Wealthy Investors Duped by Bernard Madoff May Be Protected by Government

Once again, the federal government may come to the rescue of yet another wealthy group. Former NASD chief and disgraced investor Bernard Madoff may have duped his investors out of $50 billion, but a federal judge may be the life line these wealthy people may need through an order of protection. Meanwhile, a federal judge on Monday threw a lifesaver to investors who may have been duped, saying they need the protection of a special government reserve fund set up to help investors at failed brokerage firms. U.S. District Judge Louis L. Stanton ordered that clients of Madoff's private investment business seek relief under a federal statute created to rescue cheated investors. Stanton also ordered that business be liquidated under the jurisdiction of a bankruptcy court and named attorney Irvin H. Picard as trustee to oversee that process. So, when rich folks get duped, there's a life line thrown at them, but when Main Street needs help against foreclosure, they are undeserving of any government assistance to stay in their homes.

Stanton signed the order after the Securities Investor Protection Corporation asked that steps be taken to protect investors in the scheme, which has ensnared several major banks and prominent figures as victims and could result in as much as $50 billion in losses.

Congress created the SIPC in 1970 to protect investors when a brokerage firm fails and cash and securities are missing from accounts. Funds can be used to satisfy the remaining claims of each customer up to a maximum of $500,000. The figure includes a maximum of up to $100,000 on claims for cash.

The order came just days after federal prosecutors charged Madoff with securities fraud, saying he had admitted to orchestrating a massive Ponzi scheme. Madoff is free on $10 million bail after he was charged with securities fraud last week. Source: ABC News.

One thing I have learned is that the rich always strive to be richer, no matter what. So, this man comes along and offers them a big return and they fall for his "game." Yes, he gamed them and they ought to feel really stupid. What about portfolio diversification? Don't put all your eggs in one basket is the golden rule, but I guess the prospect of big returns clouded the judgments of many of these people. The sad reality is that it will affect the "little people" because many institutions and charities also got burned.

The scheme was operated out of the so-called "Lipstick Building" on Third Avenue. Bernard Madoff Investment Securities LLC occupies three floors and may have bilked investors of $50 billion. Prosecutors have said that it was a classic Ponzi scheme. The firm paid-off earlier investors with money from new investors. It collapsed amid a nervous economy when some people wanted their money out.

I guess the list of victims could get larger as more people claim they lost millions. The list of victims is quite interesting--Mets owner Fred Wilpon; former Philadelphia Eagles owner Norman Braman; investors such as Joan Sinkin who claims to be of modest means and lost her entire life savings; a charitable fund set-up by the family of Senator Frank Lautenberg of New Jersey; several major banks including Spain's Grupo Santander SA, Britain's HSBC Holdings PLC, Royal Bank of Scotland Group PLC and Man Group PLC, France's BNP Paribas and Japan's Nomura Holdings reported falling victim to Madoff's alleged Ponzi scheme.

I would like to know how this man flew under the Securities and Exchange Commission radar for so long. I am pretty sure that there were warning signs, but what is indicative of the lax regulatory oversight on Wall Street, this should come as no surprise. The man is a crook and deserves to be incarcerated in a prison for violent offenders. Since the government is only too happy to help rich folks out, then they ought to help the millions of struggling homeowners across the country get affordable mortgages.