Fallen Money Manager Madoff Never Purchased Securities for Clients, Investigator Says

The man charged with unraveling the massive financial scam allegedly carried out by New York City financial adviser Bernard Madoff said he can find no evidence to show that that the fallen money manager ever purchased securities for his clients, as promised.

Madoff, the 70-year-old former Nasdaq chairman now behind what prosecutors have said was nothing more than a $50 billion Ponzi scheme, was arrested in December 2008, after he reportedly admitted to family members and colleagues that his financial empire was built on lies.

Irving Picard, the court-appointed trustee charged with working to liquidate Madoff’s accounts and return stolen money to defrauded investors, said his investigation has found “no evidence to indicate securities were purchased for customer accounts.”

A Classic Ponzi Scheme Uncovered

Officials have poured over about 7,000 boxes of materials comprising Madoff’s books going back 13 years. Instead of purchasing securities for clients, Madoff appears to have simply paid some clients with money he got from other clients in a classic version of a revolving financial scam in which everyone eventually loses in the end.

Picard said he has reportedly recovered only $650 million in client funds so far. More than 2,000 people have already filed claims seeking to be reimbursed for funds they lost in Madoff’s investment programs. That number is expected to double by July 2, 2009, which is the deadline for filing such reimbursement claims, officials said.

Investors Protected by SIPC?

The Securities Investor Protection Corp., a fund established decades ago to help reimburse some victims of financial fraud, may help repay Madoff victims, officials said. People taken by Madoff may qualify for up to $500,000 from the fund. The SIPC was created by Congress in 1970 to protect investors when a brokerage firm goes under and cash and securities are found to be missing from accounts.

Madoff’s victims have included the ultra-wealthy and the working class who lost their lives’ savings, college funds, and other sums in accounts managed by Madoff.

Get Ready to Wait for $

While the SIPC and other sources may eventually reimburse some Madoff victims, financial experts agree that the first of any payments likely is years away. Investigators are also seeking to liquidate Madoff’s personal assets to repay defrauded investors. He is known to own exclusive real estate in Manhattan, Montauk, N.Y. and Palm Beach, Fla., as well as private jets and luxury yachts.

All those assets, as well as those of any insiders linked to the scam, could be seized and sold to compensate Madoff’s victims, officials said.

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