Madoff Investigators Said to Be Struggling Over Scheme’s Scope

Date: Friday, January 9, 2009
Author: Patricia Hurtado, Bloomberg

Almost a month after Bernard Madoff was arrested for securities fraud, investigators are still struggling to learn how the investment adviser directed an alleged $50 billion Ponzi scheme and how widespread it may have been, a person familiar with the probe said.

Personnel from the Federal Bureau of Investigation, U.S. Securities and Exchange Commission and the U.S. Attorney’s Office in Manhattan are examining a steadily growing mass of data in an effort to unwind the alleged fraud, said the person, who declined to be identified for lack of authorization to speak publicly on the case. Documents include transaction records and investors’ monthly statements, the person said.

Madoff, 70, was arrested Dec. 11 at his Manhattan apartment and charged with securities fraud for allegedly using billions of dollars from new investors to pay off older ones. Madoff told authorities that investors may have lost $50 billion, prosecutors said.

“This is like an explosion that’s ripped a hole which the investigators are pouring through, and it probably just doesn’t relate to Madoff alone,” said Daniel Richman, a Columbia Law School professor and former federal prosecutor. It may take months for investigators to finish the work, Richman said.

“These kinds of investigations are incredibly resource- intensive because of the paper trail involved and the level of sophistication needed to go through the paperwork,” he said.

Madoff, who hasn’t formally responded to the charge against him, is due to return to court Jan. 12, unless prosecutors indict him before then.

In a Dec. 18 interview, Madoff’s lawyer, Ira Sorkin, said Madoff’s company is “cooperating fully with the government.” Madoff met with prosecutors earlier that week, according to people familiar with the case.

What Role

Investigators are seeking to determine what role people besides Madoff played, the person said. An official Web site established for Madoff investors has increased the flow of complaints and tips, the person said.

While Madoff already confessed to his sons that his business was “a giant Ponzi scheme” that cost clients $50 billion, authorities are probably building a case against him carefully, Richman said. They’re also likely to be seeking out others who can give them a road map to Madoff’s activities, he said.

“The government needs to be doing a few things at the same time here,” Richman said. “One is to familiarize themselves with the kinds of transactions involved,” adding that “they’re probably going through all the paper and trying to figure out transactions and money transfers.”

The professor said the probe faces an urgent need to “catch whatever funds they can in a very fast-moving system and get seizure orders on those funds in place.”

100 Checks

A search of Madoff’s desk at his Midtown Manhattan office after his arrest yielded 100 signed checks totaling about $173 million that were ready to be sent to family, friends and employees, prosecutors said yesterday.

Assistant U.S. Attorney Marc Litt in Manhattan made the disclosure in a letter to U.S. Magistrate Judge Ronald Ellis as part of the government’s effort to have Madoff jailed until his trial. Ellis plans to rule on the request today or Jan. 12, said his law clerk, who declined to be named.

Prosecutors previously disclosed that Madoff said before his arrest that he wanted to transfer from $200 million to $300 million of his investors’ money to “selected family, friends, and employees.”

“The only thing that prevented the defendant from executing his plan to dissipate those assets was his arrest by the FBI on Dec. 11,” Litt wrote.

The case is U.S. v. Madoff, 08-mag-2735, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Patricia Hurtado in New York State Supreme Court in Manhattan at pathurtado@bloomberg.net.