Agency Weighs Madoff Victims' Claims
MELISSA BLOCK, host:
Investors who lost money in Bernard Madoff's Ponzi scheme have two more days to file claims with the Securities Investor Protection Corporation, known as SIPC. It was created by Congress and insures customers of failed brokerage firms, but not all of Madoff's investors are eligible to recoup their money. Stephen Harbeck is the president of SIPC. I asked him how many Bernard Madoff investors there are.
Mr. STEPHEN HARBECK (President, Securities Investor Protection Corporation): There are between 3 and 4,000 accounts, but we've encouraged anyone who believes they've been victimized in any way to file a claim, so there are many more claims than there are actual accounts.
BLOCK: Okay, well how many claims have come in?
Mr. HARBECK: About 10,000.
BLOCK: Ten thousand. How much has been paid out so far from those 10,000 claims?
Mr. HARBECK: We've paid approximately 450 people, or we've approved payments for about 450 people and we've actually sent out $142 million.
BLOCK: There are, as I understand it, two parts of this payment process to investors and one is the part that you oversee, that's the SIPC fund paid for through brokerage industry fees and people can get up to $500,000 through that fund, but not everybody. Who's eligible of the Madoff investors?
Mr. HARBECK: Well, the technical definition of the term is customer and in this situation, the people who qualify for customer status are those who have deposited more than they took out of the Madoff scheme, so that they have a -what's called a net equity.
BLOCK: But, if I understand this right, but people who gave money to feeder funds didn't give their money directly to Bernard Madoff. They are not eligible, is that right?
Mr. HARBECK: Ordinarily you would be correct on that, but once again, just to make sure that we don't inadvertently miss someone who might be eligible to share in SIPC'S funds, or in the trustee's funds, we've made sure that even people who qualify only by virtue of feeder funds at least file a claim. Then if for any reason we have to deny the claim, we must do so, but I'd rather do that than miss someone who is genuinely eligible.
BLOCK: Well, this has been a huge source of contention for some investors who say they didn't have the assets to invest directly with Bernard Madoff. They didn't have the minimum required and this is creating a second class of citizens of people who didn't have the means and aren't probably or at least as they think right now, may not get reimbursed.
Mr. HARBECK: Melissa, this is one of those rare instances where common sense and the law sort of coincide. I could ask you if you have an account at Merrill Lynch or at E*TRADE or at Goldman Sachs and you'd be able to tell me right away if you had an account there. And the reason you'd be able to do that is because you would have statements from that brokerage firm directed to you.
In this case, the statements and the investment authority was not in the hands of individuals, and for that reason they wouldn't qualify under anyone's normal definition of the term customer. They invested in a fund and the fund is the customer and they will get their distribution through the vehicle in which they invested.
BLOCK: And here's another thing that's become contentious with these investors, the question of how to determine the value of their equity. Is it the initial investment, in other words, what they put in with Bernard Madoff or the value of what was shown on the last statement they got from Bernie Madoff, which is what some of the victims want.
Mr. HARBECK: Some of the victims do claim that the last statement is the only thing that the trustee should look at. That is just not what the law is. Some of those people have themselves received preferences and fraudulent transfers. And one thing the law does not permit is the perpetuation of the Ponzi scheme by saying that Bernie Madoff gets to determine how much each individual customer gets. That's just not the law.
BLOCK: We've been talking with Stephen Harbeck, the president of the Securities Investors Protection Corporation here in Washington. Thank you very much.
Mr. HARBECK: Okay, you're very welcome.
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