vital matters, or else the SEC necessarily would have discovered early on that Madoff was running a huge unregistered investment management business, had thousands of customers rather than none or only a handful, and had different sets of books.

If conditions discussed above are met, so that every penny obtainable by the government to repay victims of Madoff’s fraud will have been identified and collected, then the Steering Committee of MadoffSurvivors would not object to some reduction in the sentence meted out to Bernard Madoff.

Judge Chin, it is a fact, and it often is no secret, that people victimized by Madoff, plus many not victimized by him but aware of the situation -- like investigative reporters and even federal legislators -- have completely lost faith in the federal government in connection with this matter. The incompetence of the SEC, actions by the Trustee that people think niggardly, the failure to date of the IRS to provide guidance or to show lawful generosity towards victims, the now-three-months-long silence on so many relevant matters by so many in government, have exacted their toll. As well, to those who think about the matter, it is obvious that you occupy a position very similar to that initially occupied by Judge Sirica in the Watergate matter. Like him, you could take action that opens the gates for truth -- and, in this case, for recovery by victims -- or you could choose, as he did not, to act in a way that will allow much truth to remain hidden. Obviously, it is the request of MadoffSurvivors that you opt for truth, recovery, and transparency.

Sincerely yours,

Lawrence R. Velvel
On Behalf Of
The Steering Committee
of MadoffSurvisors

cc: Honorable Lev Dassin, Esq.

Response To An Email Regarding The Bond Proposal

The present value to the investors of receiving a collective total of $4.55 billion per year for ten years at a rate of seven percent is approximately $32 billion. Also, the present value to the investors of $65 billion in principal to be received in ten years, calculated at a discount rate of seven percent, is $33 billion. So investors receive a total present value of about $65 billion, not $88 billion.

This total present value of $65 billion “replaces” accounts worth $65 billion plus, assuming an after tax “return” from Madoff of eight percent, another $5.2 billion per year every year for the next ten years, or a present value of $36.5 billion. The total of $65 billion plus $36.5 billion is $101.5 billion. So the total value on November 30th was $101.5 billion.

Thus, the present value of $65 billion to be received from the government “replaces” but is much lower than the 65 billion dollars that was shown in accounts plus the $36.5 billion which represents the value of $5.2 billion per year discounted at seven percent, for a total of value on November 30th of $101.5 billion. Investors are accordingly, much less well off under the bond proposal than they expectably would have been had Madoff been for real. To repeat, had Madoff been for real, their present value would have been $101.5 billion and under the bond proposal it is $65 billion.

Moreover, though the present value to be received from the government is $65 billion, (1) the government’s outlay per year is only $4.55 billion until the tenth year, when it must repay the principal. This is very important. The government emphatically is not writing us a check now or at anytime for $88 billion. It is writing annual checks for only $4.55 billion until the tenth year, when it must also repay principal. (2) Thus the only way for an investor to physically obtain the present value now or at any time before the tenth year would be to sell his or her bonds on the market that will develop for them.

That the government can borrow at 2.8 percent does not affect the present value of what the investors will get at a discount rate of seven percent. Rather it simply means the government can borrow at far less than seven percent (sort of analogously to the fact that banks borrow at, say, three percent (the interest rate they pay depositors) and lend at, say, six percent (the rate they charge their borrowers). Being able to borrow at a rate of 2.8 percent, far less than the seven percent the government is paying us, simply makes it easier for the government to pay us, just as it is easier for a bank to lend at six percent when it pays only three percent on deposits than it would be if the bank paid 5½ percent on deposits.

It must also be kept in mind at all times that the government is largely responsible for our losses, the losses of innocent investors, yet will be paying us only $4.55 billion per year for ten years, while it is giving ten trillion dollars immediately in bailout money to the culprits who caused the current economic disaster. Moreover, almost three billion dollars of that bailout money has already been given to the culprits.

In such circumstances, I find it impossible to understand how, under any fair analysis, the innocent investor can be getting too much under the bond proposal. I stress, of course, that my view necessitates that the analysis need be fair rather than merely political.

Larry Velvel

cc: MadoffSurvivors
Madoff Victims

* This posting represents the personal views of Lawrence R. Velvel. If you wish to comment on the post, on the general topic of the post, or on the comments of others, you can, if you wish, post your comment on my website, All comments, of course, represent the views of their writers, not the views of Lawrence R. Velvel or of the Massachusetts School of Law. If you wish your comment to remain private, you can email me at

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