Madoff Investment Firm to Be Liquidated

The liquidation of Bernard Madoff's investment firm will take place in a New York bankruptcy court, giving investors allegedly duped by the accused Wall Street swindler a sliver of hope for some recovery.

Judge Burton Lifland of the U.S. Bankruptcy Court for the Southern District of New York will oversee the liquidation of Bernard L. Madoff Investment Securities LLC.

On Dec. 23 Judge Lifland authorized BMIS' liquidation trustee, Irving Picard, to mail claims packages and other information to the investment firm's customers and publish notice of the case before Jan. 9. That order also scheduled a meeting of creditors for Feb. 20.

The Securities Investor Protection Corp. requested the liquidation in an attempt to protect investors. Established by Congress in 1970, the SIPC protects investors in failed brokerage firms when cash and securities are missing from accounts.

It covers losses of up to $500,000 per investor for securities and $100,000 per investor for cash.

Madoff, 70, was arrested Dec. 11 on a securities fraud charge, and his investment firm, which handled big money and investors for more than four decades, immediately collapsed.

Madoff admitted in an interview with FBI agents and in statements to co-workers that he had ripped off his clients as part of a Ponzi scheme that could cost investors more than $50 billion, according to a criminal complaint filed in the U.S. District Court for the Southern District of New York.

Coverage by the New York Times revealed new victims on almost a daily basis as the holidays approached.

They include many Jewish charities and other nonprofit organizations that depended on BMIS investments for part or all of their funding.

According to the criminal complaint, Madoff told two top BMIS employees Dec. 9 that his investment advisory business was "one big lie" and a "giant Ponzi scheme."

"The senior employees understood Madoff to be saying, in substance, that he had for years been paying returns to certain investors out of the principal received from other, different investors," the complaint says.

FBI agents came calling at Madoff's Manhattan apartment two days later.

The criminal complaint gives a window into that initial meeting, including a description by FBI Special Agent Theodore Cacioppi.

"After I stated, 'We're here to find out if there's an innocent explanation,' Madoff stated, 'There's no innocent explanation,'" Cacioppi says in the complaint.

Madoff was released on $10 million bail secured by property.

It was a lightning-fast drop for a man who once was chairman of the Nasdaq stock market and a pillar of the financial community.

In addition to the criminal charge, the Securities and Exchange Commission filed a civil securities fraud lawsuit against Madoff and BMIS in the Manhattan federal court.

The SIPC joined the suit and asked U.S. District Judge Louis L. Stanton to grant BMIS investors the protections afforded by the Securities Investment Protection Act, 15 U.S.C. § 78aaa.

Among the requested protections were the appointment of a trustee, the commencement of a liquidation proceeding, the issuance of an automatic stay against all actions and the transfer of the liquidation case to Bankruptcy Court.

Judge Stanton signed off on the request Dec. 11.

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Douglas E. Spelfogel and Richard J. Bernard of Baker & Hostetler in New York represent Picard.