Trustee Tells Investors That Madoff Probably Never Bought Securities
Clients of alleged swindler Bernard Madoff heard some bad news today: "We have no evidence to indicate securities were purchased for customer accounts," said Irving Picard, the court-appointed trustee overseeing the liquidation of Madoff's assets. According to the Associated Press, Picard told a meeting of investors that he has recovered $650 million so far and that victims could qualify for up to $500,000 in funds from the Securities Investor Protection Corp., also known as the SIPC.
While Madoff and his firm may not purchased the securities that clients believed he was buying on their behalf, he certainly acquired a lot of trust from sophisticated investors who really wanted to believe that the returns he promised were real, even though they seemed too good to be true. In a recent Knowledge at Wharton podcast, Wharton operations and information management professor Maurice E. Schweitzer and G. Richard Shell, professor of legal studies and business ethics, lamented that trust was another a victim of the scandal triggered by Madoff's alleged Ponzi scheme.
That loss of trust hurts the entire market, Shell asserted in the podcast. "Trust is like lubrication," he said. "It makes transactions easier, faster, cheaper. It fuels the economy, so we can trade. And we've lost some of that trust. So now the costs are going to go up. There's more friction, as we have to do more due diligence. I think that's necessary. And clearly, it was necessary before this. So perhaps the silver lining is that we're going to get back to these basic principles of oversight and diversification."
Madoff was arrested in December after investigators said he confessed to his sons that he had swindled investors of $50 billion. The 70-year-old former Nasdaq chairman is now under house arrest in his Manhattan apartment.