Daily Archives: May 6, 2009

This just in: Bernie Madoff was a crook!

He passed out investors’ money to all his family and spent most of it on himself. No sign yet of the Madoff boys’ houses on Tomac or Cherry Valley being put up for sale, but my guess is that they’ll be just behind Walt’s Round Hill cottage. Maybe a “Madoff real estate tour” should be organized for this fall?

Mr. Madoff listed family members, boat captains, housekeepers and others as employees of Bernard L. Madoff Investment Securities, even though they never actually worked for the firm, newly released documents show. Mr. Madoff also used his firm’s money to pay for real estate, yachts, private planes and country club memberships, according to court filings by the trustee charged with liquidating the Madoff firm and recovering money for victims of Mr. Madoff’s multibillion-dollar Ponzi scheme.

The documents back up a previous assertion by lawyers for the trustee, Irving H. Picard, that Mr. Madoff used his business as a personal “piggy bank.”

[snip]

In January, Mr. Madoff, his wife, Ruth, and other family members spent more than $100,000 on his firm’s American Express Corporate Card. Among the charges were $1,564 at Bistro Chez Jean-Pierre in Palm Beach, Fla.; $2,000 at Georgio Armani in Paris; and $2,813 at the Apple computer store in New York.

Mr. Madoff, the mastermind of the world’s biggest Ponzi scheme, doled out more than $7 million to various companies owned by his wife, Ruth, his two sons and his niece Shana. Peter Madoff’s wife, Marion, was paid a salary of $163,500 by the Madoff firm last year, even though investigators found no evidence that she actually worked there.

Mr. Madoff also paid out $471,000 to a marina in Long Island and nearly $1 million to a number of exclusive country clubs including the Breakers, the Atlantic Country Club on Long Island, the Palm Beach Country Club and the Trump International Golf Club.

If the IRS never audited this guy, who were they auditing? Just asking.

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The Madoff Trustee speaks: “Brace yourself, Bridget”

What you get is the cash you put in less the cash you pulled out, period. No profits allowed because there were no profits so if you took out what Bernie said you’d “earned” and spent it on your kid’s college education say or, in the case of Mark Madoff’s former wife, building a new house in Lucas Point, the Trustee wants it back. Someone’s about to feel some real pain, and it isn’t the little gnome huddled in a MCC cell.

Trustee Irving Picard:

With regard to the amount of an allowed claim, it has been suggested that the allowed claim should include fictitious profits. This would be inappropriate both legally and factually.

First of all, with regard to the SIPC advance, the trustee has already decided, with concurrence from SIPC, to treat all claims as claims for securities even though no securities were ever purchased. Ordinarily, a valid claim for securities is satisfied by delivering the securities to the customer. If the securities are missing, the trustee may buy them for the customer.

However, in order for the trustee to buy securities, the customer must have paid for them, and there must be a fair and orderly market for the securities. If securities cannot be bought, the customer receives the market value of the securities in cash. In this instance, the trustee will not attempt to buy securities for customers for a few reasons. Because many securities were paid for with “profits” from the “sale” of securities that were never actually bought, in some cases going back decades, it is impossible to identify which securities were actually paid for by the customer and therefore, which securities the customer is entitled to receive.

Moreover, even if securities could be identified and could be shown to have been paid for, including fictitious profits gives the customer the benefit of BLMIS’s unlawful allocation of trades with no relation to reality or the marketplace. In a very real sense, allowing claims for fictitious profits lets the thief — Mr. Madoff — determine who wins and who loses.

Finally, the trustee’s purchase of securities, even if possible, would wreak havoc on the securities markets given the volume of securities involved. Here, given the failure by BLMIS to buy any securities, no orderly market could be maintained.

With regard to the distribution from the customer fund, simple logic suggests that it would not be advantageous to include fictitious profits. In a Ponzi scheme, fictitious profits cannot be part of an equitable plan for distribution to customers. By adding fictitious profits, all that would be achieved is increasing the amount of the claims being divided into the amount of the fund gathered by the trustee, thereby diminishing the percentage of recovery that all customers would receive.

Furthermore, those customers who withdrew more than they put in and withdrew fictitious profits, even unknowingly, actually received someone else’s money. They not only got their money back but, by virtue of the fictitious profits, they have received the actual investment dollars of another customer who will necessarily be out of pocket unless the fictitious profits are returned.

In that regard, allowing fictitious profits in the liquidation proceeding will benefit early investors but penalize later ones. Each customer receives a share of customer property that is proportionate to the size of his or her claim. If fictitious profits are allowed, the money put in to the BLMIS scheme by later investors, whose claims will largely be for real dollars, will be used to pay the earlier investors whose claims will be largely based on fictitious profits. In short, the Ponzi scheme would continue by BLMIS even in liquidation if fictitious profits were recognized.

The trustee and S.I.P.C. are fully aware of the hardship these facts may impose upon a number of the customers, and they will not be unmindful of those hardships in individual cases. However, there are many instances where no hardship exists and the inequitable result of not recovering the fictitious profits would be manifest. The trustee and S.I.P.C. are committed to a fair, equitable and compassionate approach to the allowance of customer claims.

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Iran – if war is not the answer, maybe we’re not asking the right question

Mine’s pithier, but Shimon Perez says, overreaction is better than underreaction.

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Market activity?

Lots and lots of buyers out there, and lots of stubborn sellers. One guy proudly announced that “19 people viewed this house in just the past two weeks”. Does that tell you that a buyer is about to pay the asking price or that 19 people liked the house enough to come see it and refused to make any offer at all because its price was too high? I know what my buyer concluded but it shouldn’t surprise you that the seller came to a different result. Any day now, any day.

As for new listings, we’re seeing a number of retreads coming back on after their last listing expired, at exactly the same price. So again, hope springs eternal – “Sure, no one wanted the place in 2007 at this price but now that it’s sat empty for another two years, they’ll gladly pay my price.” Whatever – when I see one of these returnees, I just cross it off my list of possibles – the seller is still not serious.

There’s a new house offered on 9 Roberta Lane for $3.595. That would certainly set a record for Roberta. Interestingly enough, the history of this land serves as a rebuke to those owners who are offended by low offers. The land was offered at $1.795 in August 2007 and finally sold for $1.150 a year later. I guarantee you that if that same low bid had been extended in, say, September ’07, it would have been rejected out of hand as insulting. So the seller keeps his pride and gets to sit on his house for a year. What a winner. Will history repeat itself on this new construction? Who knows?

In the way of price “adjustments”, it’s always a little sad to see a confused seller. 20 Hidden Brook in Riverside sold for $3 million in ’06, came back up for sale last December at $3.295, dropped to $3.195 in February and $2.995 in March. In April, it was marked up to $3.295 – huh?- and today it’s back down to $2.925. Tweaking at the edges like this, up and down and up and down isn’t going to do the trick, but it does give the sellers and their agent something to do.

44 Hunting Ridge Road, on the other hand, didn’t sell at $7.925 in 2006 but came back on today for $6.350. I don’t know whether that’s the right price but at least it sounds like the seller is still alert and aware of reality. Those are good things.

And finally, there’s the story of one of those mandatory “listing broker accompany” showings today. My clients arrived ahead of me, were greeted by the expert agent who unlocked the door, motioned them in and then retreated to the porch to conduct business on her cellphone. “Heck, I’ll come out and open dors for a 1% commission”, my client commented.

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Universal health care a drag on the economy

That’s kind of a duh conclusion – you can’t pull money out of productive use and redistribute it to the idle class without paying the price – but you wouldn’t know it from listening to our president and his allies. Here’s John Tierney with the truth.

Indeed, between 1990 and 2003, the rate of growth of America’s per capita spending [on health care] was 3.6%, only a little bit higher than France, Germany and Japan’s–but significantly lower than England’s 4.2%. That’s striking given that England engages in the most aggressive rationing known to the free world, routinely delaying care to patients unless they are critically ill.

However, Canada, which too indirectly rations care for many specialized treatments by putting patients in queues, has succeeded in limiting per capita spending to 2.4%. At best, then, universal coverage has a mixed record in controlling health care spending increases, even after resorting to rationing.

All in all, there is no major industrialized economy with universal coverage that has performed as well–let alone better–than the United States in the last decade. Universal coverage might not be the cause of their inferior performance. But the crucial point is that there is zero evidence that it has put them on a more solid footing. Before applying this exotic therapy to America, Obama needs to offer more than mere hunches that it will work. He needs to offer actual evidence.

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Price cuts

cognewaughHere’s a large house that came back on the market for $3.99 million, a full million dollars less than was asked for it back in 2006 when it failed to sell. I would have preferred to see the $3.99 price originally, so a big cut now doesn’t really mean all that much in value. After all, if it was really worth $5 million in ’06, it would have sold then, eh? There are a number of houses on the market or under contract that were wildly over-priced to begin with and I suspect that buyers are sometimes  swayed into believing they see value by comparing the current asking price with that first asking price. That’s not a useful tactic, if the first price had no reality.

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Buyers

If my own practice is typical, there are a lot of buyers suddenly interested in Greenwich property. I think that’s due to a sense that the market is settling, an improved stock market (even if only temporary) and a general feeling that, for the first time in a long time, Greenwich is “affordable”. I’ve been running almost non-stop the past two weeks and, after spending the morning with one client, I’m off to spend the afternoon with another, and I have five other new clients waiting to receive my emailed wit and wisdom on what’s out there that’s either reasonably priced or ridiculously -priced but perhaps available at something approaching sanity.

Will all this activity move houses? I certainly hope so, but I continue to think that 80% of our stock is over-priced and won’t move until it isn’t. Then again, I’ve seen some recent contracts reported that suggest either that the selling agent has a wildly different view than I on the respective merits of certain property or they’re just hucksters peddling junk at inflated prices using the Greenwich mystique to overcome buyer’s better judgement.

Hucksters selling Greenwich real estate? Nah, I must just be off base in my opinion.

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