Duane Morris LLP - Challenges Facing Madoff Investors and Other Impacted Entities

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Challenges Facing Madoff Investors and Other Impacted Entities

Investors in Madoff Securities, and all of the other entities impacted by Madoff's multibillion-dollar alleged Ponzi scheme, will face complex challenges to minimize the damage and their losses.

Duane Morris is representing individuals and others affected by the scandal by providing both individual advice and group representation to clients, particularly in dealing with the government, including the Department of Justice, the Securities and Exchange Commission (SEC), the receiver and the Securities Investor Protection Corporation (SIPC).

Challenges

In addition to the criminal and civil complaints against Bernard Madoff and a civil class action lawsuit, a federal judge has appointed a receiver and signed an order freezing all assets of Madoff Securities, including the broker/dealer and investment advisor, and prohibiting the filing of a bankruptcy action by creditors without notice to the SEC or leave of court.

The Madoff firm has been ordered into liquidation, an SIPC trustee has been appointed and, as a matter of law, it now cannot be reorganized. The SIPC liquidation has been transferred from U.S. District Court to the Bankruptcy Court, which automatically stays all litigation filed against Madoff and his firm. SIPC insurance coverage provides up to $500,000 per investor.

SIPC liquidation is only part of what will likely affect investors and third parties, including hedge funds, insurers and insured institutions. The claims brought by both the government and private parties seeking to recover monies, including those monies previously distributed, will be significant.

Services

We have a team of experienced lawyers who have dealt with issues that must be addressed in any attempt to secure relief for our clients. These services include:

Government Investigations

We can assist clients in dealing with the government in its investigations, both criminal and civil, including the SIPC liquidation. There are a number of different issues which need to be addressed in order to determine what coverage is available pursuant to SIPC. In this regard, we will interact with the SIPC receiver and trustee as well as the U.S. Attorney's Office and the SEC. We will also undertake to advise and counsel clients faced with regulatory investigative requests for information, interview, and testimony.

Tax Advice

Tax advice will play a significant role in attempting to make our clients whole, especially when dealing with the various tax statutes, rulings and laws involving "Ponzi scheme" implications. These are complex and will involve investors making decisions about various tax strategies in attempting to maximize any tax recoveries available to them.

"Clawback" Issues

Our lawyers can advise clients regarding the potential "clawback" possibilities in the SIPC liquidation and the viability of such claims. We will undertake to defend our clients against "clawback" attempts by the government. Given the magnitude of the losses and the complexities of the timings of multiple investments and distributions to a wide number of investors, it is unknown what position the government will take with respect to the "clawback" issue. This, however, is likely to become a significant issue for a number of investors.

General Advice

We can provide general advice as the investigation into one of the largest, if not the largest, securities fraud and Ponzi scheme in history unfolds. The only thing that anyone can realistically assess at this time is that this will be a lengthy and complex process and that many issues are likely to arise that have not yet surfaced. We can help and guide clients through these issues and work with our clients' personal advisors in helping them make informed decisions, including the impact that these investments might have on estate planning, tax issues and litigation positions.

Litigation

Private litigation could also become a possibility. Although the government, through the criminal, civil, SIPC liquidation and receivership, will deal directly with the Madoff assets, including the Madoff firm, and Madoff's personal assets, there certainly is a possibility of third party litigation. We will examine all possible avenues of third party litigation and discuss what options there may be either as an individual or as members of the group by which investors might benefit from private litigation against any third party advisor, broker-dealer or others.

Now that the government has stepped in, a lengthy investigation and recovery process is expected to ensue. Appropriate steps early in the process will be key in protecting investors' rights. Investors looking to pursue legal actions individually may find it unduly expensive and unlikely to produce better results than acting in a group. Moreover, acting as a group whose total losses might be calculated in nine figures will require the government and the courts to take notice of the group's rights and interests in the matter.

Experience

Joseph J. Aronica, in Duane Morris' Washington, D.C. office, is one of the leaders of our White-Collar Criminal Law group. He was lead counsel on behalf of the Office of Federal Housing Enterprise Oversight in its special examination of Fannie Mae, which resulted in a settlement by Fannie Mae of $400 million, and in its administrative prosecution of charges against the former CEO, CFO and controller of Fannie Mae, seeking millions of dollars in penalties. Before entering private practice, Mr. Aronica was an assistant U.S. attorney for the Eastern District of Virginia, where he served as senior litigation counsel, chief of the Special Prosecutions Group and chief of the Criminal Division. He received the Attorney General's Distinguished Service Award for his role as lead counsel in the "Illwind" nationwide defense procurement fraud investigation.

Marvin G. Pickholz, in our New York office, was national assistant director of the SEC's Division of Enforcement in Washington and Chief of the Enforcement Branch of the SEC in New York. At the SEC, he handled one of the first and then-largest liquidations of a broker/dealer known as Charles Plohn and Co. Since then, he has been involved in many of these situations, including, most recently, the $2.5 billion failure of Lipper Convertible Funds that resulted in criminal SEC and private damage actions. Those damage actions also involved various third party claims and clawbacks. He is a frequent guest on Bloomberg News, CNBC, NBC, Fox News and the BBC and is quoted in domestic and foreign financial publications on the topic of securities crimes.

Loren Schechter, in Duane Morris' New York office, is head of the firm's Broker-Dealer practice group. He has more than 40 years' experience in the securities industry, serving previously with the New York Stock Exchange and as general counsel of Prudential Securities. He is a past president of the Compliance & Legal Division of the Security Industry Association.

Martin B. Shulkin is the managing partner of Duane Morris' Boston office. He has more than 30 years' experience counseling business clients in connection with commercial and contractual disputes.

Duane Morris Capabilities

White-Collar Criminal Law

Our lawyers frequently have worked with clients involved in high-profile investigations, including securities litigation and fraud allegations, and have been involved in a number of the largest SIPC liquidations.

Broker-Dealer Related Litigation and Arbitration

Duane Morris brings extensive experience in securities industry arbitration, mediation and litigation, specific to issues regarding broker-dealers, funds, other institutions and investment professionals in the arbitration forums of the NASD, NYSE, NFA and AAA, as well as in handling matters before the state and federal courts.

Securities Litigation

We have represented funds, registered representatives and public customers in litigation and arbitration in all aspects of securities law, including broker-customer cases. Our lawyers also serve as and train arbitrators for the National Association of Securities Dealers, Inc. and other entities, providing a unique perspective on how such cases are viewed by those who decide them.

Class Action Litigation

Duane Morris represents clients in class action litigation brought under federal and state securities laws, state trade practice and consumer protection laws. Our lawyers have assembled a comprehensive set of pleadings and briefs on class action practice that enables us to handle these kinds of cases efficiently for our clients.

Creditors' Rights and Advisory Services

Due primarily to the firm's long history of representing banks, other commercial lenders and insurance companies, our lawyers have extensive experience in the protection and advancement of creditors' rights in insolvency situations.

Services for Investors

Now more than ever it is clear that the investment landscape is fraught with peril. Seeking opportunities and balancing risk and return in a climate filled with new regulatory, legal and competitive hurdles, investors need more than financial advisers. Increasingly, legal counsel can make the difference between seizing a rewarding opportunity and stumbling into a costly investment mistake.

For Further Information

If you have any questions regarding the Madoff scandal and Duane Morris' activities in reaction to it, please contact Joseph J. Aronica, Marvin G. Pickholz or Loren Schechter.