Legal News

L?Affaire Madoff: Not Everyone Lost Big Money; Jerry Brown Sues Chais

By Ashby Jones

Of course, throughout the Madoff saga (which ramped up only less than a year ago — it feels like sooo much longer, doesn’t it?), most of the blame and vitriol has been directed at the man behind the Ponzi — Bernie Madoff. Rightfully so, it seems.

But along the way, we’ve also read commentary by folks who don’t have a lot of sympathy for Madoff victims. They have no one to blame but themselves, the reasoning goes. They should have known their returns were too good for too long to be true. They stayed willfully blind. They failed the most basic due diligence.

On Tuesday, the collective sympathy for Madoff victims likely took another hit with news that half of Madoff investors didn’t lose any money at all. Prosecutors said there were about 4,902 active customer accounts as of Dec. 11, the date of Madoff’s arrest. Of those active customers, about half didn’t suffer a net loss - they withdrew more funds from their accounts than they contributed, prosecutors said. Click here for the story from the Dow Jones Newswires’ Chad Bray; here for the story from the Associated Press.

The revelation came courtesy of a filing made by federal prosecutors in which they summarized the findings of Irv Picard, the court-appointed trustee, who is calculating how much investors lost so it can be decided how to divide up assets that are recovered. The filing was a procedural move that could speed the process of distributing assets to victims. Typically, prosecutors apply forfeited assets to any restitution ordered in a criminal case.

The government said a search of financial records, including microfilm records dating to 1979, shows that investors suffered net losses exceeding $13 billion. In all, 15,870 claims have been made to the trustee by those seeking a share of any recovered money.

In other Madoff news, California attorney general Jerry Brown filed suit against Stanley Chais, an investor accused of steering hundreds of millions to Madoff. The lawsuit, filed in Los Angeles County Superior Court, seeks restitution for victims and at least $25 million in civil penalties.

Chais’ attorney, Loeb & Loeb’s Eugene R. Licker, issued a statement that said Chais was unaware that Madoff was operating a Ponzi scheme and was himself a major victim of the fraud.

“The claims that Mr. Chais misrepresented himself or the investments, that he lured unsuspecting investors, and that he in any way misled investors are simply untrue,” said Licker. Click here for the LA Times story.

Full post as published by Law Blog - WSJ.com on September 23, 2009 (boomark / email).