LATE ON Friday American prosecutors won a small victory in their pursuit of
the ill-gotten gains of Bernard Madoff, the conman that duped America’s rich
and famous in a $65 billion (£40 billion) scam.
Ruth Madoff, Bernard’s wife, finally agreed to give up her Manhattan flat,
jewellery and other assets worth almost $80m. The settlement ends a
long-running battle over Madoff’s private assets in the run-up to his
sentencing tomorrow, a courtroom appearance expected to see Madoff make
another attempt to express remorse for operating the world’s largest Ponzi
fraud, and his victims to express their anger.
Prosecutors have recommended that the New York court show Madoff no mercy, and
give him 150 years in jail, the maximum permitted for the type of offence.
Ruth Madoff’s lawyers have said she will not be in court when her 71-year-old
husband will receive his sentence.
Madoff’s defence lawyer Ira Sorkin has plead with sentencing judge Denny Chin
for a 12-year sentence citing the “nonviolent nature” of the crimes and his
client’s “voluntary surrender” to authorities. John Coffee, law professor at
Columbia Law School, said: “I think he will get 20, 25 maybe 30 years. Chin
is not known as a hanging judge at all but I can’t see him getting less than
20.”
Coffee said the magnitude of his crimes and the fact that he has not
cooperated with investigations would count against him.
On Monday eight of Madoff’s victims will address the court to describe the
devastation wrought by his fraud. Victims have already described Madoff as
“a thief and a monster," “a psychopathic lying egomaniac,"
“ruthless and unscrupulous," and a devil, in statements given to
the court. According to Sorkin, Madoff will make a statement addressing “the
shame he has felt and to the pain he has caused."
Robert Mintz, a former prosecutor who is now at partner at the McCarter &
English law firm in New Jersey, said: “The sentencing will leave more
questions than answers. The focus now is very much on who else may have been
involved.”
FBI agents have turned their attention to London, where Madoff Securities
International was headquartered. In his guilty plea, Madoff claimed his
London firm was a “legitimate, honestly-run and operated business”.
By contrast, the Serious Fraud Office ( SFO ) has described the business as “a
cog in the giant washing machine” of Madoff’s operations and suggests that
the business could have been involved in money laundering. Investigators
have also said that by the end of this year they expect to bring charges
against people in Britain linked to the Madoff scam.
The Serious Organised Crime Agency, the government agency set up to tackle
international criminal activity, is running a parallel investigation.
American investigators such as Irving Picard, the trustee acting for Madoff
creditors, have been looking at cash transfers between London and New York
dating back to 2002.
Even basic details about the London business raise questions. The last filed
accounts of Madoff Securities International showed that the firm had
shareholders’ funds of only £117m. Documents filed by the joint provisional
liquidator in Palm Beach, Florida, suggest the London business had potential
liabilities exceeding $1 billion.
A list of victims filed with a New York court revealed a number of British
investors were caught by Madoff’s scam. The more high-profile victims such
as Lord Jacobs, who made his fortune from the British School of Motoring,
and Lady Victoria de Rothschild, former wife of Sir Evelyn, the banker.
Despite Madoff’s trips to London, it appears none of the British victims was
ensnared by staff in Berkeley Street.
“I was invested with Bernie for years through my father’s accountant,” said
one victim in north London. “After I moved here, the London office wouldn’t
take my calls and kept telling me to call New York.”
The only UK-based victims tapped up by Madoff personally were his own
highflying staff. “Access to the funds was offered as some kind of staff
benefit,” said one former director, who declined the invitation because he
couldn’t afford it. “The guys who were invested with him would brag in the
office about how much they had made through Bernie.”
Working for Madoff was fairly lucrative. The total wage bill in 2007 for
Madoff Securities International was £3.4m. There were 17 traders and 8
administrative staff, meaning an average wage of £140,000.
Yet the trading was unspectacular. “It was all fairly straightforward equity
trading in FTSE 100 and FTSE 250 companies, with a bit switched into bonds
every now and again,” said one source close to the British investigation.
For 2007, the London firm made trading profits of about £7.6m. The bottom line
was propped up by £750,000 of “fees” paid by the parent in New York. In
2006, the firm booked £2.6m in fees from its parent – more than double the
sum it made in trading profits.
As far as Madoff’s investors were concerned, London was doing a roaring trade.
Over the past few years, Madoff had been shuttling money between his two
empires. Everything that was sent to New York was booked as profits, even
though he was simply sending the same money back to himself.
Last year, Madoff sent £698m in cash from his investment empire to a Madoff
Securities International account with Barclays, according to SFO
investigators. Over the same period, Madoff Securities International sent
back more than £1 billion in the other direction.
The difference between the two cash sums was made up with proceeds from a sale
of gilts last November that had long been held on the books of the London
firm.
Stephen Raven, the chief executive, thought the London firm had bought US
Treasuries with the cash, through Madoff’s brokerage. However, the joint
provisional liquidators at Grant Thornton soon realised that the cash had
simply disappeared as Madoff scrambled to keep his fraud afloat.
The series of transfers allowed Madoff to book profits in New York that were
about 130 times larger than the trading profits recorded in London.
“It was all the same money, sloshing back and forth,” said one insider. “He
could, in effect, multiply his money by sending it to London, then telling
them to send it back again. When you start to ask where all the money went,
this gives you a pretty good clue.”
Picard, who has appointed Lovells, the law firm, to act for him, has told the
High Court that many things about the Mayfair business “clearly warranted
further investigation”.
“It may, in due course, transpire that some or all of the transactions between
the two companies were part of Mr Madoff’s fraudulent scheme,” Picard told
the High Court.
About $2m of the cash that was transferred out of the London firm wound up in
the Palm Beach Wachovia account of Ruth Madoff . Part of the transfer was
dressed up as deferred interest payments due on a loan that Madoff had
extended to London.
The money transfers were not the only curious transactions. Madoff Securities
International paid for a vintage Aston Martin for Peter Madoff, Bernard’s
younger brother and a long-term director of the London firm. The firm also
paid to restore the car, before covering the cost of shipping it to Florida.
Madoff’s £5m yacht in the south of France, a 27-metre Leopard cruiser, The
Bull, named after its sister ship in Florida, was bought with cash
channelled through London.
The SFO is investigating the possibility of bringing money-laundering charges
over these transactions, but legal experts believe this would be possible
only if it can be proved that the directors of the London firm knew they
were purchasing the assets with cash that had been procured fraudulently.
A few months before Madoff turned himself in, Madoff Securities International
lodged an application for a licence to start trading in Hong Kong.
Investigators have a “working theory” this could have been an attempt by
Madoff to start raising cash from Asian investors. Or it could have become
another location for Madoff to channel money back and forth, creating more
fictional profits.
That’s one of a number of lines of inquiry, say sources close to the
investigation. Until these are concluded, the full extent of what happened
inside the London offices will remain a mystery.
