The Work

December 12, 2008 1:04 PM

Lawyers, Gather Up! There's a $50 Billion Ponzi Scheme to Sue Over

Posted by Zach Lowe

The Am Law Daily is still reeling from reading the complaint against Bernard Madoff, the securities trader (and former NASDAQ chair) accused of orchestrating the largest Ponzi scheme ever--one that could result in $50 billion of losses for investors. That's "billion," with a "b."

Bloomberg and the Wall Street Journal both have nice recaps of the scheme, in which Madoff traded investors' money and concealed losses by paying those investors bogus "returns" that actually came from principal payments from other investors.

Madoff, 70, ran the scheme in secret, and separately from his more well-known business as a market-maker, or someone who connects buyers and sellers. According to the WSJ, Madoff's two sons turned him in when they realized something was very wrong at the company.

As Business Week and others point out, Madoff's arrest yesterday gives his prescient critics--who long doubted Madoff's positive investment returns--a chance to crow.

What's most interesting to us is all the legal fallout that will surely come from this. Madoff already has hired lawyers at Dickstein Shapiro. Daniel Horwitz represented Madoff at his bond hearing yesterday in U.S. District Court for the Southern District of Manhattan; the SEC's complaint also mentions Mauro Wolfe, another Dickstein partner. Neither returned calls for comment. A source close to the case tells The Am Law Daily that Madoff also has retained Dickstein's Ira "Ike" Sorkin, one of the city's true graybeard lawyers.

Another major player: Lee Richards, name partner at Richards, Kibbe & Obre. He'll serve as the court-appointed receiver at Madoff's company. Richards is an interesting choice. As detailed in this 2007 story from Corporate Counsel, Richards served as the monitor in the government's deferred prosecution agreement with Computer Associates International, the Long Island company accused of a massive securities fraud in 2004. Richards told the magazine he favored a more hands-off approach to monitoring, one in which he pointed out problems but left it up to the company to fix things. "My job is not to solve them, and not to dictate," Richards said. "I carry a big stick but use it rarely." He also discouraged the government from giving monitors a seat on the corporate board, calling it "intrusive."

Richards did not immediately respond to messages seeking comment.

As Bloomberg and others report, hedge funds stand to be the biggest losers if the Madoff scheme turns out to be as disastrous as people think. Several of the major funds who invested via Madoff, including the Fairfield Greenwich Group and Fix Asset Management, have already retained counsel to discuss their possible options. Officials from both hedge funds did not immediately respond to messages seeking comment about which firms they've hired.

Between Madoff and Marc Dreier, white-collar litigators will have plenty of work advising scammed clients and pursuing missing money in the coming months.

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