Why my sympathy for Madoff’s victims is waning
Image by Steve Rhodes via Flickr
No, I don’t think being rich in America is a crime. Yes, I do feel sorry for people who’ve lost their fortunes. And yes, I admit it could happen to me — I thoroughly trust my financial advisor, I’ve never doublechecked to make sure he’s actually carried out the trades he says he has, yada yada, mea culpa, maybe more luck than brains if I’m not even broker than I think I am.
But when you look at the infighting among Madoff’s investors over who is entitled to what, it is hard to keep thinking of them as simply put-upon victims. There’s one group of folks that have actually withdrawn more than they ever put in, so all they’ve lost is on-paper profits. They are shocked — SHOCKED — to discover that maybe they are not entitled to the same degree of reimbursement that people who never withdrew their initial investments might get. Here’s some sample reasoning:
Ms. Chaitman disapproves of the way Irving H. Picard, the court-appointed trustee overseeing the claims process, is calculating investor losses — on the basis of “net equity,” or simply the difference between the total amount invested in the fund and the total withdrawn before it collapsed.
Ms. Chaitman, who represents more than 100 others in a lawsuit against Mr. Picard, is adamant that they should be reimbursed for the total value of their accounts with Mr. Madoff, even if their withdrawals exceeded their deposits and even though the balances reflected on their statements were based on fake trades.
Investors Compete for a Piece of the Madoff Pie – NYTimes.com.
I remember, a couple months ago, being roundly castigated by many when I said I saw no reason why investors who withdrew money from Madoff — and were not suspected of being in on the fraud — should be forced to pay it back. Lucky timing is not a crime in this country. If I’d dumped my tech stocks before March 2000, or my NYTimes stock in 2004, when it was selling at $52, I’d have benefitted from lucky timing, not brilliance — but I’d still be damned if I’d be willing to share my lucky-gotten gains with less-fortunate ignoramuses.
But I draw the line at compensating the lucky ones for profits they did not make, when the money is needed to help newly-minted paupers keep their homes and cars. The greed is truly unseemly.
And on an ancillary point: The New York Times Dealbook blog raises an interesting mirror-image question: What about charities who may have gotten donations from investors who benefitted from the Madoff fraud? Must they return the money? I don’t know where I stand on this one. You?
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Claudia – you got this right on the money.
thanx– as much for the delicious pun as for the vote of confidence
In response to another comment. See in context »It’s a much messier problem than that. A lot of these “charities” seem to have just existed to provide tax-deductible, ideological junkets for rich kids such as trips to Israel. But other people relied on that income to pay for their retirement and mortgage. Are they less worthy?
It is not at all cut and dried — which is why I can’t make up my mind about where I stand. I have no trouble deciding what I want to see happen to bogus charities(we can argue about the worth of sending Jewish children to Israel on a different day.) But what if, say, United Way made money on the scam, and gave some of that money to a battered womnan’s shelter in Appalachia. Does that shelter have to return the money? Not such an easy call.
In response to another comment. See in context »It’s a mess, isn’t it? I agree that those who did not suffer losses should not expect to take part in any recouped funds.
Is it too much to ask that any charities should have to verify their losses and substantiate their charitable status before being eligible for replenishment? Of course, this begs the question of why these bogus charities are able to maintain their not-for-profit status in the first place.
I agree with every word you say, Jeffrey. But what I wonder about is the third degree of separation. What happens if a non-profit that exists mainly to fund other nonprofits — something like United Way or UJF or such — made a lot of money with Madoff, and then distributed the money to those other charities. And let’s say it turns out that the feeder charity knew it was making money from a shady operation. Yes, it should have to return funds — but what about the charities it had given funds to? I’m not sure my stomach could take closing down a battered woman’s shelter that had no connection to the primary fraud?
In response to another comment. See in context »