Madoff Investors Suing SIPC

You can rest assured that the powers that be on Wall Street would just as soon have the Madoff saga over. The Madoff scam perpetrated on investors is an ugly reminder of the non-existent financial regulatory system during the better part of the last twenty years.

I also believe many in Washington also might like to see the Madoff saga quietly pass by. The failures of the SEC, FINRA, and SIPC in this greatest of scams are an ugly reminder of the Wall Street-Washington incest.

Well, while many of the incestuous partners would like to turn the page, there remains a lot of filth that still needs to be cleaned up and a lot of individuals and institutions that need to be held to account.

To that end, I commend the Madoff investors and I stand by them as they announce a suit tomorrow against the directors of the Securities Investor Protection Corporation (SIPC).

America should not allow itself to be fatigued by the fight for justice and fairness in this Madoff scam. The endless pursuit for real transparency and integrity does not measure itself by a calendar but rather by results.

The fight continues.


Suit charges SIPC fraudulently induced Madoff investors to believe they had up to $500,000 insurance coverage on securities and seeks compensatory and punitive damages

New York, NY –Bernie Madoff investors on Thursday will announce a lawsuit against the directors and key officers of the Securities Investor Protection Corporation (SIPC) for what they allege is a massive investment insurance scam.

Madoff victims and their attorney will gather on the steps of Federal Hall in Lower Manhattan, opposite the New York Stock Exchange, to announce the legal action and call for Congressional reform of the quasi-governmental SIPC agency.

The class action lawsuit, to be filed in New Jersey federal court, accuses the SPIC directors of orchestrating a scheme to fraudulently induce thousands of Madoff victims to invest in a SIPC-insured broker with the deliberate intention of denying SIPC insurance in the event of a loss. The plaintiffs claim that the defendants are personally liable for the damages the plaintiffs and others similarly situated have suffered.

The financial industry which is Wall Street has utilized the cover of SIPC protection to promote its business. As such Wall Street needs to be held accountable.

Wall Street paid out approximately $140 billion in bonuses in 2009. Bonuses should only have been paid after firms involved in the fraudulent distribution of auction-rate securities made investors whole and after Madoff investors received their SIPC payouts.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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8 Comments on Madoff Investors Suing SIPC

  1. Based on the purported claims in the purported pending class action–someone should be providing a case of mustard to the plaintiff’s…as they’d be better served by suing a ham sandwich.
    SIPC induced people to invest with Madoff?? Puhlease.
    And how many of those ‘astute investors’ even bothered to find out whether Madoff carried super SIPC coverage? (which is supplemental, third-party insurance and typically provided by many brokerages to accommodate HNW investors having more than $1 million on deposit.

  2. Mustard-man, it’s uneducated people like you who think only multimillionaires invested with Bernie earning 30% return. I lost $172000 of college savings and ‘earned’ an average of 5.2% return. There are many more like me.

    • I feel for you–but don’t understand your point. The comments made were in connection with the purported class action law suit against the SEC–and the specific allegations i.e. SEC fraudulently induced people to invest.

      That tactic is nothing short of irresponsible from a legal strategy perspective, and it wastes the time and resources of the courts that have to administer these types of actions. Paid for by taxpayers.
      BTW-there’s no such thing as a good loss, and unless you lost every penny that you have and are otherwise facing the remaining 20 years of your life expectancy living poor and destitute, I’d venture to say that you might not be as impacted as the writer.

      • If only you knew what you were talking about. Does the FDIC “induce” people to put their money in banks? SIPC was mandated to unsure losses against fraudulent operations. The SEC was supposed to oversee financial institutions so that investors would not be defrauded by the likes of Madoff.

  3. When Madoff’s victims heard the news and got over their initial shock they were at first comforted by the SIPC seal on their statements. They were victims of fraud and theft who were failed by the SEC but it seemed their SIPC insurance would provide at least partial restitution.
    What they have come to realize however is that SIPC is not on their side. SIPC has proven to be an adversarial organization which despite having been created by Congress to protect “mom and pop” investors has been hijacked by private practice bankruptcy attornies who are directly incentivized to deny claims and to clawback and revictimize the victims while “preserving” the meager funds the wall street firms paid to provide insurance in the first place.
    Let’s face it: unless the SEC and SIPC are revamped NOBODY has got our backs.

    — thewiseking

  4. benfamod: Please note that the lawsuit is not against the SEC (though there is one out there) but against SIPC. I suggest that you read the lawsuit to have a better understanding of it when you make reference to the “SEC (actually SIPC) fraudulently induced people to invest).

    One of the points being that most brokers trumpeted SIPC protection (one reason being for securities kept in street name), on millions of trade confirmations, yet for 19 years paid premiums of $150 per company for a maximum of $500K of protection. How’s that possible? Yet SIPC is on record for constantly proving that the securities industry is who they are beholden to, not the investor who they were supposedly created to protect and restore confidence in the securities industry.

    Yes, “fraud in the inducement.” Would you put your money in a bank not covered by FDIC?

    Now why do you suppose they all advertised the protection offered by SIPC?

    • Richard-excuse the dyslexia..there are more lawsuits flying around then airplanes stacked over JFK during a snow storm.

      It remains to be seen how many people invested based on the SIPC “imprimatur”, vs. the comfort they had by investing because it was recommended by a “very smart friend”, or because one had to be ‘special’ to be invited in to the club of such smart and special people.

      Regrettably, I couldn’t figure out how to insert the word hubris in the last sentence.

      Having worked within the financial industry for more than 15 minutes (actually, since before 1980), I’ve never encountered a situation with a HNW investor where they didn’t make sure the financial institution holding their funds provided supplementary insurance–i.e. “Super SIPC”… I’m necessarily familiar with many of Madoff’s “large investors”–and its astonishing that NONE had indicated asking about or seeking the type of account coverage that retail firms such as Charles Schwab automatically provide. much for 20-20 hindsight… (and one could speculate that AIG would have been a likely supplemental insurance provider–and would have proven as illusory as SIPC and the trustee have proven in the course of responsibly addressing the matter at hand: direct investors that deposited money with Madoff’s brokerage firm.

      My point is that mis-directed law suits–class action or otherwise, that “miss the target”, and focus on claims that are inapplicable or misguided are distractions, and dilute the efficacy of other claims that focus on the the heart of the matter.

      Agreed: The “trustee” is a pawn operating at the behest of SIPC, and SIPC, while claiming they do not provide “insurance” and their “coverage” cannot be compared to that provided by FDIC for bank depositors, is otherwise viewing claimants as adversaries, and the manner in which they are responding to claimants is consistent with that of too many insurers. SIPC’s posture is to protect the interests of their shareholders; and to work 30 hours/day to conjure up claim denial strategies and delay indefinitely payments, regardless of what their government-mandated obligations might be. (Yes, we all know that SIPC is a US Govt-mandated enterprise…perhaps within the FNMA/GNMA family of subsidiaries.)

      The actions against SIPC might be better postured as bad faith claims management. This is arguably easier to demonstrate vs. suggesting that SIPC fraudulently induces investors to part with their money; a layman understanding of fraudulent inducement infers “intent”.

      This writer respectfully submits that its a long stretch of highway to suggest that SIPC, even though its board of directors, and its constituents are FINRA firms, is somehow a contrived vehicle that publishes a logo so that financial firms can more easily steal or defraud individual investors.

      To suggest that SIPC egregiously administers valid claims presented by individuals against SIPC members is arguably a more pragmatic, and more easily documented tactic.
      If you’re not already aware, I might not be completely objective–you’d have to tune in to Bernie’s Blog to more fully appreciate that.

  5. In the interest of levity, I wrote a song about the Madoff scandal. Though it attempts at humor, it is not intended to belittle the seriousness. Rather, it is to spread awareness to the mainstream of the population of the dangers of the current dangerous lack of regulation in the financial markets. You can listen to the song here: Please let me know what you think and share it!

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