Madoff’s Missing Money: Mystery and Machinations

Guest Columnist

[With apologies to Charles Dickens] Bernie was legally dead: to begin with. There is no doubt whatever about that. The plea was signed by the judge, the clerk, the prosecutor, and the chief tormentors, his victims, signed it Old Bernie was as legally dead as a door-nail.

Or is he????

Bernie Madoff has pled guilty.  His bond was revoked and he was immediately taken into custody.  He will next be a free man when they are sitting shivah with his corpse.
But before that day, and like Marley dragging the chains he forged in life, Bernie  will come back to haunt his family and investors. 

It won’t be like A Christmas Carol. It will be more like The Treasure of the Sierra Madoff.  Except the gold was never there.
Twenty five years of criminal defense experience tells me that he has yet to cooperate with the government. 

If he was cooperating, they would probably have let him continue on bond.  Instead, they will threaten his family and he will threaten to conceal the money and deny restitution to the victims.
Which brings us to two key questions: 

  1.  How much money is missing? 
  2.  How should the recovered funds be divided among the victims?

I believe most of the money is gone.  It has disproportionably gone back to the victims.  They just don’t know it.
Like the DEA valuing a kilo of cocaine, the Madoff prosecutors and the media keep hyping the size of the losses and the missing pot of gold.  Prosecutors will come to regret that.

I have heard as much as $170 billion although the usual amount trumpeted is as low as $50 billion.

In the end there will be nothing close to that left.  The reason is the nature of the scam.
We now know that Madoff never, or at least not in the last 20 years, bought a share of stock with the money he collected.  All he did was take in cash, take a commission and use the remainder to pay 10%+ annual dividends to the investors.
The annual payments that investors were getting were not dividends from clever investing.  It was a parceling back of their own money.

When that ran out he used contributions of later investors to pay the early investors. 

There is a paper trail in and out of his bank accounts.  I expect that far less than five percent of the money will be unaccounted for. 

Finally, since he was able to sustain the scheme for twenty-plus years, his overhead, including what he took for himself, was relatively minimal. 
And this is where it will get ugly, very ugly
Consider two hypothetical investors each giving Madoff a $100,000.

Mr. “A gave him the money in 2000 with a 10% annual return “A has received eight $10,000 checks for a total of $80,000.  All the time he believed his $100,000 principle was still there. 


Mr. “B gave Madoff money in 2004. Mr. “B received four $10,000 dividends for a total of $40,000.  He, too, believed his $100,000 investment was still there. 

“A” and “Bs” total deposits of $200,000 are today severely depleted.  Bernie probably took 10% off the top leaving $180,000.  The dividends total $120,000 dollars leaving only $60,000.

How do you divide it?  Should each get half or should it be proportional?
That debate pales when the situation involves Mr. “C who gave Bernie his $100,000 in 1990 and thus has received 18 payments for a total of $180,000.  All the time he beliived his principle was there like a CD in FDIC bank.


Wait until he receives a letter from the U.S. Attorney telling him he is getting nothing back.  And, to add injury to injury, owes $80,000!
Yes, he owes $80,000!


Every dime over his $100,000 in so-called  “dividends was someone else’s money.  In fact and in law, it’s the fruits of a criminal enterprise. 


That “C did not understand what was going on will not legally justify him keeping the ill-gotten gains.  You will hear the howling from Palm Beach to The Hamptons. 
There are thousands of “A “B and “Cs not to mention every other letter of the alphabet.  Each is seeing justice and fairness viewed through their own wallet.

So sit back, get a bag of popcorn, a Dr. Pepper and most of all a Game Day Program and watch Bernie’s lynch mob turn on itself.
 The only thing certain is the lawyers will make out fine.

6 Responses to “Madoff’s Missing Money: Mystery and Machinations”

  1. Liberal Al says:

    The analysis is absolutely true

  2. Liberal Al says:

    What you don’t say is the failure of Bush and earlier Republican administrations to police the securities markets enabled frauds like Madoff to get a hold on thousands of investors wallets. That is the most important lesson from this tragic story.

  3. Richard J Kaplan says:

    You left out something interesting in your analysis. You presume that they took out their money. If they didn’t and reinvested it, that would change the result.

    Also, while billions were lost, the investors could get some of their money back from the US Government.

    Over the years, these investors paid taxes on the money they supposedly received, “dividends” and maybe “capital gains.” Since it was a fraud, they never got actual income. These returns of supposed profits are not income at all, subject to income tax which the taxpayer paid tax on. They may be considered a Return on Principal.

    If true, the investor could file an amendment to their tax return, and maybe get the tax they paid, plus interest.

    Now they may only be able to go back 3 years or so, but that could be something worthwhile to do. Especially for those that lost everything.

  4. Sam Fields says:

    You are correct there were many who never took out a dime believing the fictional annual statements that they were rich.

    That is why I suggested that not only was there and Messers A, B, and C but all the rest of the alphabet. I did not even mention the individual lawsuits that have already been filed. Ultimately all the suits should be be consolidated and a formula developed. It will leave no one happy least of all those who have to kick back $$$$.

    The current issue of Vanity Fair has a couple of good article about Madoff and the companies that fed him the money.

  5. Victim of Society says:

    Hey Liberal AL,

    Very predictable to attack President Bush…but what is President Clinton’s culpability since this has been going on since the early 90’s? Why didn’t his administration do anything about it? I think this is a bigger problem than blaming the previous administrations. The Democrats could do themselves a favor by focusing on the future and dealing with the problems/task on hand instead of constantly saying “we inherited this and that”…The people will only listen to that for so long, and I believe that excuse is getting thin. The bottom line is the PEOPLE no matter the party affiliation are not going to care who caused the problem but who and how the problem is going to fix the problem.

  6. Richard J Kaplan says:

    Actually, I think this is a case where everyone in DC is to blame. Starting from when Madoff started years ago. It involves Reagen, Bush, Clinton, and Bush. It includes both Democratic and Republican Congresses.

    It only shows that when things are going well, no one wants to mess with it. Of course, until the bubble bursts. Even in Florida that is true. I can’t tell you how many years I have heard “Don’t Mess With the Mouse.” Guess who that references.

    Have you ever heard anyone checking up on those relationships. Hopefully, nothing is there to implode someday.