December 19, 2008
A nightmare scenario known as ‘The Madoff Syndrome
More awful news awaits the many charities and individuals who have already lost some or all of their wealth to the Bernard L. Madoff swindle.
As this saga unfolds, it is probable that the government will seek restitution even from some innocent victims if the homes they own, the cars they drive or the donations they made were derived – even unknowingly, from the illegal fruits of Madoff’s scam.
Worse, even if the government chooses not to pursue such innocents, a phalanx of plaintiffs attorneys are trolling this very moment for clients who are certain to mount a legal assault on charities, universities and other non-profits in a bid to force them to disgorge past donations whose origins can be linked back to the Madoff scheme.
At the very least, large numbers of individuals and institutions who today consider themselves to be victims of the Madoff scandal should brace for forthcoming legal actions that will allege their remaining wealth is not theirs at all – rather, it is the recoverable property of other claimants who were bilked by Madoff.
To keep their homes, cars, jewelry and other possessions, individuals scammed by Madoff – especially those who still have visible assets – will almost certainly have to hire their own defense lawyers to battle for their rights.
To keep their libraries, laboratories, scholarship programs, hospital services, meal programs and the like, universities and other non-profits who continue to operate in the wake of the Madoff scandal will also almost certainly have to retain law firms to combat efforts to strip those non-profits of past Madoff-related donations – whether directly from Madoff or indirectly from Madoff investors.
It is, say fraud investigators, lawyers and a former federal prosecutor who I spoke with in the past two days, a nightmare that will continue to haunt everyone who had funds invested with Madoff for many, many years to come.
In a worst case scenario, that I have dubbed the ‘Madoff Syndrome’ – in reference to the kind of supercritical meltdown portrayed in the 1979 film, The China Syndrome, Jewish charities and other worthy non-profits may be legally bound to return all funds ever received from Madoff and his minions, even though such funds were long ago spent on worthy deeds and even though existing endowments would be entirely wiped out. Dozens of today’s finest Jewish charities could be felled.
One fraud expert who I spoke with says that the final safety net that is likely to stand between plaintiffs’ attorneys and a complete ‘Madoff Syndrome’ meltdown would be federal legislation to limit the liability of Madoff recipient non-profits.
The specter is daunting. It features well-known Jewish charities and non-profits suing and being sued by one another – and by outsiders – in a desperate bid for their very survival.
The few foundations that have already turned off their lights and locked their doors may yet say a prayer of thanks that they won’t be around to experience the gut-wrenching battles that await the survivors.
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