NEW YORK (AP) — Anxious investors wiped out by the Bernard Madoff scandal got more bad news on Friday: Investigators have confirmed suspicions that the monthly statements showing the disgraced financier was making stock trades for them were pure fiction.
"We have no evidence to indicate securities were purchased for customer accounts" in the past 13 years, said court-appointed trustee Irving Picard at a packed, town-hall style meeting at U.S. Bankruptcy Court in lower Manhattan. "This is a case where we're going to be looking at cash in and cash out" — the shorthand definition of a Ponzi scheme.
Picard, who is overseeing the liquidation of Bernard L. Madoff Investment Securities LLC, called the meeting to give the investors a progress report on his efforts to unravel the alleged fraud.
Madoff was arrested in December after investigators said he confessed to his sons that he had swindled investors of $50 billion in a Ponzi scheme. The 70-year-old former Nasdaq chairman remains confined to his Manhattan apartment under house arrest.
The trustee so far has recovered an estimated $950 million in assets — including works of art at Madoff's midtown office — that would be used to help cover claims likely to reach into the billions. He also hopes to raise money by selling a legitimate trading arm of the business, which still has 40 employees.
A lawyer working for Picard also warned that the trustee would seek to recover — or "claw back" — phony profits earned by some investors so it can be redistributed to others.
"There wasn't any stock bought or sold," said the attorney, David Sheehan. "It was all just made up. ... You got somebody else's money."
Madoff, in a Devil Suit
Picard said that about 2,400 people have filed claims — a total expected to rise sharply before the July 2 deadline.
The presentation did little to calm some investors' nerves.
"There's a lot of frustration and fear because it doesn't feel like anyone is doing enough to help the individual investor," Bennett Goldworth said afterward.
The 52-year-old Goldworth said he had lost "several million," forcing him to put his Florida home up for sale and move in with his father in Manhattan.
One investor complained about both Madoff and the federal Securities and Exchange Commission, which has been harshly criticized for failing to detect the Ponzi scheme despite red flags raised to agency staff by outsiders over the course of a decade.
Raymond Spungin, 77, of Staten Island told Picard he had checked with the SEC before investing with Madoff in the early 1990s.
"They said Madoff was the greatest," he said. "We're the victims not only of Madoff but of the incompetence of the SEC." He and his wife believed they had $1.8 million in two accounts.
SEC spokesman John Heine said Friday that while the agency offers information on whether investment firms have been penalized, it doesn't give investment advice.
Last year, Picard sought and won permission from a bankruptcy court judge for $28.1 million to cover expenses tied to the liquidation of Madoff's investment firm. Along with proceeds from the sale of assets, victims could qualify for up to $500,000 in funds from the Securities Investor Protection Corp., or SIPC.
Congress created the SIPC in 1970 to protect investors when a brokerage firm fails and cash and securities are missing from accounts.
Detailing the scope of the probe, Picard said his office and criminal investigators are reviewing a mountain of evidence, including 7,000 boxes of records at a Queens warehouse that go back more than a decade.
Sheehan added that investigators are reviewing "thousands and thousands of e-mails" from Madoff's operation, and plan to issue dozens of subpoenas in the coming weeks related to Madoff's business dealings.
Picard cautioned that the criminal investigation is ongoing and said: "We are operating out of a crime scene. There is a limit to what we can say."
Experts have said that the first of any recovery payments for investors who lost money with Madoff might be years in the future. The most likely source is liquidation of Madoff's personal assets and any cash in accounts tied to the investment firm.
Madoff has homes in Montauk, N.Y. and Palm Beach, Fla., a penthouse in Manhattan and a handful of luxury yachts. Prosecutors have accused him of mailing off millions of dollars in personal assets to family members while under house arrest.
Sheehan said the assets of Madoff "insiders" could also be seized and liquidated.
"We are looking at every member of the Madoff family," he said.
But the investors were told the effort has been hampered by secrecy and a lack of cooperation by Madoff's inner circle, who have "lawyered up."
The alleged fraud "took place on the 17th floor," Picard said, referring to the office where Madoff ran his separate investment advisory operation. "The rooms were under lock and key."