Securities Fraud Attorney Blog

Below is a CNBC guest blog by Ross Intelisano on the two year anniversary of Madoff's arrest.

Madoff Two Years Later - It'll Never Be the Same
by Ross B. Intelisano - Rich & Intelisano, LLP

December 11, 2008 started like a typical year-end work day. Then the phone rang with a hysterical retired widow screaming and crying that she had just lost almost all of her money investing with Bernie Madoff. That might seem strange to many, but we receive calls like this all of the time. Our law firm represents investors who've been defrauded by Wall Street. But the phone kept ringing, all day, every day, from December through February. And the numbers were staggering; tens or even hundreds of millions of dollars lost. Generations of wealth were completely wiped out. We knew immediately. This was going to be the largest fraud ever, and by a long shot. And it was. $18 billion. Almost ten times larger than any other Ponzi scheme.

It became clear very early that the direct Madoff investors were doomed. SIPC would provide it's limited coverage and hopefully litigation would scrape some money back. But that didn't stop direct Madoff investors from calling. For about four hours every day we heard the most awful financial stories: sick seniors with no money for medicine, retirees who were now refugees. Although we knew we couldn't help these people legally, we spent three months providing emotional support to investors, some of whom were friends of friends, parents of colleagues, and even my wife's middle school teacher's family. It was the most torturous time of my professional career.

Prior to Madoff, when I told people what I did for a living, I often heard responses like, "Really? There's fraud on Wall Street." Since Madoff, it's been "You must be really busy." Uh, yes.

Unbeknownst to many people, most Madoff investors were not directly invested with Madoff but were indirect investors; those who got to Madoff through feeder funds often recommended by third party advisors. Many of the indirect Madoff investors had no idea that there money ended up in a Madoff feeder fund. These are the most tragic stories, often including people of modest wealth who lost most of their savings. There has been substantial backlash levied against direct investors alleging greed, ignorance and worse. But the unsuspecting indirect Madoff investors hired investment professionals to look after them. Some of these advisors did whatever they could to direct client money to Madoff feeder funds and represented that it was appropriate for clients' safety needs. There lies the greed. When Madoff blew up, the advisors shrugged their shoulders and cried, "how was I supposed to know?". That is as much a sham as Madoff himself.

Luckily, we've been able to help a bunch of indirect Madoff investors recover money from the few third party advisors who were financially viable even after Madoff exploded. Last week, almost two years to the date of Madoff's arrest, the retired widow called me crying again. We had just resolved her case against a third party advisor and it brought back all of her horrible memories of the winter of Bernie Madoff. She told me she still can't trust anyone. I understood. She said it will never be the same again. She's right. Though securities fraud will survive so long as there are brokers and customers, we will never see an $18 billion Ponzi scheme that destroyed so many families. Ever.

On June 29, 2009, Judge Denny Chin sentenced Bernard Madoff to 150 years in prison. Sitting in the courtroom that day was quite an experience. Below are my notes from that historic sentencing hearing.

Judge Chin’s sentencing of the maximum sentence drew cheers from the crowd after almost a full hour of very emotional presentations by Madoff’s victims. Judge Chin threw the book at Madoff calling it a “staggering fraud” and “not mob vengeance” as argued by Madoff’s counsel. He called the fraud a “massive breach of trust.”

One of the most amazing parts of the hearing was Judge Chin reporting that he had received not one single letter of support from family or friends of Madoff. That is astounding. I’ve never experienced a sentencing hearing in which at least one human being stood up for the character of the accused.

Judge Chin is known as independent minded and stated that any sentence over 20 or 25 years is symbolic and very important for retribution (message that extraordinary evil crime), deterrence and for the victims.

The victims’ speeches were extraordinary. Many in the crowd were crying. Of the nine victims who spoke, two broke down crying, two referred to Madoff as a monster or a beast and all told compelling stories of vanished wealth. A 33 year old man spoke about Madoff even defrauding his mentally disabled twin. Truly awful stuff.

Many victims blamed the government and the SEC for their failures to which Judge Chin once replied that there was no place for such comments in a sentencing hearing.

Ike Sorkin tried the best he could to stand up for Madoff calling him numerous times a “deeply flawed human being.” He also argued that only $12 billion was lost and investors will maybe get that much back. He also stated there was no hidden money and that Madoff has cooperated.

Madoff’s speech was pathetic. He didn’t apologize to the victims until his last sentence and made a very weak gesture of turning to face them all at the end. This was in response to the prior hearing when one of Madoff’s victims blamed him for not even looking at them in the courtroom. Madoff seemed to have no feelings at all and continued to make statements to protect his family.

Clearly, Judge Chin was having none of what Madoff or Sorkin said.

What was the reaction from investors? They were pleased Madoff got 150 years but still want their money back. An investor told me he wished Madoff would live that long just so he can serve whole 150 years. I responded that if there’s a hell, Bernie Madoff is the devil’s first pick in the draft – the sooner he’s available, the better.

The Madoff Affair is a one hour special airing on Frontline on PBS on Tuesday, May 12th at 9pm. Correspondent Martin Smith and award winning producer Marcella Gaviria produced the program. Through exclusive television interviews with those closest to Madoff's operation, they unearth the details of the world's first global Ponzi scheme, the longest running, widest reaching business scandal in history.

Mr. Smith and Ms. Gaviria were very impressive during their interview of me. I expect the show to be the best of its kind on Madoff. It’ll be available online as well.

The accountant for Bernard Madoff was arrested and is out of jail on a $2.5 million bond. David Friehling faces up to 105 years behind bars on charges he "rubber stamped" Madoff’s books. The U.S. Attorney’s Office charged Friehling with securities fraud, aiding and abetting investment adviser fraud and four counts of filing false audit reports to the SEC.

The SEC Complaint recites some juicy facts: the Friehling family invested for many years with Madoff, up to $14 million. David Friehling tried to hide his investment by replacing his name with his wife’s name and later with “Friehling Investment Fund.” The family withdrew $5.5 million since 2000. And the Friehling firm made $186,000 per year from1991 to 2008 – that’s over $3 million in fees over 17 years. Also, the SEC Complaint alleges that Friehling lied to the AICPA that didn’t do audit work he claimed to do and lied to the SEC about Madoff’s Form X-17-A-5.

What does this mean? Criminally, it looks like the government started by arresting Friehling: the low hanging fruit. Friehling is an easy one. The big question is who’s next? Likely DiPasquale and the other Madoff Securities employees. What about family? Who knows.