Perlmutter & Members Of Congress Introduce Legislation To Improve Relief For Victims Of Madoff & All Ponzi Schemes

Press Release

With the former clients of Bernie Madoff still reeling from their massive losses and some facing the prospect of being sued for what little money they have left, several members of Congress introduced a bill today that would improve and expand investor protections and insurance coverage to the victims of all Ponzi schemes.

The Ponzi Scheme Investor Protection Act would increase the number of Ponzi scheme victims eligible for insurance payments by imposing new requirements on the Securities Investor Protection Corporation (SIPC), which Congress created in 1970 to recover assets investors lose through failed brokerage firms. SIPC has been criticized for not providing adequate assistance to investors who were duped by Bernard Madoff, Allen Stanford and other Wall Street Ponzi swindlers.

The legislation was introduced by U.S. Representatives Gary Ackerman (D-NY), Peter King (R-NY), Ron Klein (D-FL), Dan Maffei (D-NY), Ed Perlmutter (D-CO) and Jackie Speier (D-CA). All are members of the House Financial Services Committee.

Under the measure, SIPC would be required to provide up to $100,000 worth of insurance coverage to indirect investors in Ponzi schemes -- those investors who invested through feeder funds and/or other indirect sources. Presently, SIPC only provides coverage to direct investors (the amount of which is up to $500,000 per investment).

The legislation would also restrict the ability of SIPC to "clawback" funds from victims of Ponzi schemes. Currently, SIPC is permitted to "clawback" or take back assets from investors defrauded by Ponzi schemes regardless of whether or not they had any involvement in or knowledge of the fraud. Under the bill, SIPC would be prohibited from clawing-back any money from victims unless the bilked investor was proven to be complicit or negligent in their participation in the Ponzi scheme in bankruptcy court. This provision would also be extended to trustees appointed to liquidate assets in those large Ponzi schemes already discovered, including Irving Picard in the Madoff liquidation.

In addition, the bill would mandate SIPC, within 30 days of the discovery of a Ponzi scheme with customer investment in excess of $1 billion, to submit to the House Financial Services Committee, the Senate Banking Committee and the Secretary of the Treasury, its expected timeline for the consideration of claims. If SIPC fails to consider claims within this timeline, the Secretary of the Treasury would be permitted to require SIPC to make claim payments with interest.

If enacted, the legislation would apply retroactively to any Ponzi scheme discovered with customer investments of more than of $1 billion.

"This legislation would provide added relief and much-needed protection to victims of Ponzi schemes who've suffered from unimaginable devastation caused by the unconscionable greed of people like Bernie Madoff and others," said Ackerman. "It is essential that Congress provide these critical protections to assist victims of Ponzi schemes and restore investor confidence to our financial markets."

"Those who invested with Madoff and others were unknowingly the victims of despicable scams that robbed them of their fortunes and future financial stability," said King. "While we unfortunately cannot return the full amount of funds that were greedily stolen in these Ponzi schemes, this legislation will put in protections that will provide some financial relief to the victims, restrict clawbacks, and restore investor confidence in the market."

"Hardworking people across the country and in my district were the unfortunate victims of the biggest Ponzi scheme we've ever seen," said Maffei. "We can't undo the incredible wrong that Madoff perpetrated, but we can implement new protections and change the system to ensure investors are better protected."

"These are ordinary folks who invested their life savings in what they believed to be safe pension plans and trust funds," said Perlmutter. "These investors deserve the same protection as the direct investors, and we have the opportunity to help restore not just equity, but dignity to these individuals."

"The Securities Investor Protection Corporation failed miserably to protect thousands of direct and indirect investors victimized by Bernie Madoff and instead has further victimized those who placed their trust in regulators at the SEC and the assurances provided by SIPC," said Speier. "This legislation offers a constructive approach that will bring some relief to the investors whose lives have been turned upside down by these events."

An additional provision of the bill would also require indirect investors in a Ponzi scheme who receive a SIPC insurance payment to waive their right to sue their feeder fund.

Source