I have been asked about my thoughts on the Bernard Madoff Ponzi case, and how it relates to what we do at Eagle Research Associates, Inc.  Certainly the news coming out each day is more revealing than the previous one about the scope and enormity of this Ponzi.  The number of high net-worth individuals, endowments, foundations, and nonprofit corporations involved is shocking –sort of a who’s who of the elite and institutional organizations in the United States, and Europe.  Here’s an interactive list of those who’ve so far been reported as victims to date: http://www.msnbc.msn.com/id/28243097/

SCOPE OF THE PROBLEM:

The problem is that we are only seeing the tip of the iceberg that is the Bernard Madoff Ponzi.  As time goes by, more and more revelations will be made that add to the list of victims of this Ponzi.  Not only does this affect wealth in this country, but Europe as well.  His reach was global, and this is going to cause many family dynasties severe financial hardships in the days, weeks and months to come.  While there has been one reported suicide so far from this debacle, my fear is there will be more.  It is hard to be the one responsible for the loss of a family’s fortune, and causing so much harm to so many family members.  As more information is revealed and those entrusted with investing for their family or firm succumb to the pressure, it is possible there will be more suicides.  I certainly pray this is not the case, but I wouldn’t be surprised if it happens.

This scheme has hit major foundations, endowments and nonprofits, thereby creating additional fallout and damage.  In my opinion, the full scope of this debacle will be far greater than the housing melt-down of 2007-2008. 

COMPOUNDING THE PROBLEM:

What is going to be difficult for the receiver will be deciding who must return monies received from Madoff because these monies were obtained by illegal means…..paying older investors with new investors’ money to make them believe they were achieving a legitimate return on their investments. Because of this, high net-worth individuals may be required to pay back all illegal “returns.”
 
Many nonprofits that received payments may also be asked to give back that money.  The problem is they will have already spent it on their various expenses, programs, and services.  Many social programs that cities and states rely on these nonprofits to perform will stop.  This will cause even greater hardship on those who rely on these services.  This is where the real nightmare of the scope of this Ponzi will be felt, doing the most damage to our communities. 

To add insult to injury, U.S. Bankruptcy Judge Burton Lifland approved the transfer of $28.1 million to cover expenses tied to the liquidation of Bernard Madoff's investment firm. This money is lost to those who may someday be awarded distributions by the receiver.

Elie Wiesel is the author of the classic book “Night,” which chronicles his personal experiences in the Holocaust. He is also a former winner of the Nobel Peace Prize.  The Elie Wiesel Foundation for Humanity, a charitable foundation dedicated to helping refugees and Ethopian Jews, revealed that it had invested over $15 million through Bernard Madoff. That amount represented virtually all of the foundation’s assets. The Foundation no longer has any funds to continue its charitable pursuits and announced that it is closing down.

Many other foundations and endowments had their funds invested with Madoff, and now these funds are gone.  This means many may be forced to close. Those that don’t will have to curtail many of the projects they supported until the money lost can be recouped.  This means organizations who received donations from these foundations and endowments will no longer receive them, causing hardship to those they served. 

The closure of nonprofits, foundations and endowments will add to the unemployment rolls.  Those organizations who were benefactors of payments from these nonprofits, foundations and endowments may also be forced to lay off employees. As you now can see, this is far greater than just the loss of a significant amount of wealth.  This is not just a problem that is facing the super rich, but has tentacles to every part of society and income levels.

THE DILEMMA OF THE RECEIVER:

And of course the real problem will be just how much money the receiver can recover to give back to those who just invested and had not received any payments.  They will be lucky if this is pennies on the dollar due to the size of this Ponzi and the amount of money available to pay back to the victims.  Understand this:  everyone in this was a victim but as with all Ponzi’s, some victims get paid illegal returns, while others receive nothing.  Employees of Madoff’s firms who were paid bonuses stand the risk of having to give it all back, as well.  This is the dilemma the receiver will face as he tries to unravel this tangled mess.  Being the receiver in this case is not going to be glamorous.  He must walk on eggshells while wearing combat boots—not an enviable task or a job I would want.

WHY ALL PONZI’S CAUSE HARDSHIP:

When you compare this Ponzi to others that have been shut down or are currently operating on the Internet, they pale in comparison to the Madoff case.  Still, that does not mean they don’t cause financial hardship to those who are victims of these fraudulent schemes.  The average person is hit just as hard by participating in, and becoming a victim of, these fraudulent schemes as the extremely rich have been with the Madoff case.  Whether on a scale as large as Madoff, or as small as a CEP (ColonEndParenthesis), 12DP (12DailyPro), WPI (WealthPoolsInternational), ASD (ASD Cash Generator), PIPS (PeopleInProfitSystem), or any other fraudulent scheme or Ponzi, all are still illegal, and the ones taking your money are criminals.  The only difference is the circles in which the criminal operates.

A SILVER LINING:

The good I see coming from this is people are now aware that it makes no difference how educated you are or how much investment knowledge you have, you can be scammed.  When I have said this before, many people have not believed me.  Now, they realize how accurate and true my statements were.  Now, they are believers.  One hates to have a crime like this occur to make people believe but sometimes that is exactly what has to happen for people to wake up. 

Most of the scams we at Eagle deal with promise returns that are greater than any other type of program available.  So it makes it a little easier to identify when an offer might be fraudulent.  With Bernard Madoff, the returns he claimed he was generating were not that outrageous.  They were not outside the normal means of sound investments.  What should have sounded the warning bells were returns that seemed excessive given the market conditions.  But because they didn’t “jump off the page” for the people participating, these investors did not see the danger or realize, in comparison to the marketplace, that the returns were truly excessive. Remember, even money managers were fooled by Bernard Madoff and his “returns.”  That is why it is imperative you be constantly aware of what is going on in the financial markets and look at how other programs or investments are doing in relation to your investment programs.  Investing is hard work and requires your focused attention at all times.

WHAT THIS MEANS TO EAGLE:

Since one of our goals is to educate the public about fraudulent investment schemes, I believe the Madoff case makes it easier for us to do so.  People are now more aware that anyone can be deceived and taken advantage of; it makes no difference as to how much education you have, you can be conned.  It’s important not to take anyone’s word solely on any investment opportunity, no matter how smart you think they are.  You must get as many opinions as you can before you invest in anything - and you cannot just rely on someone’s word.