Madoff Trustee Creates 'Class War'


8-12-09, 9:56 am

Even if court-appointed trustee Irving Picard should recover the $13.7 billion for which he is suing associates of jailed fraudster Bernard Madoff, the money may never get into the pockets of victimized small investors, a law school dean points out.

Because “the small fry victims had to take out money to live and to pay taxes, and thereby reduced their net equity as Picard and SIPC calculate it, to zero or a negative number…(they) will receive no benefit whatever from any recoveries Picard obtains in his lawsuits,” writes Lawrence Velvel, dean of the Massachusetts School of Law at Andover. Velvel, who lost money invested with Madoff, has followed the scandal closely and has made a number of positive recommendations for relief of the bilked investors.

“Picard has created a sort of class war,” Velvel writes, in that “the very rich, who didn’t have to take anything out of Madoff to live or to pay taxes, will get the full $500,000 from SIPC (Securities Investor Protection Corp.) plus possibly large sums from Picard’s recoveries in lawsuits or elsewhere, since they will have huge amounts of net equity.”

“The far less affluent---who often are already elderly and desperate,” Velvel explains, “who depended on Madoff to live and to pay taxes, and who sometimes had as little as $500,000 or so (invested) in Madoff, will get nothing from SIPC and nothing from the recoveries or other customer property, because they will have zero or negative net equity.”

Velvel faults Picard for his delay in making payments to the investor victims and for threatening to “claw back” monies they received from Madoff; for pressuring investors to sign releases relinquishing their rights to more money in exchange for smaller payments they desperately need to live on, and for his “novel, anti-statutory definition of net equity” which “diminishes SIPC’s prospective payments by a truly huge amount.”

Velvel is dean and cofounder of the Massachusetts School of Law at Andover, purposefully dedicated to providing a quality, affordable education to students from low-income, minority, and immigrant backgrounds who could otherwise not afford to obtain a legal education. He made his comments in his July 22nd blog VelvelOnNationalAffairs.

--Sherwood Ross is a media consultant to the Massachusetts School of Law at Andover.