the buzz log

The Search investigation continues into the $50-some billion fraud perpetuated by Bernard L. Madoff Investment Securities LLC, but the money trail will take months to track down.

Staffers of the Securities and Exchange Commission (whose chief faced a crabby Congress this week to explain the government agency's failing to do its job) have until Jan. 16 to turn in all their Madoff-related records, but a report sifting out the various conflicts o' interest will take months. Meanwhile, the more than 8,000 claim forms sent to Madoff clients won't be due until March 4 and July 2.

Figuring out who was swindled is a bit easier. The scam's jaw-dropping breadth has kept people searching for not only the man who perpetrated the scheme, but also the "madoff victims." The Wall Street Journal is keeping a running list and Clusterstock even put together a slideshow to put a face to the fleeced.

There is some good news, such as it is: Some losers are revising their estimated losses, because the profits in their accounting books never really existed. Here are, so far, the victims in one of history's biggest financial scams, and a few who might win out:

• Luminaries
Aside from hedge funds and banks, the undoing of the super-rich has captivated interest that has positively verged on smug. Newsweek in particular described Madoff's Palm Beach crowd as "European industrialists, South American socialites, well-connected American business people" who sought admission to a "hoity toity club." Run-of-the-mill royalty (e.g., Lord Jacobs of Belgravia) and politicans (e.g., Senator Frank Lautenberg) got took as well. Among the truly super rich, L'Oreal heiress Liliane Bettencourt still will probably get to keep her title as the world's wealthiest woman. So far, however, a Boston philanthropist Carl Shapiro unluckily leads the list of individuals.

• Do-Gooders
As noted in an earlier Buzz Log, do-gooders like university endowments, charities, foundations and even cities suffered greatly. That in turn has had a wrenching ripple effect on social programs in cities across America. The cruelest cut? Fortune magazine suggests that the classic Ponzi scheme actually depends on stowing the fake money in charities, since they don't often withdraw their funds.

• Watchdogs
All heads of the five SEC commissioners could roll, given the current Congressional mood. In the meantime, the SEC Inspector General David Kotz promised to investigate all conflicts of interests. The one getting the most press and Search curiosity: the marriage between Madoff's niece and a former SEC compliance official, who allegedly had their relationship after the bureaucrat left the agency. That's not the only government agency facing a big slog: The IRS will have to contend with misled investors who must endure a prolonged process to declare losses on their tax returns.

• Investors Who Cashed Out
Clients who think they got out in the nick of time may find bad news: Newsweek cites a court ruling last October in a similar case that declared investors—innocent or not—had to give back their profits and their principal if "there was evidence that they got out because they suspected, or had been warned, that there was something amiss."

• The Madoffs
Only Bernard L. Madoff has been charged, but all his associates and family members are being probed. Even if they ultimately are found in a court of law to have nothing to do with their patriarch's scheme, they won't likely be able to escape the taint.

Winners: A Much Shorter List 
Doubtless, there will be those who benefit from the scandal, whether they deserve to or not. For instance, Friehling & Horowitz, under intense investigations and Search scrutiny as Madoff's auditing firm, has clearly stated for the past 15 years that it does not actually do audits. Could incompetence be the best defense? Investigations will tell.

• The "I-Told-You-So" Whistleblower: Boston financial fraud investigator Harry Markopolos warned the SEC repeatedly for nearly nine years, albeit to no avail.
• Hollywood: Yes, actors Kevin Bacon and Kyra Sedgewick got taken, but books are in the works, and surely a movie will soon follow.
• Lawyers: Well, of course. Milberg LLP, the class-action king among law firms until a 2006 scandal, may find redemption in its multiple cases against Madoff. So far, the firm represents more than 100 of the fleeced.
• The Victims Themselves: How could this be possible, given some were retirees whose entirely lifeline was erased? Time magazine found a spirited response among Madoff investors not just to fight for their money back, but to step back and fight for a better system. Hell hath no fury like an investor scammed.

Filed under: Finance, Scams, Economics