Did Madoff really "lose" 50B?

[ChrisBennet]

My understanding is that Madoff essentially redistributed old investor's money to newer investors minus whatever "profit" he took?

Question 1:
Obviously, Madoff couldn't spend that much money. I'm thinking the majority of it was stolen from one customer and given to another. The "lost" (actualy stolen) money is sitting in his newest customer's accounts (minus what he stole) and the rest was fake/imaginary profits.

Why can't they unwind these transactions to some extent?

Question 2
Start with $2B, put it in a locked room for 30 years. Put a sign on the door that reads "$2B inside".
Every year, add 12% to the number on the sign. This represents the imaginary earnings/profits of 12% that Madoff was paying.

After 30 years the sign on the door will read "$53.5B inside" but if you unlock the room and look inside you'll find the original $2B - the $51.5B is (gasp!) "missing".

How much of that money never actually existed?

-Chris

[the]

It is a good question. IMO, the money isn't really gone, it is sitting hidden somewhere (either in money form, or invested in companies, real properties, etc.). His sons will pick it up after the dust settles.

In your example, there is no room holding the money, the 12% interest was always promptly paid out to the investors, usually on prorated monthly basis (i.e., 1% per month). That HAS to be done. A Ponzi scheme almost immediately comes apart the minute the interest payments aren't made to investors. People immediately freak out when the payments aren't made.

When the press is reporting $50 billion lost, my guess is that is "real" money, i.e., comprised mostly of the principal amount people invested in.

[Cdnone1]

You can bet there are already several teams of forensic accountants going through the books. There is no way what ever amount of money it was disappeared without some hard assets acquired.
Steve

[boba]

Some of the "money" earned was reinvested and people watched their account statements grow. Some took monthly payments of some portion of the earned returns and there were probably some redemptions of principal.

Lots of interesting questions to be unraveled. What will happen to the funds people took out as earnings or redemptions will it need to be returned and redistributed?

What about the taxes people paid for gains which were fictitious? You think the IRS will give that back?

It will take years to get sorted, if it ever can be.

[widgeon13]

Those who experienced financial gain are very concerned about this and may well have to return what they received from the transactions if the funds can be tracked. I believe there was an article about this in the NYTimes the other day.

[9dreizig]

right so the real question is.,, how much money was actually invested in the fund?? of course our headline driven press isn't smart enough to ask the real questions.

[competentone]

Originally Posted by boba

What about the taxes people paid for gains which were fictitious? You think the IRS will give that back?

That's a good question.

After HealthSouth was exposed to have been cooking its books, it received tax refunds for the taxes it paid on fictional income. If I remember correctly, the government changed the law after that, so corporations can no longer seek refunds for taxes paid -- that weren't really owed -- as a result of accounting fraud.

I don't know how that works for individuals. From what I've read, Madoff's "investors" were required to pay their own taxes; his "fund" didn't pay on gains. I would hope that the victims could file amended returns and receive refunds, but I think they are limited to something like 3 years on filing amended returns for refunds.

From what I'm reading, the legal precedent will allow the receiver overseeing the fund now to reach back as far as 6 years and "take back" any money (possibly including returned principal) the investors received from Madoff.

There will be no winners in this for the "investors" who entrusted money to Madoff.

I still cannot believe that his sons are not involved. Imagine, he is a 70-year-old man working on the floor below the one his sons are working on, and the sons haven't spoken with their father about him teaching them about his dealings so that they can take over managing investors money after he dies???

I suspect there was an organized attempt to keep the sons' names "clear" so that if the fraud collapsed, the father alone would "take the fall." The sons turning the father in was a near perfect move to end the fraud and allow the sons to escape the punishment they probably deserve. Any current investigation should probably be focusing more on the sons right now, rather than on the old man.

I suspect there are billions hidden outside the country.

[TheMentat]

Originally Posted by competentone

I still cannot believe that his sons are not involved. Imagine, he is a 70-year-old man working on the floor below the one his sons are working on, and the sons haven't spoken with their father about him teaching them about his dealings so that they can take over managing investors money after he dies???

I suspect there was an organized attempt to keep the sons' names "clear" so that if the fraud collapsed, the father alone would "take the fall." The sons turning the father in was a near perfect move to end the fraud and allow the sons to escape the punishment they probably deserve. Any current investigation should probably be focusing more on the sons right now, rather than on the old man.

I suspect there are billions hidden outside the country.

I've been saying this for a while. I hope they are thoroughly investigated.