- Madoff Caused Ruin, Pain, Depression for His Investor Victims

Madoff Caused Ruin, Pain, Depression for His Investor Victims

Written by Wilfred Ling

Tuesday, 24 March 2009

Here is a report on how Bernard Madoff ruin the lives of ordinary individuals. It seem that there are victims who are not "high networth." Previously it was reported that many victims were rich. But it seems there were those who are just ordinary. Here are my comments:

"Many of the victims blamed the U.S. Securities and Exchange Commission for failing to uncover the fraud"

My comment: The SEC is a far from a perfect regulator but I don’t think we can say that there are more superior regulators in other countries. From my observation, most regulators are merely following what other regulators are doing. What this means to investors is that a product or company that is regulated does not equate to safety. If this is so for regulated products and companies, it implies that unregulated products are at even greater risk. Currently, there are a few investment products which MAS refused to regulate for reasons unknown to me. Many people had bought into these products and many advisers recommend them. I feel that it is prudent for investors to avoid these. For example: Land banking and Wine investments.

"Other than the value of our home, which we are presently attempting to sell, we have no other assets"

My comment: The implication is that this victim places all her assets with Madoff which place these monies into his own ponzi scheme. There was no diversification and asset allocation. All victims knew that Madoff ran a discretionary investment portfolio. In other words, all victims knew that Madoff invested in his own product. The lesson is: It is important not to put all eggs into the single basket. It is also important to know what the underlying assets are in the basket. If your adviser puts all your money with a particular insurer or fund manager, there is no diversification.

"All of my well-thought-out plans are now in shambles," wrote a retired former U.S. sailor living in Pennsylvania. "Not only will I not be able to retire at what Americans consider the normal retirement age of 65, but retirement at any age is out of the question."

My comment: It is a common misconception that a retirement plan consists of merely investing into a product and assumes all things will be fine. Retirement planning is a complex planning process which people often took for granted. Diversification in assets, hedging longevity risk, risks transferring are all part of retirement planning. I got a feeling that the US sailor made plans for holidays or property purchases but did not have a comprehensive plan from the financial planning perspective. If he had done that, his planner would not place all this assets into a single product/company. The impact to this retirement portfolio wouldn’t be so devastating that it could cause him have no retirement at all.

Madoff Caused Ruin, Pain, Depression for His Investor Victims
By Erik Larson

March 21 (Bloomberg) -- Richard Shapiro, a victim of Bernard Madoff’s $65 billion Ponzi scheme, told a judge he lost 30 pounds due to stress and couldn’t leave his home for three weeks after the financier’s Dec. 11 arrest.

Shapiro’s story, detailed in a March 10 letter, was made public by the government yesterday, along with dozens of other messages citing financial ruin and personal anguish. Many of the victims blamed the U.S. Securities and Exchange Commission for failing to uncover the fraud.

“Today we live in fear, mistrust, and are captive to the hope that the federal government will provide some relief to us for their failure to properly regulate, and do their job,” Shapiro, of Hidden Hills, California, said in his letter. “We are emotionally forever damaged.”

Madoff, 70, pleaded guilty before U.S. District Judge Denny Chin in Manhattan on March 12 to 11 counts including money laundering and fraud. He faces a prison sentence of as long as 150 years. Earlier yesterday, a federal appeals court in New York turned down his bid to be freed before he’s sentenced June 16.

The appeals court rejected arguments by Ira Sorkin, Madoff’s attorney, that Chin abused his discretion by revoking bail after prosecutors called Madoff a flight risk.

“The defendant’s age and his exposure to imprisonment are undisputed, and the court did not err in inferring an incentive to flee from these facts,” the three-judge appeals court panel said in its ruling. “The district court’s finding that the defendant has the means -- and therefore the ability -- to flee was not clear error.”

Government Faulted

In their letters, some of Madoff’s victims faulted the government for failing to catch him earlier.

“My husband served in the Vietnam War and now I feel our country, through the SEC, has let us down,” Lynn Sustak, of Atlanta, who invested with Madoff beginning in 2003, said in her letter. “Over time, most all of our savings were placed in the hands of Bernard Madoff. Our retirement looks bleak.”

Madoff admitted he used money from new investors to pay off old ones and said the global fraud began in the early 1990s. Prosecutors said they’ll seek to seize more than $100 million in assets from Madoff and his wife, Ruth.

Some of the messages released yesterday by prosecutors had senders’ names blacked out. Others were written by relatives on behalf of elderly or ailing victims, including an 87-year-old Alzheimer’s patient who lost her $500,000 life savings.

Alzheimer’s Patient

“That money was for her to live out the rest of her life in comfort,” a child of the Alzheimer’s patient wrote in a March 9 e-mail that had the name redacted. “She is very depressed and can’t understand why this happened to her.”

Until now, most attention has been given to celebrities, hedge funds and banks around the world that lost money in Madoff’s scam. Many of the victims cited relatively smaller losses that accounted for larger shares of wealth.

“I am not rich,” a 52-year-old self-employed woman in California wrote in a letter. “The entire amount I lost was nowhere near a million dollars, but I was proud I had saved it. I do not own a home to sell. I do not have anyone to support me in my old age.”

Shapiro, the California investor, wasn’t the only one driven to despair by the shock of the fraud.

“I went into a deep depression and for the first six weeks was unable to eat,” an investor of 15 years said in a letter with the name redacted. “I still wake most mornings with a feeling of dread and disbelief -- I’m still waiting to wake up from this nightmare.”

Many of the letters called on the government to make an extra effort to help victims.

Given the SEC’s failure, “it is certainly justice that everyone in the federal government do what he or she can to ameliorate this situation,” said Eugene Wolsk, 80, of Montauk, New York, who invested with Madoff for 21 years.

‘Serious Trouble’

“We are in serious trouble,” Wolsk’s wife, Laura, who has been forced to go back to work, said in a separate letter. “This is no time to sell a house and we don’t have money to keep it up.”

Wolsk and his wife aren’t the only victims whose only remaining asset is their home.

“Other than the value of our home, which we are presently attempting to sell, we have no other assets,” a 74-year-old anonymous victim in Florida wrote in a letter. “Finding employment at this point is almost impossible.”

The letters detail the lives of people who saved in the neighborhood of several hundreds of thousands of dollars and who were preparing to retire, or had already retired.

Plans in ‘Shambles’

“All of my well-thought-out plans are now in shambles,” wrote a retired former U.S. sailor living in Pennsylvania. “Not only will I not be able to retire at what Americans consider the normal retirement age of 65, but retirement at any age is out of the question.”

A Florida couple that invested $853,000 since 1992 said in a letter that their “Golden Years” had been taken from them, and they expressed doubt that employers would be interested in “a guy with a gimpy leg and woman who has fought cancer.”

“What was the supposed role of the SEC during the years of our investment,” the couple wrote in their letter. “We didn’t not profess to be investment experts or economists; we could have used some government expertise and oversight.”

Most of the letters shared that theme: blaming the SEC.

‘Level of Disgust’

“Since one of the reasons the SEC exists is to provide the investor with a sense of confidence, we had once again a legitimate expectation that nothing was wrong,” said a victim whose name was redacted. There’s a “level of disgust with the government and its non-existent efforts to protect us all,” the letter stated.

At least one letter suggested the government itself pay victims.

“I relied on the regulatory system for securities and banking when I invested my earnings,” an anonymous investor wrote. “What more could I do than that? When an individual screws up, he pays; so why can’t the government pay when they screw up?”

Another victim in New Jersey cited family losses that struck parents and children alike, just 18 months after the death of a father-in-law, who “left his wife believing that she would be able to live in a safe and secure lifestyle.

“She may not be able to maintain her home and living expenses, forcing her to move in with her children, all of whom were Bernard Madoff investors and are now struggling financially,” the investor said in a letter with the name blacked out.

A New York real-estate broker who invested her inheritance and a divorce-settlement with Madoff, said she hoped to build a nest egg to leave for her three children and their grandchildren.

“Bernard Madoff took my hopes, dreams and self-esteem,” the broker said in a letter. “I feel violated and insecure, as I do not know what the future holds for me.”

The case is U.S. v. Madoff, 09-cr-00213, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Erik Larson in New York federal court This email address is being protected from spam bots, you need Javascript enabled to view it .

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