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Madoff Victims Are Victimized Again, This Time by Our Own Government

Location: Washington, DC



Ms. ROS-LEHTINEN. Madam Speaker, my remarks are entitled ``Madoff Victims Are Victimized Again, this Time by Our Own Government.'' Americans rely on the Security and Exchange Commission, the SEC, to safeguard their stock transactions through registered broker dealers.

The SEC, however, did not do that in the case of Bernard Madoff. Irrespective of his receiving 150 years in prison for life-damaging financial crimes, many Americans who lost their life savings, who were first victimized as a result of the SEC failures, are being today victimized a second time by our own judicial system and its court-appointed trustee.

The victims' plight is compelling. Think about this, Madam Speaker, irrespective of numerous warnings the SEC received dating back 17 years, all of our Federal agencies stood by and did nothing while thousands of investors deposited their money, usually their life savings, with Bernard L. Madoff Investment Securities.

In fact, after a supposed investigation in 1992, the SEC issued a clear-cut and definitive Statement of Innocence about Madoff's business. This was an unusual occurrence. Indeed, it may be the only time in history that the SEC went as far as issuing a Statement of Innocence to clear a business that it was investigating.

Then, starting in 2002, the SEC continued to ignore seven individual and specific fraud warnings by a credible, financial whistleblower. Again, in 2004, in another government failure, the IRS approved Madoff to be one of only 260 nonbank IRA custodians, the very place that people put their retirement money for safekeeping. Why would the IRS have approved Madoff when it had the legal right and, indeed, the fiduciary obligation to inspect the books and the records of all nonbank IRA custodians?

The approval process, which the IRS shirked, was specifically designed to prevent this exact type of fraud. As Madoff's downfall exposed, both the IRS and the SEC failed to inspect Madoff in even the most basic fundamental fashion. Unfortunately, two different U.S. Government agencies both seemed to have given their approval for Americans to invest with Madoff. They indicated that he had a financial clean bill of health.

Now that Madoff's scheme has imploded, the government seeks to convey the appearance of serving justice on behalf of those who were duped.

Through the Federal Bankruptcy Court, the government has hired a private sector attorney to act as a Madoff bankruptcy trustee and will pay the trustee a fee based on his hours extended to claw back money. Well, this is not what it appears to be. Justice is not being served.

While it is true that the trustee cannot ask for a specific percentage of the total clawed back, he can ask for any specific amount he desires, and it can be based on his own internal computation using a percentage.

Since the trustee won't have enough manpower to sue thousands of people at the same time, he will also hire associate firms to assist in this litigation. All the fees charged by the law firms who are handling this case will first be paid, and then the trustee will receive his fee.

The government should, instead, offer tax or financial relief to those who were victimized, not under an arcane net equity basis, but based on their statements as of November 30, 2008. The IRS should compute tax refunds so as to return 100 percent of each individual's first loss of $2 million; then 90 percent of their loss between $2 and $4 million; 80 percent of their loss dollars between $4 and $6 million, and so forth, until a 20 percent return level has been reached, and at that point return should remain at 20 percent.

This would be most beneficial to smaller investors, who are most impacted by their losses.

If private citizens are required to reimburse other private citizens for harm they caused, why should the government be able to drastically injure people and have no responsibility to restore those individuals' positions or pay restitution to them?

The SIPC, or the quasi-governmental body that offers insurance to those defrauded by the SEC, also stands to gain greatly by not paying the insurance. Even to the casual observer, this is a potential conflict of interest. A mistake has been made, and it must be corrected.

Their computation of net equity for purposes of insurance and clawback for Madoff victims is quite different than the formulas they have used each and every time in the past for other cases which were similar in nature. Since when did rules, regulations, and laws become changeable based on circumstances that would save the insurer the most money and allow the trustee to go after the largest clawbacks? To even the casual observer, there is a conflict of interest.

The President says that it's time to take responsibility and admit when a mistake has been made. ``A mistake has been made.''


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