madoff

[goldtpa]

have a client that had all of the pension money with madoff. Small business, no ee's. The two owners were the only participants.

their BOY assets were 1 mill. EOY assets are 0.

Should I carry the mill as a receivable? Or should I carry it as a lesser value.

[jpod]

The issue is not whether it is or is not a "receivable." I assume that the plan owned interests in one or more of Made-Off's funds, true? If so, you have to value that interest.

[GBurns]

Maybe I am not understanding the OP, but I thought that you had to carry the value as per the current or latest value which would be whatever the statement says.

[Effen]

I'm not sure that would be true if the people that produce the statements admit they made everything up.

[Andy the Actuary]

Two actuaries, three opinions!

It is incumbent upon the trustee to provide the asset valuation. That said, it is not your decision what assets to use. Client may wish to seek a legal opinion as to the appropriate valuation. I can't see using a value you know de facto is bogus any more than using a fabricated employee census.

Here is the EA certification qualifier: "To the best of my knowledge, the information supplied in this schedule . . . is accurrate . . ."

Would you sign Schedule SB using a Ponzified asset statement as your basis?

[AndyH]

Just a wow.

How many more of these ponzi dudes are yet to be revealed? Shocking this was all "self regulated". Apparently SEC plays nice with these people and lets them regulate themselves; has a donut and cup of coffee as an audit, I am told.

The last ponzi revelation I know of (years ago) ended with a family of three getting killed with a crossbow by the investment pro when they called his bluff.

[david rigby]

Does bonding play any role?

[GBurns]

Do you mean father and son bonding as in Made-Off and his sons ? That paternal bonding seems to have soured a bit.

[Andy the Actuary]

Does bonding play any role?

David, the 2 person plan wouldn't require bonding but even if it did, only 10% or 100,000. By bonding, do you mean the company may have obtained some other umbrella coverage that would indemnify them in the event of malfeasance?

[Lou S.]

Bummer. I agree with Andy, have the trustee supply the value and recomend they have an appraisal done if they ask your advice but my best guess is the assets are $0 or something close to that.

Hope they are looking for a big deduction because that is going to be one hell of required minimum contribution you are going to calculate for them.

[Guest mjb]

I'm not sure that would be true if the people that produce the statements admit they made everything up.

While the account statements may have contained made up values it will be up to the receiver for Madoff to determine what is the value of the assets of Madoff's clients held in the fund. At this time there is no estimate of the value of the remaining assets held by his investment fund or the value of the assets in his brokerage business It will take a while to determine the actual value of the remaining assets in the fund and the amount that can be recovered from other parties such as clients who cashed out pror to the scandal and received "profits" on their investments in Madoff's investment fund. Also there will be a nominal recovery from Madoff's personal assets (RE- he owns at least three homes on Park Ave, Montauk, and in FL), and the assets of the family members who worked for his firm. There will be no assets of the any of the members of Madoff's family that will not be seized under state or federal law. While the amount will not be large, is not chopped liver.

[Andy the Actuary]

Bummer. I agree with Andy, have the trustee supply the value and recomend they have an appraisal done if they ask your advice but my best guess is the assets are $0 or something close to that.

Hope they are looking for a big deduction because that is going to be one hell of required minimum contribution you are going to calculate for them.

One of the many concerns is suppose they contribute a whopping amount. Then, in accordance with Murphy's law, Bernie becomes the bailout queen du jour in DC, so partial or total restitution is made to the Plan. Now, the Plan could be grossly overfunded and the Plan is terminated with excess assets that may not be distributed to the Participants. Further, little green frogs drop out of the sky in Grovers Mill, NJ, the Cubs win the pennant, and Steve Franken is elected US President. Oh, my, what a bad day.

[david rigby]

David, the 2 person plan wouldn't require bonding but even if it did, only 10% or 100,000. By bonding, do you mean the company may have obtained some other umbrella coverage that would indemnify them in the event of malfeasance?

Yeah, is there a bond (of significance), without regard to whether it's required?

[Guest mjb]

Two actuaries, three opinions!

It is incumbent upon the trustee to provide the asset valuation. That said, it is not your decision what assets to use. Client may wish to seek a legal opinion as to the appropriate valuation. I can't see using a value you know de facto is bogus any more than using a fabricated employee census.

Here is the EA certification qualifier: "To the best of my knowledge, the information supplied in this schedule . . . is accurrate . . ."

Would you sign Schedule SB using a Ponzified asset statement as your basis?

What will the IRS do if the two participants cannot afford to fund thir retirement benefits to replace the loss?

Does the IRS sue them? (Since there are no employees there is no enforcement under ERISA)

Can they declare bankruptcy?

Can the IRS disqualify the plan? If so what is the value of the accured benefit?

[Andy the Actuary]

What will the IRS do if the two participants cannot afford to fund thir retirement benefits to replace the loss? In absence of government intervention, how about terminating the Plan (and distribute $0). Then, start a new Plan.

There's been some tongue-in-cheek in these discussions but this is one nasty and sad issue. In particular, your clients are out a ton and, if I may speak for others, you have our empathy. It's worthwhile to somehow get this issue to the IRS/Congress. Your clients cannot be the only investors that are in a pension pickle and possibly the government would issue some relief so that an impossible situation does not become infinitely worse.

[GBurns]

That it might be nasty and sad, surely depends on perspective. Empathy, yes, sympathy no.

Many of these investors did, had done, or were supposed to have done, due diligence at the outset and reviews over the years. What happened ? It surely can be only their fault.

I have not heard of any empathy or sympathy for regular Joe and Jane who have lost money in many mutual funds over the years. They did not have the ability to do the due diligence that these Made-Off investors had. They got no bailout or restitution, not even an apology

The hogs got slaughtered, that is all. Prosecute the commiters of the crimes, but do not reward the greedy.

I have been subjected to all sorts of due diligence investigations, some even abusive. I have been subjected to more due diigence by a few of these same investors than they did for Made-Off. Contacts, image, me too attitude and greed again prevailed.

This time I smile and think (reluctantly) "I thought you had the best advisors and said you knew what you were doing ?".

[Andy the Actuary]

I resign as the umbrella spokesperson and retract my universal grant of empathy as I spoke out of turn. My apologies.

You have my empathy.

[AndyH]

Maybe we are going to find that the SEC failed in their duties. That is the next shoe to fall (or be thrown). There is too much money involved here and too many egos for any culprits, governmental or otherwise, to get away unscathed. Lawyers are going to be circling like sharks for a long time, methinks.

[Belgarath]

Andy, don't sharks always circle like sharks? Or is this a case of bottom feeders now circling like sharks?

My apologies to all the reasonable and ethical members of the legal profession out there - this is obviously tongue in cheek, and it was too easy to resist.

[GBurns]

I have not added them up, but it seems to that the tax shelter issues involving E&Y, KPMG, UBS etc etc such as BOSS, Son of BOSS, COBRA, Split-Dollar (Winn-Dixie, AEP etc) which involved over 200 of the Forune 500, and hundreds of rich persons, together add up to a loss to the Treasury (taxpayers) of more than $50B.

The lawyers were circling, the Senate had hearings, the Justice Dept was up in arms. What happened there ? Not too much.

I see nothing in past actions that would lead me to expect much.

[JanetM]

GB I agree with you. Unless members of congress get burned in their own wallets and rush for revenge, little will change. At most, I see a few heads rolling but not a lot of change.

[AndyH]

I'm not referring to Congress doing anything. I am referring to those that got burned getting whatever payback is possible.

[Andy the Actuary]

I'm not referring to Congress doing anything. I am referring to those that got burned getting whatever payback is possible.

Agreed. I, myself, have put in a call to Furio Giunta.

[david rigby]

Is Fuiro related to Guido?

[Andy the Actuary]

Is Fuiro related to Guido?

Furio was the Italian muscle Tony Soprano purchased on a trip to Italy. His specialty was grinding up departed people at the neighborhood sausage shop.

[Guest mjb]

Maybe we are going to find that the SEC failed in their duties. That is the next shoe to fall (or be thrown). There is too much money involved here and too many egos for any culprits, governmental or otherwise, to get away unscathed. Lawyers are going to be circling like sharks for a long time, methinks.

How about this theory: Maybe he had a mole in the SEC who tipped him off.

[Don Levit]

In regards to fish who are predators and bottom feeders, isn't it comforting to know that they are not kosher?

Shalom,

Don Levit

[AndyH]

In regards to fish who are predators and bottom feeders, isn't it comforting to know that they are not kosher?

Shalom,

Don Levit

What does that mean?

[GBurns]

Ethnic tongue-in-cheek humor. Note that he ends with " Shalom".

Don

In South Florida (especially Miami Beach) there are curiously very few shark attacks (at sea) compared to the counties to the North of us. Maybe ours are Kosher.

[Guest mjb]

In regards to fish who are predators and bottom feeders, isn't it comforting to know that they are not kosher?

Shalom,

Don Levit

What does that mean?

the meek will inherit the earth, or

It would be easier for a camel to pass through the eye of a needle than it will be for a rich man to enter the kingdom of heaven.

[Don Levit]

mjb:

We are talking about 2 distinct issues.

I was referring to kosher food, which transforms an ordinary meal into a spiritual experience.

It is behavior therapy for the spiritually enlightened.

What you are referring to is thinking therapy, which, apparently occurs first before the act.

Judaism is more akin to behavior therapy, while Christianity is more like psychotherapy.

Seems like Madoff could use a dose of both.

I doubt he is an observant Jew; probably eats sharks for dinner.

Shalom,

Don Levit

[K2retire]

I doubt he is an observant Jew; probably eats sharks for dinner.

Shalom,

Don Levit

Don, don't you suppose that he would pass on eating sharks out of professional courtesy?

[mwyatt]

Well, having received a phone call yesterday morning from a client with a DB and PS plan that unbeknownst to him, had a combined total of $3.5m invested in Madoff through another fund manager (about 95% of assets), guidance would be appreciated besides bedside manner instructions to talk him off of the ledge.

[Guest mjb]

Well, having received a phone call yesterday morning from a client with a DB and PS plan that unbeknownst to him, had a combined total of $3.5m invested in Madoff through another fund manager (about 95% of assets), guidance would be appreciated besides bedside manner instructions to talk him off of the ledge.

At this time no one can give any guidance because no one knows how much is left of Madoff's assets that can be distributed to his clients. His trading business may yield $150M in assets and he has several residences and a yacht. But it estimated that it could take up to 5 years before there can be a valuation of all of his clients accounts because he kept multiple sets of books and had thousands of clients. The reported "value" of his client's accounts is about $25B but more clients keep showing up. Some of his individual clients have put their Palm Beach condos up for sale because they have no money to pay for expenses other than social security.

Maximum recovery under SIPC is $500,000 but only if the losses resulted from theft, not losses due to trading. I dont know if each plan has a separate limit.

Your client's best avenue for speedy recovery would be to sue his fund manager for (1) failure to conduct due dilligence and (2) failure to diversify his assets among several advisors and asset classes. Hopefully the manager will have fiduciary insurance to cover the loss.

[Andy the Actuary]

Your client's best avenue for speedy recovery would be to sue his fund manager for (1) failure to conduct due dilligence and (2) failure to diversify his assets among several advisors and asset classes. Hopefully the manager will have fiduciary insurance to cover the loss.

While this sounds elementary (or for that matter a waste of time), your client may first wish to submit a written request to have funds liquidated. This should prompt a check or a response and should remove this from the assumed outcome posture. Until the request is denied or not honored, what are you suing for?

[Guest mjb]

Your client's best avenue for speedy recovery would be to sue his fund manager for (1) failure to conduct due dilligence and (2) failure to diversify his assets among several advisors and asset classes. Hopefully the manager will have fiduciary insurance to cover the loss.

While this sounds elementary (or for that matter a waste of time), your client may first wish to submit a written request to have funds liquidated. This should prompt a check or a response and should remove this from the assumed outcome posture. Until the request is denied or not honored, what are you suing for?

I think everyone is on notice that there can be no payments from Madoffs fund since his company is in the hands of a court appointed trustee who is liquidating his company and the investment fund. The trustee will notify his clients of the situation as soon as they are identified.

The client can sue the fund manager for breach of fiduciary duty. You think the client is going to wait five years until the value of his asssets in Madoff's funds are determined?

[Andy the Actuary]

Your client's best avenue for speedy recovery would be to sue his fund manager for (1) failure to conduct due dilligence and (2) failure to diversify his assets among several advisors and asset classes. Hopefully the manager will have fiduciary insurance to cover the loss.

While this sounds elementary (or for that matter a waste of time), your client may first wish to submit a written request to have funds liquidated. This should prompt a check or a response and should remove this from the assumed outcome posture. Until the request is denied or not honored, what are you suing for?

I think everyone is on notice that there can be no payments from Madoffs fund since his company is in the hands of a court appointed trustee who is liquidating his company and the investment fund. The trustee will notify his clients of the situation as soon as they are identified.

The client can sue the fund manager for breach of fiduciary duty. You think the client is going to wait five years until the value of his asssets in Madoff's funds are determined?

Nope, just thought you should ask first before suing so that issue is off the table. Waiting 5 years were your words.

[tymesup]

Does bonding play any role?

David, the 2 person plan wouldn't require bonding but even if it did, only 10% or 100,000. By bonding, do you mean the company may have obtained some other umbrella coverage that would indemnify them in the event of malfeasance?

I don't think a fidelity bond covers this type of loss, unless Madoff was a fiduciary in addition to an asset manager:

http://symetra.com/client/media/LPS6683.pdf