Madoff trustee and SEC should be probed: representatives

By Jonathan Stempel

NEW YORK (Reuters) – The chairman of a House capital markets subcommittee called for a comprehensive probe into whether the liquidation of Bernard Madoff’s investment firm treats Ponzi scheme victims fairly and costs too much.

Scott Garrett (R-N.J.) and three other representatives called on the Government Accountability Office to examine the work of Irving Picard, the court-appointed trustee seeking money for former investors in Bernard L. Madoff Investment Securities LLC.

Garrett, who chairs the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, wants an examination on whether Picard and his law firm Baker & Hostetler are overcharging for their work, and on the trustee’s “net equity method” to distribute funds.

A federal appeals court in New York is expected to rule on the distribution issue.

Garrett also asked the GAO to examine the Securities and Exchange Commission’s role in the process, and the Securities Investor Protection Corp’s oversight. Madoff’s estimated $65 billion fraud was uncovered on December 11, 2008.

A thorough probe is needed “given the ongoing situation where many defrauded investors have still not received any compensation from SIPC and/or have the threat of a lawsuit from the Trustee hanging over their heads,” Garrett wrote to Comptroller General Gene Dodaro in the GAO office.

Others members of Congress signing the letter are Rep. Peter King (R-N.Y.), Rep. Carolyn McCarthy (D-N.Y.), and Rep. Ileana Ros-Lehtinen (R.-Fla.). Many of Madoff’s victims lived in the New York City area or in Florida.

Amanda Remus, a spokeswoman for Picard, declined to comment. SEC spokesman John Nester declined to comment. The SIPC did not immediately return a call seeking comment.

Picard has said he has recovered more than $7.6 billion for former Madoff customers, but that all but $272 million is tied up in litigation.

Some customers believe they should recover the amounts on their final account statements, even if those sums were made up. The trustee believes some of these customers are in fact “net winners,” meaning they withdrew more from their accounts than they invested, and should forfeit ill-gotten gains.

Through March, Baker & Hostetler, which represents Picard in his capacity as trustee, was paid $148.9 million to cover fees and expenses, while Picard was paid $3.6 million.

In March, SEC Chairman Mary Schapiro said she regretted that former general counsel David Becker took part in the agency’s work on Madoff, given that he received an inheritance that included Madoff funds. Becker is now in private practice.

(Reporting by Jonathan Stempel in New York and Sarah N. Lynch in New York, editing by Matthew Lewis)