Who Gets the Rest of Madoff's Money?

Bernie agrees to SEC proposal with potential civil fine and victim repayment.

February 9, 2009, 2:54 PM

February 9, 2009— -- In what could be the latest chapter of a battle over who gets their hands on the remainder of Bernard Madoff's money, the Securities and Exchange Commission said today it had reached a partial agreement with the accused Ponzi schemer.

The SEC, bankruptcy lawyers and attorneys for individual victims have all begun efforts to track down and stake a claim of what's left of the $50 billion that the alleged fraudster reportedly told investigators was lost in his scheme.

Today, Madoff agreed to a proposed judgment with the SEC where he could eventually pay a civil fine and return money to people who had invested with him.

Madoff agreed not to contest the allegations against him by the SEC for the purpose of the SEC recovery of any assets and return of those assets to investors in a proposal submitted to a federal judge.

He did so without compromising his rights in the ongoing criminal case against him in federal court in New York or admitting to any of the allegations against him filed in the criminal complaint when he was arrested on Dec. 12, SEC officials said.

Those allegations included the charge that he "informed two senior employees that his investment advisory business was a fraud..(and) told these employees that he was "finished," that he had "absolutely nothing," that "it's all just one big lie," and that it was "basically, a giant Ponzi scheme," according to the SEC filing.

The SEC proposal for a "partial judgment and a permanent injunction" seeks a court order that makes permanent the freezing of Madoff's assets and right to recovery that were ordered by the court in a preliminary restraining order granted Dec. 18. The injunction component is really a technicality at this juncture. It enjoins Madoff from any future violation of federal anti-fraud statutes. The provision would come into play if he were found not guilty in his criminal trial, or upon his release from prison if he were found guilty.

The SEC action is one of the three major actions involving Madoff.

SEC Director Resigns

As news of Madoff's agreement hit today, the SEC also announced that its Director of the Division of Enforcement, Linda Thomsen, is leaving the agency after 14 years to work in the private sector.

Last October, SEC Inspector General H. David Kotz issued a report recommending disciplinary action against Thomsen, following Kotz' finding that the SEC gave "preferential treatment" to Wall Street executive John Mack during an insider trading investigation three years ago because Mack was about to become CEO of the Morgan Stanley investment banking firm.

Today, the SEC had nothing but praise for her.

"Linda's achievements have been nothing short of extraordinary, even heroic, in an era of unprecedented challenges in our securities markets," SEC Chairman Mary Shapiro said in a statement.

Madoff faces a criminal case in Federal court involving the defrauding of investors of an amount of up to $50 billion. He is also dealing with the bankruptcy of his firm in Federal bankruptcy court.

The agreement states that the allegations of fraud cannot be contested by Madoff and that possible penalties will be decided "at a later time," presumably after his Federal criminal trial is resolved.

The proposed SEC action must be signed off on by a Federal judge.

Later this week in the criminal case, the Federal government will either request an extension of the time in which to prepare its case or – and this is less likely – hand-up an indictment or submit to a pre-trial hearing.

Madoff made headlines across the world in December when an unsealed criminal complaint in federal court in New York charged that he has been running a decades long Ponzi scheme that defrauded investors of $50 billion dollars.

He was arrested by FBI agents and charged with criminal securities fraud by federal prosecutors in Manhattan. The complaint states that he used "manipulative and deceptive practices" and cites two senior employees in describing how Madoff kept his client records "under lock and key" and how he left them in the dark about how he managed the private client funds. One of those employees, in interviews with the FBI, said that Madoff was "cryptic" in his statements. This, according to clients, is in keeping with the aura that Madoff cultivated among his clients, some of whom have kept funds under management with him for generations.

Just Recently, Madoff Turned Away New Business

A former chairman of NASDAQ, Madoff was an investment advisor who catered to a handful of high net worth clients, one of whom told ABC News that Madoff was so sought after that, as recently as a few months ago, he was turning down potential new business. His handful of clients routinely expected -- and received -- double digit returns, up market or down.

The firm was the 23rd largest market maker on NASDAQ in October, handling a daily average of about 50 million shares a day. The firm specialized in handling orders from online brokers in some of the largest U.S. companies, including General Electric Co. and Citigroup Inc., Bloomberg News reported.

But on Dec. 10, Madoff allegedly told senior employees at his firm that his entire business was a fraud. According to the federal complaint, Madoff told those employees that he was "finished" and that "it's all one big lie." Madoff estimated "the losses from the fraud to be at least approximately $50 billion," the complaint states.

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