03.18.09

Madoff Victims' Gibraltar Money Grab

With Bernard Madoff in jail, the process of compensating his victims now begins. But how exactly? A case in Gibraltar, where police have infuriated Madoff investors by freezing a $75 million account, hints at the long road ahead.

The trustee charged with compensating Madoff victims moved yesterday against investors who claim that some $75 million in a Gibraltar bank account belongs to them. The trustee of the fraudster's estate considers these investors to be acting out of school, if not downright suspect, according to a Gibraltar police source. And he is determined to collect Madoff capital around the world and to redistribute it in a way that will favor those who lost money and penalize those who actually did not.

It all began about a month ago when the Gibraltar police saw a bank account at Banque Jacques Safra Bank with the name Madoff on it. They were reportedly excited to find that the deposit came to some $75 million and immediately froze the account. Those investors who had redeemed this money a few weeks before the Ponzi scheme crashed thought they had gotten out of the Madoff mess just in time. They filed suit to have it unfrozen. The trustee then hired lawyers to lean on the bank to not release the money. "They are irate. They are screaming to get their money back,' said the source.

Why is the trustee, the liquidator of Madoff's estate, who is dedicated to restitution for victims, objecting to these investors' push to get back their capital?  Because no one yet knows what really belongs to whom.

"It's going to be a real pissing match," said a source close to the bank, adding that the trustee's office may also go on to sue for the money. "A showdown that will get very ugly. And this is going to repeat itself all over the world."

Millions of dollars that have the name Madoff linked to them have been tagged and frozen in off-shore banking havens in Europe, where in some cases investors are similarly filing suit. "If your name is Irving Smith Madoff and you happen to have a bank account, bingo, you won't be able to withdraw a penny. Many banks are being very diligent," said the bank source.

Why is the trustee, the liquidator of Madoff's estate, who is dedicated to restitution for victims, objecting to these investors' push to get back their capital? Because no one yet knows what really belongs to whom.

"The trustee is the only one who can fairly and meticulously determine who deserves what," said the Gibraltar source. "Everybody is scrambling to get what they can. People don’t want to share losses, they only want gains."

Many of the victims of the Ponzi scheme are actually not victims at all but people who got out more than they put in. There are people, for instance who invested $100,000, took out $400,000, and ended up with $100,000, exactly where they began. Now they are claiming more money. Others are subject to “clawbacks,” in which the trustee can seize the profits of investors who had taken out more money than they had put in over the last six years.

In a separate development, federal sources say that although the U.S. Attorney's Office has moved to seize Ruth Madoff's assets, it could be a big hurdle. First, there will likely be a trial, with the lengthy process of discovery and depositions, which could go on for months. Second, the government faces the hurdle of persuading foreign countries to turn over the multi-million dollar houses that Ruth owns in Europe. "Many of them would just laugh at a U.S. court order," declares a international-securities expert.

Lucinda Franks is a Pulitzer Prize-winning journalist and author who was on the staff of the New York Times and has written for the New Yorker and the New York Times Book Review and Magazine. Her latest book is My Father's Secret War, about her father, who was a spy for the OSS during World War II.