The Madoff revelations continue apace. The latest tidbit is that the records are such a mess that it may take the Securities Investors’ Protection Corporation six months (!) to make meaningful headway in unravelling Madoff books and records. From the Financial Times:
Bernard Madoff left behind a trail of “falsified” and “unreliable” records, hampering efforts by investigators to unravel the mystery of the $50bn “Ponzi” scheme allegedly perpetrated by the New York broker, officials said on Tuesday.
Stephen Harbeck, president of the Securities Investor Protection Corporation, an industry-funded body set up by Congress to help investors in failed brokerages, said it could take at least six months to “get a handle” on the situation…
“Statements received by investors do not reflect an accurate picture of what the brokerage firm actually has on hand,” he said. “There are missing securities. The records are thus incorrect and certainly falsified… They are certainly unreliable in terms of what the customers say they owned versus what is here.”
Now the SIPC is operating under the assumption that Madoff’s scheme constituted theft, and is in the process of contacting account holders to file claims (the maximum payable is $500,000). Roger Ehrenberg has pointed out that investors may have an additional source of recourse, from investors who redeemed funds in the last two years (their withdrawals could be considered fruadulent conveyance and clawed back, although Ehrenberg thinks from a practical standpoint that this would be a terrible idea).
But it sound as if the records are a complete shambles. I am assuming SIPC has the ability to do forensic work, It is too easy to envision a customer’s records going missing (even early accounts said most if not all of the records were paper-based, making it easy for something to get lost in the mess. SIPC even suggested that it will be hard to tell what is legit:
“We don’t have any faith or reliability in the firm’s statements,” says SIPC’s president and chief executive Steve Harbeck.
“The individual victims will have to file claims asserting and proving what they gave to Madoff securities, and we’ll have to compare that to records that we have on hand,” Mr. Harbeck says. “We don’t know how much people gave to this organization, and we don’t know how much realistically they think they’re owed.”
The requirement of matching a customer’s records with the phony-by-design records of a confessed fraudster seems odd. In this age of forensics, how hard would it be to verify that the documents actually came from the Madoff firm? Or is SIPC bound by procedures that contemplate, say, that employees might collude with outsiders to generate phony accounts and defraud the government?