Politicians Dropping Madoff Money
Hundreds of thousands of now-tainted money donated over the years.
December 18, 2008— -- Politicians are grappling with what to do about the estimated $370,000 in donations they received from accused investment fraudster Bernard Madoff, his relatives, and employees.
Rep. Ed Markey, D-Mass., will donate $10,000 from his campaign funds to Massachusetts charities, according to his spokesman. That amount equals the donations he received since 1992 that were linked to Madoff. Madoff was arrested last week on charges stemming from an alleged $50 billion Ponzi-style investment scheme that victimized wealthy investors, including charities and celebrities.
Nearly $9 of every $10 Madoff gave to politicians went to Democrats, according to a review of his contributions.
Sen. Hillary Clinton, D-N.Y., struggling under millions in debt from her presidential campaign, indicated she would not take steps to separate herself from the $2,000 she received from Madoff and his wife eight years ago. A spokesman said that the donations were given to Clinton's 2000 Senate campaign fund, which no longer exists.
The Democratic Senatorial Campaign Committee told ABCNews.com it was "reviewing" the question of whether and how it should part with $100,000 it received from Madoff and relatives over the past several years.
Sen. Frank Lautenberg, D-N.J., told the Wall Street Journal through a spokesman "we will be ridding ourselves" of $10,000 he received from Madoff and associates during the same period. Sen. Charles Schumer, D-N.Y., told the paper he would contribute $6,000 to widows and orphans of New York City police and fire personnel, as a way to free himself of Madoff's questionable money.
On Tuesday, Sen. Ron Wyden, D-Ore., told the Oregonian newspaper he would donate the $14,000 he received from Madoff and his wife to the Oregon Food Bank. Oregon Democratic Senator-elect Jeff Merkley told the paper he was giving the $2,300 Madoff gave him to Habitat for Humanity.
Was Madoff Running a Ponzi Scheme?
Madoff made headlines last week 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.
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 two months ago, he was turning down potential new business. His handful of clients routinely expected -- and received -- double digit returns, up market or down.
According to a SEC document filed in Jan. 2008, and cited in the complaint, the firm had between 11 and 25 clients for the fiscal year ending Oct. 2007 and managed about $17 billion in assets in 23 different accounts.
Bernard Madoff Investment Securities, in addition to that private client practice, is also a market maker that trades with other dealers in bonds, the S&P 500 and NASDAQ, according to Bloomberg News.
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.
At that time Madoff also told those employees that he intended to surrender to authorities, but before he did he planned to use $200-300 million he had left to make payments to "selected employees, family and friends," the complaint states.
Madoff started his business in 1960 with $5000 in savings. He resides in New York City and, according to clients, also maintains a posh waterfront home. Known to his clients as Bernie, he has a long and significant history on Wall Street and has been a chairman of the board of the NASDAQ and was a founding member of the board of the International Securities Clearing Corp. in London.
Madoff Arrested and Charged with Securities Fraud
Madoff was arrested last Thursday morning by FBI agents and charged with criminal securities fraud by federal prosecutors in Manhattan. The complaint states that he used "manipulative and deceptive practices." The complaint 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.
But by the first week of December, when clients began clamoring for redemptions -- to the tune of $7 billion -- the complaint states that Madoff began a struggle to obtain the necessary liquidity. The stress began to show, the employees said.
In a meeting at their boss's Manhattan apartment -- held there following a confrontation in the office Wednesday because Madoff wasn't sure "he would be able to "hold it together" if the conversation took place in the office -- the employees came away believing that Madoff was "saying, in substance that he had for years been paying returns to certain investors out of the principal received from other, different investors."
The next day, Dec. 11, Madoff spoke with FBI agent Theodore Cacioppi and invited the agent and another agent to his apartment. Cacioppo stated in the complaint that he told Madoff he came by to see if "there's an innocent explanation."
"There is no innocent explanation," Madoff replied, according to the sworn complaint.
Madoff's lawyer, Dan Horwitz, a partner at Dickstein Shapiro in New York, said his client is cooperating fully with the federal investigation.
"Bernie Madoff is a long-standing leader in the financial services industry and he is cooperating fully with the government investigation into this unfortunate set of events," Horwitz said.