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Comments On The Hearing Of February 2nd Before Judge Lifland

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Message Lawrence Velvel

February 17, 2010

Comments On The Hearing Of February 2nd Before Judge Lifland

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Lawrence R. Velvel

I did not attend the hearing before Judge Lifland, but have read the transcript and obtained some impressions, a few of which I have not seen alluded to elsewhere. Let me begin with a few matters heavily involving personalia (a Frankfurterian word, if memory serves), before moving on to substance alone.

As others have said, both on the net and orally, David Sheehan appears to have conducted himself badly, to have been condescending towards the victims and their lawyers. There really is no excuse for such comments as "No one in their right mind would say you have to use the last statement." (P.23.) That evoked both (bitter) laughter, as I've been told and as the transcript shows, and the subsequent justifiably sarcastic response from Daniel Glosband that "Notwithstanding Mr. Sheehan's opening remarks I tend to harbor the illusion that I am in my right mind." (P.83.) Glosband spoke for many of us, whom Sheehan gratuitously insulted.

There is equally no excuse for Sheehan's arrogant comment with regard to the victims' claim that Congress intended the final statement to be used even if there was a fraudulent scheme, that "If I could talk to 535 Congressmen, I couldn't find one that subscribed to that view." (P.22.) There are plenty of Congressmen and Congresswomen who subscribe right now, today, to the view ridiculed by Sheehan; and the Congresses which enacted SIPA in 1970, and amended it in 1978, were motivated by a desire to protect investors and certainly knew that Ponzi schemes existed, yet did not say that in such cases innocent victims should not receive the full benefit of the protection Congress was providing or that a Trustee in such cases should use cash-in/cash-out instead of the ordinary method of determining net equity.

The foregoing were comments in Sheehan's opening argument - - what he said on rebuttal was even more insulting, or even was libelous. To support his claim that Madoff's returns could not have occurred in the real world (where many mutual friends, incidentally, had higher overall returns than Madoff albeit not as consistent returns), Sheehan asked whether, if Madoff had actually been trading in the real world, "Do you think anyone in the room believes they would have gotten the returns they got? They got fraudulent returns." (p. 136.)

Having thereby defacto called everyone in the room a knowing beneficiary of a fraudulent scheme, Sheen further drove in the knife thusly: "Why was everyone going to Madoff when people ten years ago forgot about the SEC. When everyone said it was a Ponzi scheme and it was a fraud, they didn't go to the SEC because they were getting results." (P. 136.) So again, we were all knowing beneficiaries of a Ponzi scheme and didn't complain until it collapsed.

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Lawrence R. Velvel is a cofounder and the Dean of the Massachusetts School of Law, and is the founder of the American College of History and Legal Studies.
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