Then there is the question of foreign indirects, a question on which the information provided by the Trustee is pretty minimal. All the Trustee has given us is the number of foreign indirects that are challenging his denials of claims. We do not know how much money they invested (their cash-in) nor how much their final statements showed. Nor do we know how many foreign indirects are not challenging the denial of claims, nor how much money is involved in those claims by way of cash-in or final statements. But there are some informed speculations that can be made. Unless Harry Markopolos is all wrong, big money and lots of it came from foreign sources. Much was from royalty, and part of it was hot money of one kind and another. Frankly, it wouldn't surprise me a bit if half or more of the money invested in Madoff came from foreign sources as indirects.
The amount that was indirect money from foreigners is relevant because, once again, if it is a high percentage of the whole, then it would be easier for SIPC to pay domestic directs if it or the courts were to choose to follow the law. It might also be easier for Congress to provide for domestic indirects if, as could well be true, they are relatively small potatoes next to the foreign indirects. But, again, we cannot know the numbers actually involved because Picard is not releasing the information.
There are two other points arising from the fact that a goodly percentage of the money invested in Madoff came from foreign sources. One is that foreigners will resist clawbacks by simply ignoring Picard and the American courts. Something very analogous to this happened in the Stanford case, and here, as there, it will cause Americans to unfairly be the only nationality widely subject to clawbacks.
Indeed, one would bet it likely that lots of the wealthy foreign indirects and their funds and banks -- like domestic ones too -- pulled out their money in 2007 and 2008 because of losses elsewhere, and yet Picard has given no sign I know of that he will go after any of these groups for clawbacks, despite their failure, before investing in the first place, to exercise the due diligence of which they were financially and professionally capable but which they ignored. So both groups -- both the large domestic and foreign indirects (and their funds, asset managers and banks) who did not do the due diligence they were capable of and which would have exploded Madoff years and years ago, and who pulled out their monies in 2007 and 2008 -- are the real net winners, not the middle class Americans who have lost everything but whom Picard and SIPC almost slanderously term net winners. And the foreign net winners will also be armored by nationality against clawbacks, which Picard has shown no sign of seeking from them in any event.
In addition, it is virtually a sure thing that powerful foreign interests will make it clear to our State Department, Treasury Department and White House that recompense for Madoff's fraud is demanded by foreign nationals, and that there will at minimum be lawsuits in international tribunals if the foreign demands are not met. Unless I miss my guess, it would appear that representatives of foreign interests have already had some conversations with relevant American officials about this (e.g., conversations with Geithner and/or his staff, I believe (but cannot know for certain).) The end result could well be that wealthy foreigners -- royalty and foreign Mafiosi from various countries, for example -- will obtain recompense through international arrangements or tribunals for Madoff's fraud while middle class Americans who lack political clout are left to twist in the wind.
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