Earlier today, we looked at the NYT interactive graphic that calculates how long it will take to return to breakeven for typical portfolio losses.

But what if you were one of 8000 Madoff investors, and your portfolio is now worth zero?

For starters, you should get $500k from SIPIC. Then, there is the $830 million of liquid assets of the firm; that will be returned pro-rata to investors.

So if you had $10 million with Madoff, and its now worth close to zero, and you contribute $10,000 per month and earn 10% per year, it will only take 18 years to get your original 10 million back.

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UPDATE JANUARY 8 2009 1:21PM

Madoff Had More Than $173 Million in Checks

Federal prosecutors said Thursday that investigators who searched Bernard Madoff’s office desk after the money manager’s arrest on Dec. 11 found about 100 signed checks totaling more than $173 million.


Source:
Calculate Your Financial Comeback
NYT, January 6, 2009

http://www.nytimes.com/interactive/2009/01/06/business/20090106-comeback-graphic.html

Category: Investing, Legal, Markets, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

36 Responses to “How Long til Madoff Losses Are Recovered ?”

  1. danm says:

    Well, with 500K in assets they’ll find out what it’s like to only be in the top 10% of the population.

  2. DL says:

    From the SIPC website

    http://www.sipc.org/who/notfdic.cfm

    “Insurance for investment fraud does not exist in the U.S. The Federal Trade Commission, Federal Bureau of Investigation, state securities regulators and other experts have estimated that investment fraud in the U.S. ranges from $10-$40 billion a year. In the case of microcap stock fraud, the toll on investors has been estimated as $1-3 billion annually. With a reserve of slightly more than $1 billion, SIPC could not keep its doors open for long if its purpose was to compensate all victims in the event of loss due to investment fraud. It is important to understand that SIPC is not the securities world equivalent of FDIC–the Federal Deposit Insurance Corporation. Congress specifically considered creating a Federal Broker-Dealer Insurance Corporation, but lawmakers wisely concluded that such a designation would be both misleading and out of step in the risk-based investment marketplace that is so different from the world of banking”.

    > > It seems to me that the SPIC should have the authority to shut people down who don’t provide full disclosure of their activities.

  3. Seriously, how does Madoff’s unregulated “Investment Firm” qualify for SIPC-coverage?

  4. dead hobo says:

    BR calculated:

    So if you had $10 million with Madoff, and its now worth close to zero, and you contribute $10,000 per month and earn 10% per year, it will only take 18 years to get your original 10 million back.

    reply:
    ——————-
    So, you need regular earnings of 10% per year in rising and falling markets to recoup on a timely basis. Sounds simple enough. I just read about a guy in the paper who has been doing this for years. The stories say people feel lucky to have him as their guru.

  5. RW says:

    Can’t imagine a Madoff investor needing, wanting or even being interested in the NYT calculator so I suppose it’s more like an interactive approach to news with perhaps a touch of schadenfreude to pique interest.

    DL’s link clears up a couple things for me IAC; I was under the impression SIPC operated like FDIC insurance too but if there is no compensation for fraud then no joy for Madoff investors there. An acquaintance has a father in law who was heavily invested w/ Madoff and it sounds like the family is basically on suicide watch.

  6. PWC = Enron + India?

    The long-running fraud, which is being called India’s Enron, also raised questions about the vigilance of regulators in India and the United States.

    Satyam serves as the back office for one-third of the Fortune 500, including some of the largest banks, manufacturers, health care and media companies in the world — handling things like computer systems and customer service for companies that include General Electric, Nestlé, Ford Motor, Cisco and the United States government.

    In some cases, Satyam even acted as clients’ outsourced finance and accounting departments.

  7. going broke says:

    Well, at 10%/year for 18 years from todays price would take the SP500 to 5000+.

    I guess that’s possible.

  8. Mr Beefy says:

    LOL, my recovery to losses went past 30 years – is that bad? :).

  9. GloomBoom says:

    $500k is chump change for these people. If I were Madoff, I would stay inside where it is safe.

  10. FredR says:

    Great post and great work on the web site. We use wordpress for ours, at WhatsTrading.com, and you have certainly given us lots of ideas.

    Great stuff!

    I still can’t believe the whole Madoff fiasco. This is just downright sad. It’s one thing to lose money due to bad trades, but to lose it to someone you trusted is even worse. Real scum this guy.

  11. strat575 says:

    This is unrelated, but scary. From FT

    Financial blogger arrested in South Korea

    http://www.ft.com/cms/s/0/092a99ca-ddab-11dd-87dc-000077b07658.html

  12. VoiceFromTheWilderness says:

    I agree with RW — who exactly is the NY Times aiming this at? Their usual target is the invidious comparators that make the wheels go round. If that is the target this time, it seems likely to miss it’s mark.

    I don’t get the sense that people have a real sense of how this plays in peoria. Those of us that don’t worry about how long it’s going to take to get ‘our’ 10 million back, since we didn’t have it in the first place, don’t find this funny in the least. Second and more importantly, I don’t think the great unwashed actually get what this represents: An investment class to which we are by law excluded is supposed to somehow be a concern of ours? The fact that the NY Times is busy trying to pretend it is our concern, even as the only concern we might really have — that our money, and livelihoods, and future prospects for our childrens welfare, are being sold down the river to shore up those who have benefited from the egregious thievery at the heart of this law-induced class designation — is ignored and/or silenced, reflects only the role the that the NY times plays in our society. Well, that and the ignorance and delusions of it’s readers who think they are being well served by the endless attempts to manipulate perception that this kind of article typifies.

  13. Stuart says:

    A pure sociopathic fraudster in every sense. Put him in jail and count on honor among thieves.

  14. dead hobo Says:

    “So, you need regular earnings of 10% per year in rising and falling markets to recoup on a timely basis. Sounds simple enough. I just read about a guy in the paper who has been doing this for years. The stories say people feel lucky to have him as their guru.”

    Exactly. Where is there a guaranteed 10% per year, anywhere? 3% is about the highest a nearly-risk free return will ever go, and even that needs inflation protection. And there is no such thing as a completely risk-free return. Black swans are not endangered species.

  15. tradeking13 says:

    yes, but $216k of that “recovery” is money you put in.

  16. AlexInNC says:

    With the SIPC $500k, wouldn’t that close the gap to 17 years instead of 18? Not a big difference, really.

  17. Ken says:

    One of my ongoing problems with the Madoff case is the sloppy distinctions that most reporting makes between the investor’s actual losses and their losses on paper. No, let me rephrase this; the losses weren’t even on paper. That would imply that some assets existed and lost value. No, much of the loss in the Madoff case was entirely fictitious!

    Remember, Madoff was not running an investment business (at least, for a significant period of time). He was lying to people by saying he was running an investment business. No assets were actually being purchased and sold,. As I understand it, the fiction didn’t even extend to running imaginary trades against real market prices and reporting “you own X shares of fund Y”. The operations bore even less relationship to reality than does a fantasy football league.

    Take for example someone who, over the years, wrote checks to Madoff totalling $100,000; and who, on their last report from his firm, was told the value of their holdings was $1,000,000. When the scheme blew up, this person did NOT lose a million bucks – they lost a hundred thousand. The million was pure fiction, existing only in one of Madoff’s sets of books.

    One consequence of this (at least, in my opinion) is that should any compensation – from the SIPC, clawbacks, seizure of assets, or whatever – be made, their share should be based on the hundred thousand, not the million. They sure as heck shouldn’t get $500,000 from the SIPC!

    This lack of distinction between the money actually invested and lost, and the money in Madoff’s fictitious accounts,is all through the reporting. I’m still not sure, for example, if the reported $50 billion in losses was the amount that people had actually sent to the company, or the made-up amount in the books. If the latter, then anyone who wants to can easily top Madoff in the fraud department.

    In fact, I think I will do so right now. I will ask a co-worker for a dollar to “invest”, and tell them ten minutes later that their investment is now worth a trillion dollars. I’ll even print up a fancy statement showing this; I can use Excel and QuickBooks as well as Madoff can. Of course, if they ask for the money, I’ll have to explain that it’s all a lie. But maybe they can even apply for reimbursement from the SIPC, and get a half-million dollars – true, only a small percentage of their trillion-dollar loss, but an excellent return on their original dollar!

  18. dead hobo says:

    The Curmudgeon Said
    January 8th, 2009 at 2:26 pm

    Exactly. Where is there a guaranteed 10% per year, anywhere? 3% is about the highest a nearly-risk free return will ever go, and even that needs inflation protection. And there is no such thing as a completely risk-free return.

    reply:
    ———
    No, it’s true. The guy promises 10%, virtually in perpetuity, and a lot of influential people vouch for him. I think he’s the real deal and just a lot smarter than everyone else. Hell of a nice guy, too.

  19. sinful mistress says:

    Is that glass catheter still available for Madoff??

  20. AGG says:

    Sorry for the mistake. I meant NOT rich.

  21. AGG says:

    Meanwhile in Alabama a sheriff was jailed for making money off the prisoners’ meals. It’s the ideal “captive market” of a true blue capitalist.

  22. AGG Says:

    January 8th, 2009 at 3:57 pm
    Meanwhile in Alabama a sheriff was jailed for making money off the prisoners’ meals. It’s the ideal “captive market” of a true blue capitalist.

    Not only that, but the money he made was at least partly due to his scrimping on their rations such that some were near starvation–which is the reason he was jailed, actually. Making money was perfectly legal. Starving the prisoners to do so…not so much.

  23. dead hobo says:

    Ken Said:
    January 8th, 2009 at 3:06 pm

    One of my ongoing problems with the Madoff case is the sloppy distinctions that most reporting makes between the investor’s actual losses and their losses on paper.

    reply:
    ——-
    Good point. I would expect to hear that a lot of people were reamed but you can’t steal profits that never existed. It would get especially sticky if a person withdrew amounts up to or exceeding original capital and only had their ‘interest’ stolen. Probably not many of those.

    From the bits and pieces that made it to the papers, it appears he kept good records, otherwise he couldn’t have issued statements that people accepted for so long. Figuring out what came in shouldn’t be hard. I bet the actual amount will be a lot less than $50B, but still pretty big.

  24. dead hobo says:

    Just a stray thought…

    Madoff is the source of the claim that $50 Billion is gone. The amount is obviously large. But I wonder if the amount he mumbled is only a distraction that he hopes will keep him out of jail. We’re dealing with a world class liar. Why should we believe $50 Billion … just because he said it? A common thief is treated in a common way. A master thief is treated deferentially. This is just another scam.

    He’s 70 or so and statistically has only a few years left. As of this moment, Madoff is still conning judges into thinking he is just a harmless old man who isn’t a danger to anyone. He’s playing another game. Maybe he will be able to string everyone along and put off prison for many years.

  25. DL says:

    Union pension funds are involved:

    http://www.cnbc.com/id/28561457

    The situation is complicated because of the potential “clawbacks” from retirees who have already received funds.

    “A recent case labeled the receipt of such money a “fraudulent conveyance” of funds, meaning the redeemer received money that was produced as part of a fraud since this money was derived from the Ponzi scheme not a legitimate investment. Union pension funds are at particular risk from clawbacks because they receive regular payments when members retire”

    What a mess

  26. leftback says:

    Stick Madoff in with OJ. Cage match.

  27. dead hobo says:

    Nevermind … I just read the WSJ chart, although something is nagging at me that has an aura of unreality. There’s a sub-scam in there somewhere.

    http://s.wsj.net/public/resources/documents/st_madoff_victims_20081215.html

  28. AGG says:

    Ken,
    Great post!
    However, I’d like to add this:
    “In fact, I think I will do so right now. I will ask a co-worker for a dollar to “invest”, and tell them ten minutes later that their investment is now worth a trillion dollars. I’ll even print up a fancy statement showing this; I can use Excel and QuickBooks as well as Madoff can. Of course, if they ask for the money, I’ll have to explain that it’s all a lie.”
    There’s no need to tell them anything but what our parragons of integrity, the hedge funds (18% plus losses in 2008) tell their clients: Retentions aren’t allowed for _____ months (fill in the blank according to your pet Ponzi scheme).
    There is a reason that these things can be called Capital Crimes.

  29. AGG says:

    On the amount of “fiction” in paper profits:
    The greater the limit of how much you can withdraw and the time delay in withdrawing it, the greater the fiction.
    Read the fine print.

  30. Lugnut says:

    Madoff is the ultimate example of the Israeli “don’t be a freier” mentality. Cue the hundreds of millions in checks made out to his family that din’t get processed before his arrest and the expensive watches and bracelets he tired to mail out. We’re all suckers in his eyes, and he laughs at all of his while he’s out on bail. Bilking the goyim? No problemo, but nailing his own in the wallet is bad juju Bernie.

  31. skardin says:

    Pretty sad this guy becomes the escape goat this current financial mess. I find it ironic how we like to talk about ponzi scheme for “merely” 50 billion when wall street lost easily one trillion in value with credit-swap and housing mess… and I’m still waiting for someone to get jail time for that one.

  32. BG says:

    In regard to Madoff, I suspect he is in serious danger for his life. I would not be surprised if there wasn’t a lot of cash that was run thru Madoff’s operation in order to clean it. MOB money, drug money and who knows what else. There will literally be no telling and I think Madoff will pay for it with his life. Madoff should insist that he be placed in a secure place of confinement immediately if he wants to live.

    His days are probably in very short supply. The link between he and the SEC will also die with him. I don’t think we will learn very much more from Madoff because he will not be around very much longer.

    He could have an accident, an apparent drug OD, heart-attack or something; but, I look for him to be rubbed out long before any trial or congressional hearings. He will not get the opportunity to divulge any associations for hopes of leniency.

  33. wunsacon says:

    VoiceFromTheWilderness,

    >> … who exactly is the NY Times aiming this at?… I don’t get the sense that people have a real sense of how this plays in peoria. Those of us that don’t worry about how long it’s going to take to get ‘our’ 10 million back, since we didn’t have it in the first place,

    I think there’s a misunderstanding here. (And if not yours, then mine.)

    Click on the link to the NYT. It brings you to a Flash plugin applet that lets you calculate ANY “comeback”. To create the image for this thread, Barry set the parameters to model the comeback for Madoff investors and then took a screenshot.

  34. LOL, my recovery to losses went past 30 years – is that bad? :)

    not if you’re 12

    He could have an accident, an apparent drug OD, heart-attack or something; but, I look for him to be rubbed out long before any trial or congressional hearings.

    Probably a heart attack. That’s what happened to Milosevic when he threatened to yap.

    They may not want go that way though. This case may require poetic retribution. Some old ruined guy pulling out a gun and shooting him in a murder suicide to serve as a warning for the future