Madoff Set to Disclose List of Holdings

Disgraced investor faces a deadline to reveal assets to securities regulators.

Dec. 31, 2008— -- Bernard Madoff, the disgraced money manager, has until the end of today to reveal to regulators a list of all of his and his firm's assets. It's a key piece of the puzzle for investigators trying to untangle his alleged $50 billion investment scheme and for investors hoping to recover their money.

Regulators are still struggling to confirm the unprecedented size of the alleged scheme, track down the missing money and assess who may be responsible for the alleged fraud, whose tentacles have reached across the globe to touch everyone from celebrities to European banks to retirees looking to safeguard their life savings.

The Wall Street Journal reported today that Henry Kaufman, the former Salomon Bros. chief economist, had lost millions of dollars with Madoff and that actors Kevin Bacon and Kyra Sedgwick also had lost an undisclosed amount.

Lawyers warned that it could take months or years to fully unravel the complicated web of investments and legal liabilities, but the accounting from Madoff could provide a small clue to one of the enduring mysteries of the Madoff scandal -- what happened to all the money?

"There's never been anything of this scale. It's stretching our minds to imagine something even close to this," said Mitchell Zuckoff, a journalism professor at Boston University and author of "Ponzi's Scheme: The True Story of a Financial Legend." "I don't think anyone has pulled something off like this from the inside."

Though Madoff's remaining assets are not expected to come close to meeting the anticipated losses, investors could get a clue about how much money may be available to victims.

A Securities and Exchange Commission spokesman declined to say if the agency had received the disclosure or whether it would reveal its contents to the public. The spokesman said the court order requiring Madoff to reveal his assets did not require that the disclosure be made public.

Madoff, who remains under house arrest after allegedly confessing to bilking investors in what the prosecutors say was a giant Ponzi scheme, was ordered by a federal court in New York earlier this month to provide a full accounting of his wealth to the Securities and Exchange Commission by Dec. 31. His lawyer declined to comment.

Shortly before he was arrested, Madoff allegedly told employees that he had $200-$300 million left, according to an FBI complaint.

"I don't think there's going to be much money left," said Lawrence Klayman, an attorney who represents some Madoff investors. "It will pale in comparison to the overall totality of the losses."

On Wednesday, police recovered a $10,000 statue that was stolen from Madoff's Palm Beach, Fla., home, according to the Palm Beach police. Attached to the statue was a note that said, "Bernie the Swindler, Lesson: Return stolen property to rightful owners." It was signed, "The Educators," according to the Palm Beach Daily News.

On Tuesday, a U.S. Bankruptcy Court judge approved the transfer of $28.1 million of Madoff's assets to the trustee overseeing the liquidation of Madoff's investment firm.

Protection for Investors

In a separate proceeding, a federal judge is considering broadening the protections normally available to investors in fraud cases to include investments made by third parties.

Losses from some direct investors in Madoff funds may be covered by a federal fund that protects investors from fraud losses in brokerage accounts, known as the Securities Investor Protection Corp.

But many who lost money through Madoff were not direct investors; they instead put money in what have come to be known as "feeder funds," many of them run by members of the Wall Street elite that in turn invested with Madoff.

Investigators are turning their attention to those funds, some of which put all or nearly all their money with Madoff, asking why their managers apparently did not see red flags that had been raised about Madoff's investment strategy.

"The question is whether people were on notice and what reason they had to question whether things were too good to be true," said John Hogan, who represents several investment funds that lost money with Madoff.

Madoff found many of his investors among the universe of Jewish charities, critics say, from national groups like Hadassah, the women's Zionist organization of America, which says it lost $90 million, to regional organizations such as the Jewish Community foundation of Los Angeles, which lost $18 million.

"His whole MO was to go through his fellow Jews," said Rob Eshman, the editor of the Jewish Journal of Los Angeles. "It was the tribal network, so to speak."

Funds run by J. Ezra Merkin, a well-known investor, philanthropist and president of the Fifth Avenue Synagogue, reportedly lost more than $1 billion with Madoff.

Eshman said that Madoff and his so-called middlemen, who ran funds that fed into Madoff's firm, moved in tight-knit Jewish social circles, what he called "a rarified world of exclusivity and trust." Their standing in those circles helped them find investors, he said.

In some cases, private investors have reportedly said that they did not know that their advisers where investing their money with Madoff.

'Feeder Funds'

Merkin, the chairman of GMAC, and other fund managers have been sued by investors, including New York University, for allegedly concealing Madoff's involvement in several funds.

Ascot Partners, another fund run by Merkin, says all of its estimated $1.8 billion was invested with Madoff. Harry Susman, an attorney representing some Ascot customers, said the investors did not know the money was being managed by Madoff.

"Merkin had personal meetings with them [investors], he would spend hours with people talking with them about his investment strategy," Susman said. "It was all the more shocking that he was just giving the money to Madoff."

Merkin's attorney did not return a call for comment. In a letter to investors, Merkin said, "I am shocked, as I know you are, by this fraud. As one of the largest investors in our fund, I have also suffered major losses from this catastrophe."

The wording on an Ascot fund offering document is said to include language giving Merkin discretion to give money to third-party managers.

The billions in losses, prosecutors say, came from investors large and small who were drawn by Madoff's sterling reputation and his record of steady returns that outperformed major indexes like the S&P 500.

Pennsylvania resident Roger Peskin, 65, a retired art gallery guide publisher, said he lost $3.2 million as a result of the alleged scam and now must come out of retirement.

"I don't have any money left," he said.

Like Peskin, Robert Crew was turned off by investing in the wider stock market. So Crew, 55, turned to a California-based financial adviser who had provided his wife's family with "rock solid" returns for more than three decades. That adviser, as Crew learned only recently, had invested his money in Madoff's firm.

In the last five years, Crew said that he and his wife had invested $700,000 and had seen their money grow -- on paper, at least -- to $1.2 million.

"We put in everything we could," he said.

Crew said he was aware of the conventional wisdom -- that investors should diversify, keeping their eggs in more than one basket -- but he ignored it.

"It was so great for so long -- that's why a lot of people got wiped out," he said. "They saw this as being the greatest investment ever, so why fool around with weaker investments? … If you had a million in an account that has been strong for 40 years, delivering returns of 15 percent, 14 percent, would you take it out to put it into something that was only generating 4 percent?"

Some of those who withdrew their money before the collapse of Madoff's investments may have to return their gains, if they did so because they suspected fraud was taking place, securities lawyers said. Investors in previous fraud cases have been forced to return fraudulent gains they withdrew in bad faith.

"The most likely to have to give the money back are the ones who smelled a rat, if you will," said Stephen Nelson, a securities lawyer.

London's The Observer reported Sunday that forensic accountants investigating Madoff's records had found that he had sent money to offshore accounts in the Caribbean and Europe.

The New York Times reported today that federal prosecutors are beginning to consider what role offshore fund operations may have played.

Stephen Harbeck, the chief executive of the Securities Investor Protection Corp., which is overseeing the liquidation of Madoff's firm, said that the investigation is in its "infant stages" and that "it's far too early to draw conclusions about where the assets are."

Irving Picard, the trustee appointed to run the liquidation, Harbeck said, "will go after assets of the brokerage firm wherever they may be."

Picard declined an request for comment.