U.S. Bankruptcy Judge Burton Lifland on Tuesday approved the transfer of $28.1 million to cover expenses tied to the liquidation of Bernard Madoff’s investment firm.
Madoff is accused of running an elaborate Ponzi scheme that duped investors ranging from individuals to charities to large banks out of potentially $50 billion.
Lawmakers will take their first close look next Monday at Madoff’s alleged fraud and why the Securities and Exchange Commission failed to discover the scandal.
Information gleaned from the hearing will help guide Congress as it attempts to reform laws regulating the U.S. financial system, said Rep. Paul Kanjorski, a Pennsylvania Democrat and chairman of the House capital markets subcommittee.
“Madoff’s actions have further weakened the already battered investor confidence in our securities markets,” Kanjorski said in a statement on Monday.
Irving Picard, the trustee presiding over the liquidation of Madoff’s investment firm, said Tuesday he needed the $28.1 million to cover employee salaries and other costs, according to court documents. Bank of New York Mellon Corp. previously agreed to transfer the funds, but the bankruptcy judge first had to approve the transfer.
BNY Mellon already transferred about $883,000 to cover costs tied to the liquidation.
Picard will oversee the liquidation as the Securities Investor Protection Corp. attempts to help investors recoup their money. SIPC was created by Congress in 1970 to protect investors when a brokerage firm fails and cash and securities are missing from accounts. Funds can be used to satisfy the remaining claims of each customer up to a maximum of $500,000. The figure includes a maximum of up to $100,000 on claims for cash.
On Monday, a judge presiding over civil claims against Madoff said he may be willing to consider extending relief to those who invested in Madoff’s business through third parties. To consider allowing investors who invested through third parties to file claims with SIPC, U.S. District Judge Louis L. Stanton said he needs a formal application and briefing from SIPC, the Securities and Exchange Commission, a trustee for Madoff’s business and representatives of investors.
Madoff, 70, a former Nasdaq stock market chairman, has become one of the most vilified people in America since news broke Dec. 11 that he allegedly had been running a giant Ponzi scheme, paying returns to certain investors out of the principal received from others.
So far, investors have said that they have lost more than $30 billion, according to an Associated Press calculation.
Reports indicate Madoff was running the alleged scam for decades.
Critics say the SEC missed warning signs and failed to uncover the scandal until Madoff’s sons went to the authorities and told them he confessed to the fraud. SEC Chairman Christopher Cox has asked an internal watchdog to probe the investor protection agency’s conduct in the case.
Kanjorski said the Congressional hearing will examine if the SEC had enough staff and budget to police the markets.
“These proceedings will help us to discern whether or not the SEC had the resources needed to get the job done, how such a sizable scheme could have evaded detection for so long, and what new safeguards we need to put in place to protect investors,” the lawmaker said.spacer
Kanjorski did not identify who will testify at the hearing, scheduled for the day before the new Congress convenes. President-elect Barack Obama will be sworn into office on January 20.
The Madoff scandal, Kanjorski added, “provides a glaring example” of why Congress must launch the biggest reform of financial markets regulation since the Great Depression. Other lawmakers, including Senate Banking Committee Chairman Christopher Dodd, have said they want to streamline and improve the tangled U.S. regulatory structure that oversees banks and financial services.
A federal judge in New York City recently set a December 31 deadline for Madoff to give the SEC a verified written accounting of his firm’s records, bank accounts and other investments.
In addition to the federal lawsuits, a New York City investor who said she gave Madoff $2 million to manage sued the SEC and is seeking $1.7 million in damages from the federal agency.
