Who Is Bernie Madoff?:
Bernard I. Madoff, former NASDAQ Commissioner, ran a fraudulent investment fund that could cost investors as much as $50 billion. The money from new investors paid the returns for existing customers, a fraud known as a "Ponzi" scheme.
Many Celebrities Were Madoff Investors:
Investors included New York Mets owner Fred Wilpon, GMAC Chairman J. Ezra Merkin and former Philadelphia Eagles owner Norman Braman. Also losing substantial sums were real-estate magnate Mortimer Zuckerman, the foundation of Nobel laureate Elie Wiesel, and a charity of movie director Steven Spielberg. Some investors had as much as $11 million, which represented 95% of their total net worth. Banks with money invested included French bank BNP Paribas, Tokyo-based Nomura Holdings and Neue Privat Bank in Zurich. Hedge fund Maxam Capital Management lost $280 million and will have to close.
Will the SIPC Cover Madoff Losses?:
The Securities Investor Protection Corp. (SIPC) will only cover those who invested through Madoff's brokerage firm, not his investment advisory firm. The SIPC covers losses up to $500,000 that are related to theft and proven unauthorized trading, which could include a Ponzi scheme. However, the SIPC only has $1.5 billion, and would have to go back to Congress if it turns out it needed to cover the full $50 billion. SIPC doesn't cover hedge funds and other investments not registered with the SEC. (Source: WSJ, Are Investors Safe from Fallout?, December 14, 2008; Fund Fraud Hits Big Names, December 13, 2008 )
What Is the Best Protection Against a Madoff-type Ponzi Scheme?:
Most likely, Maddox investors will lose their money, some of them all of their money. Therefore, it is always best to place less than 15-20% of your portfolio in any one investment. The best protection for most investors is a well-diversified portfolio.
