Irving Picard’s trusteeship in MADOFF: The Monster of Wall Street explained

The discovery of Madoff’s crime saw SIPC appointing Irving Picard to manage the crisis and compensate the victims. ‘MADOFF: The Monster of Wall Street’ is now streaming on Netflix.

When Bernie Madoff’s fraud comes to light, several lives get destroyed. People who had invested their life savings with him come to realize that their money has been wiped out overnight.

The investors had given Madoff a total of about $19 billion, and they believed that the profits generated were around $64 billion. The ruling from Washington deems Madoff to be a member of the Securities Investor Protection Corporation (SIPC).

The purpose of SIPC is to operate an insurance fund that would provide up to $500,000 per account in case the broker takes the money and does not buy the securities.

However, the courts rule that the SIPC insurance would not apply to a Ponzi scheme. Furthermore, as there were so many victims, SIPC would not have been able to compensate all of them.

SIPC then appoints Irving Picard as the Madoff trustee; trustees are responsible for liquidating bankrupt broker-dealers.

Picard’s recovery operation

It is Picard’s job to figure out who gets what. For this purpose, he decides to use the net equity formula. According to this formula, some people are net losers, while others are net winners.

Net losers are those who have not been able to get their money out of the Ponzi scheme, whereas those who have been withdrawing money throughout the years and have taken out more than they have invested are considered to be net winners.

Net winners are asked to give back the additional sum; this is known as a clawback. Picard files clawback cases against hundreds of people to recover the money.

Jeffry Picower, one of Madoff’s big four clients, used Madoff’s help to evade taxes and benefited financially from the fraud more than anyone else. Picard sues Picower and gets his wife to return $7.2 billion after his death. 

MADOFF The Monster of Wall Street
Picowers are forced to return billions of dollars

He also gets the other three to return huge sums of money — Norman Levy returns $220 million, Stanley Chais returns $277 million, and Carl Shapiro returns $625 million.

To everyone’s surprise, by the end of it all, Picard recovers more than $14 billion out of the $19 billion, which is considered a remarkable feat.

Unfair means due to a lack of better alternatives

While no one can deny the effectiveness of Picard’s methods, the fairness of his methods can be questioned. 

If the holder of an account had invested a small sum and then lived off the profits generated from the account years ago, the person who had inherited that account from them would have to arrange for the money and return it.

People who had been withdrawing money over the years were also being taxed on that money. Now they are asked to pay that back as well.

MADOFF The Monster of Wall Street
Madoff’s victims protest against the clawback lawsuits

This process demands taking money from one set of Madoff’s victims to compensate the others; innocent victims are made to suffer over and over again.

The average age of the victims, who had cases filed against them by Picard, is 70 years. These retired people have to start working again, and several of them lose not only their life savings but also their houses.

Meanwhile, Picard’s law firm gets over a billion dollars for handling this case. As a result, Picard becomes a very wealthy man.


Also Read: MADOFF: The Monster of Wall Street ending explained: What happens to Bernie Madoff and his family?