What's Next In The Madoff Fraud Case?

Prosecutors in the Bernard Madoff case are turning their attention to Madoff's family — his wife and sons. Amir Efrati, who has been covering the case for The Wall Street Journal, talks with Renee Montagne about the next steps in the investigation.

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RENEE MONTAGNE, host:

For a look at what's next in the Madoff case, we turn to Amir Efrati. He has been covering it for the Wall Street Journal. Good morning.

Mr. AMIR EFRATI (Wall Street Journal): Good morning.

MONTAGNE: Well, let me put it to you. What does come next?

Mr. EFRATI: Well, the Justice Department here in New York is looking very closely at a number of folks who are closely connected to Mr. Madoff, starting with his family members who worked at the firm, including Peter, his brother, and his sons, Mark and Andrew. And that's sort of one set of people.

You also have another set of people that they're looking at - feeder funds; people who steered a lot of money to Madoff. And you also have private investors who made billions of dollars from this scheme. They were big winners. And there are allegations out there that they directed Madoff to give them fictitious returns.

MONTAGNE: Well, let me walk you through - all three of those, as a matter of fact, starting with, as you did, family members. Up to this point, the - what has been put out by the family is nobody knew a thing. As this went on for, apparently, at least two decades, is there anything new to that?

Mr. EFRATI: There's not much new, and a lot of this, I'm sure, is playing out behind the scenes. They - U.S. attorney's office of Justice Department here in New York is in touch with folks who used to work at the Madoff firm who did know the family.

I'm sure they're asking a lot of questions. But we've not heard of any smoking guns, anything that implicates the family members yet. But obviously, this is -we're very early on in this process.

MONTAGNE: And I gather that investigators are also looking at people who invested their money with Madoff and made a lot of money, I mean, many millions, billions, in fact, from this investment. How - what is the suspicion there?

Mr. EFRATI: Well, a lot of people ask the question: Where did the money go? A lot of the money went back out, you know, went in from new investors, came back out to old investors.

Some of these old investors made more than others and pulled out billions of dollars in profits. According to allegations that have already been brought up in civil suits, a couple of investors in particular collectively took out $6.1 billion. That's a lot of money.

And there are allegations that they - and the government believes that they have evidence that these people directed Madoff to give them fictitious gains, that is they would call up or fax or contact Madoff and say, give me a gain of, you know, $17 million for last year, presumably because they wanted to reduce their tax bill.

You know, if you'd get long-term gains, you know, you pay fewer taxes than short-term gains. Or even, they would ask him for a loss in a particular year. These are pretty serious allegations, and the government believes there is evidence that these people knew that their returns were fraudulent.

MONTAGNE: And then what about a different level of tension here, and that's between those who happen to take money out - that's how they chose to work their investment, and therefore would, theoretically, not be hurt as bad, and those who really lost everything.

Mr. EFRATI: Right. Well, in the eyes of criminal authorities, there's not much difference between those two types of investors because they neither knew that there was a fraud going on. But the people who did take out more than they deposited, the people who were net winners from this fraud - if they took out a lot, they will be sued by the trustee of the Madoff firms, who is out there trying to recover assets.

And part of this process is he goes out and files civil suits against people who profited from the scheme, particularly in the last few years. So they will be facing some sort of lawsuit if they made lots of money from this.

MONTAGNE: Right. In other words, you can be innocent of knowing it's a fraud, but you can't profit from a fraud.

Mr. EFRATI: There are certain statutes that allow you to be sued if you took out money within the last six years, before the Ponzi scheme collapsed.

MONTAGNE: So, in a way, what you're saying is people who put in - let's make it up - a million dollars, and they made their 10 percent because that's what they were promised, and they took it by what you might call dumb luck, what's wrong with that? Why can't they keep it?

Mr. EFRATI: Nothing's wrong with that. But as we enter this process of cleaning up the mess, it is standard procedure for people who profited from the scheme to ask to give money back so that everyone can share in the pain. It's not fair that somebody was able to profit at the expense of another investor. That's the logic of the laws on the books. And those laws are being used right now.

MONTAGNE: Well, much more to come, I'm sure. And thank you very much for joining us this morning.

Mr. EFRATI: Thank you for having me.

MONTAGNE: Amir Efrati has been covering the Madoff case for the Wall Street Journal.

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