On the Road to Recovery: Victims of the Madoff Fraud

February 2015

Abstract

In 2008, triggered by the financial crisis, two financial companies fell from power and grace, and were placed in liquidation under the Securities Investor Protection Act (“SIPA”). The failure of one, Lehman Brothers Inc. (“LBI”), occurred in a climate of excessive risk-taking and then, an inability to obtain credit when needed. The failure of the other, Bernard L. Madoff Investment Securities LLC (“BLMIS”), was fueled by the financial crisis which caused investors to need the cash, or the cash that they thought could be generated from the sale of securities, that they wrongly believed to be in their brokerage accounts. Too many customers seeking the return of cash and not enough money coming in with which to pay earlier investors would cause a scheme of historic proportions to unravel. The gig was up. The promised returns were make-believe. Bernard Madoff (“Madoff”) was a fraud.

Author

Josephine Wang

General Counsel, Securities Investor Protection Corp., USA

Josephine Wang joined the Securities Investor Protection Corporation (“SIPC”) in 1983, assuming positions of increasing responsibility, and in 2004, becoming the Corporation’s General Counsel and Secretary. Before joining SIPC, Ms. Wang was an attorney with the Commodity Futures Trading Commission, a federal government agency regulating the commodity futures and options markets in the United States and protecting futures investors against abusive practices. While on the staff at SIPC, Ms. Wang had primary responsibility for some of the larger liquidations under the Securities Investor Protection Act (“SIPA”), including those of Bevill Bresler & Schulman, Inc. and First Interregional Equity Corporation, in New Jersey, and Stratton Oakmont, Inc., in New York. On behalf of SIPC, she briefed and argued cases at all levels of the federal court system. As General Counsel, Ms. Wang is the chief legal officer for SIPC, overseeing a team of attorneys. Ms. Wang is the co-author of a comprehensive article examining the impact of stockbroker liquidations under SIPA on securities transfers (12 Cardozo Law Review 509 (1990)). She has served as a Director on the Board of the Asian Pacific American Bar Association Educational Fund; provided legal representation under pro bono clinics sponsored by the District of Columbia Bar; and been a speaker on behalf of SIPC in various programs, sponsored by, among others, the International Belgrade Stock Exchange; the American Bar Association; the Futures Industry Association Law and Compliance Division; the International Women’s Insolvency & Restructuring Confederation; the George Washington University Center for Law, Economics, and Finance; and the Benjamin N. Cardozo School of Law. Ms. Wang received her law degree from the Georgetown University Law Center. She is admitted to practice in the District of Columbia and is a member of the Bar of the United States Supreme Court, of the United States District Court for the District of Columbia, and of several federal Courts of Appeals.

Company

Securities Investor Protection Corp.

The Securities Investor Protection Corporation (“SIPC”) is a non-profit membership organization created under the Securities Investor Protection Act of 1970, 15 U.S.C. §78aaa et seq. (“SIPA”). With narrow exceptions, its membership consists of all registered securities broker-dealers who are required to pay assessments into a Fund administered by SIPC. SIPC’s mission is to protect customers of failed securities broker-dealers. Once a SIPC member is placed in SIPA liquidation, SIPC advances funds to satisfy customers’ claims for missing cash and securities custodied with the broker-dealer. Each customer is protected by SIPC up to $500,000 (including up to $250,000 against the loss of missing cash). SIPC also may advance funds to pay the administrative expenses of the liquidation proceeding. SIPC’s policies are set by a seven-member Board of Directors which includes five Directors nominated by the President of the United States and confirmed by the United States Senate, and one Director appointed by the Secretary of the Treasury and one appointed by the Federal Reserve Board from among their respective officers and employees.

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