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 pyramid 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?:
Madoff investors had the ability to hire the best financial advisers. Instead, they put all their money with someone who swindled them. You don't need to pay for expensive financial advice to learn from these millionaires' mistakes. Rule #1 -- It's always best to place less than 15-20% of your net worth in any one investment. That way, if you do get swindled, you won't lose all your money. That's why the best protection for most investors is a well-diversified portfolio.