The trustee in charge of untangling the mess left behind by Bernard Madoff told a packed auditorium Friday there was no indication the disgraced money manager had bought securities for his clients for over a decade.
"We have no evidence to indicate securities were purchased for customer accounts" in the past 13 years, said Irving Picard, the court-appointed trustee overseeing the liquidation of Bernard L. Madoff Investment Securities LLC. "This is a case where we're going to be looking at cash in and cash out" — the definition of a Ponzi scheme.
He said he has recovered $950 million so far.
Madoff was arrested in December after investigators said he confessed to his sons that he had swindled investors of $50 billion in a pyramid scheme. The 70-year-old former Nasdaq chairman remains confined to his Manhattan apartment under house arrest.
At a meeting for investors in lower Manhattan, Picard detailed the history of the case and how claims will be processed. His office has received 2,350 claims so far and expects the number to double before the July 2 deadline to submit claims.
David Sheehan, a lawyer working for Picard, called the alleged fraud "a Ponzi scheme where no stock was purchased." In a Ponzi, or pyramid, scheme early investors are paid with money collected from those who invest later.
Last year, Picard sought and won permission from a bankruptcy court judge for $28.1 million to cover expenses tied to the liquidation of Madoff's investment firm.
On Friday, Picard said he has retained 60 employees out of the orginal 180, and hopes to sell the remaining operation to help cover losses. He also wants to sell off paintings and sculptures decorating Madoff's offices in midtown Manhattan.
Sheehan told the assembled investors the trustee's office will be trying to recover "false profits" earned by some investors.
"There wasn't any stock bought or sold," Sheehan said. "It was all just made up. ... You got somebody else's money."
Picard noted that victims could qualify for up to $500,000 in funds from the Securities Investor Protection Corp., or SIPC.
Congress created the SIPC in 1970 to protect investors when a brokerage firm fails and cash and securities are missing from accounts.
Detailing the scope of the probe, Picard said his office and criminal investigators are reviewing a mountain of evidence, including 7,000 boxes of records at a Queens warehouse that go back more than a decade. Sheehan added that investigators are reviewing "thousands and thousands of e-mails" from Madoff's operation.
Picard said his office plans to issue dozens of subpoenas in the coming weeks related to Madoff's business dealings.
He cautioned that the criminal investigation is ongoing and said: "We are operating out of a crime scene. There is a limit to what we can say."
The meeting, which was called to brief investors who lost money with Madoff, was held in an auditorium that holds 460. The hall was mostly full although it wasn't clear whether everyone attending had actually invested with Madoff.
One investor complained about both Madoff and the federal Securities and Exchange Commission, which has been harshly criticized for failing to detect the pyramid scheme despite red flags raised to agency staff by outsiders over the course of a decade.
Raymond Spungin, 77, told Picard he had checked with the SEC before investing with Madoff in the early 1990s.
"They said Madoff was the greatest," he said. "We're the victims not only of Madoff but of the incompetence of the SEC." He and his wife believe they had $1.8 million in two accounts.
Experts have said that the first of any recovery payments for investors who lost money with Madoff might be years in the future.
The most likely source is liquidation of Madoff's personal assets and any cash in accounts tied to the investment firm. Picard has identified more than $830 million in liquid assets that may be subject to recovery — far short of the potential tens of billions of dollars in losses.
Madoff has homes in Montauk, New York and Palm Beach, Florida, a penthouse in Manhattan and a handful of luxury yachts. Prosecutors have accused him of mailing off millions of dollars in personal assets to family members while under house arrest.
Outside of liquidating assets, some investors in the scheme could actually be on the hook to make payments in a situation known as "clawbacks." In that case, investors that received alleged profit payments might have to return the money for redistribution.
Sheehan said the assets of Madoff "insiders" could also be seized and liquidated.
"We are looking at every member of the Madoff family," he said.
