Madoff Victims: Gov't Missed Red Flags

Victims of the Bernard Madoff Ponzi scheme have turned their ire from the primary source of their financial losses to the SEC, IRS and Madoff family members and employees who may have been involved the massive fraud.

Speaking with CBS News anchor Katie Couric, several victims expressed their emotions on the day that the 70-year-old Madoff pled guilty and was sent to jail, most likely for the remainder of his life. Their emotions ranged from hopeful to frustrated, with much of the frustration now aimed at the U.S. Government.


Diane Peskin said she took "cold comfort" in Thursday's proceedings. Peskin and her husband invested $3.2 million with Madoff from the proceeds of selling their business, which published a guide to gallery exhibitions around the country. Peskin's husband has been severely depressed and not functioning well, which she said has been heart-wrenching for their 10- and 13-year-old children. "He's just not the same person," she said.

Two school teachers invested $100,000 of their life savings to Madoff's scheme. "He seemed to be on the cutting edge of a lot of things," said Louis Kelsch, a retired high school math teacher, explaining why he chose to invest with Madoff.

"On paper he seemed to have good ideas.... If he was a legitimate brokerage he would have done pretty good." Kelsch speculated that Madoff needed accomplices to manufacture the false statements and transactions sent to his investors. "A lot of computer work goes into creation of the statements. I don't think that is his specialty and he probably hired some savvy people. He would have had to give them instructions to carry them out."

Sheryl Stein, a CPA who knew Madoff personally for 20 years, invested millions with his firm. She said she became an individual investor with Madoff after an extensive review by a financial advisory and some press in 1992 that gave him a thumbs-up. "Bernie didn't ask for money. His thing was to be asked," Stein said. She noted that he had an "aura," and that people were grateful to place their money with him.

Asked whether she felt embarrassed to have been swindled by Madoff, Stein said that there is a lot of Monday morning quarterbacking going on. "I didn't lose my money, somebody stole it," she said. Like other fairly sophisticated investors in Madoff's funds, she assumed that the stocks in the statements existed and that as the chairman of NASDAQ, he was beyond reproach. "There were no red flags," she concluded.

Nor did the Securities and Exchange Commission see any red flags around Madoff's business, despite the fact that SEC regulators examined Madoff's firm several times over the last 15 years, most recently in May 2006, and didn't uncover the fraud. During an interview with "60 Minutes" financial analyst Harry Markopolos said that he sent materials to the SEC questioning the integrity of Madoff's firm five times between May 2000 and April 2008.

According to Ron Stein and some of the other victims, Congress and President Obama need to step in and bring changes to the IRS, ERISA (Employee Retirement Security Act) and SIPC. "If the government doesn't step in, how can anyone feel comfortable and secure investing in American financial institutions?," Peskin asked.

"We need the government to step in and help the victims of the scandal. They owe us some assistance," Peskin said.

"We have the beginning of story with the SEC failure. The SEC knew about the red flags and did not act upon them since 1992," said Ronnie Sue Amvronsino, a retired computer analyst who lost $1.66 million with Madoff. She also said that the $500,000 fraud compensation limit from the Securities Investor Protection Corporation (SIPC) is inadequate and that the IRS has been a beneficiary of the Madoff fraud, collecting taxes for years on gains from phantom trades.

The victims have to submit their claims to the trustee in charge of Madoff's assets by July 2. If he uncovers any of the billions of missing dollars, they'll be eligible for a share.

They can also apply to the Securities Investor Protection Corporation for up to $500,000 -- though of course, some victims have lost much more than that.
By Dan Farber
©2009 CBS Interactive Inc. All rights reserved
  • Dan Farber On Twitter»

    Dan has more than 20 years of journalism experience. He has served as editor in chief of CBSNews.com, CNET News, ZDNet, PC Week, and MacWeek.

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