Madoff and SIPC

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Dec 19, 2008 7:27 am

This should be real interesting as it would seem SIPC should be on the hook but they don't have the funds to pay 50 billion. Typical insurance - when you need it, it's not there.

 
I explained SIPC hundreds of times to clients the week Wachovia almost went belly up. Now that we have an example of needing it, should be quite interesting. As if clients weren't freaked out enough!
Dec 19, 2008 8:18 am

i'm sure you already know this, but SIPC only goes up to 500,000 per account.

 
How would they be on the hook for 50 billion even if they had it?
 
Dec 19, 2008 8:50 am

Depends how many clients there were.  Are there any other rules regarding  fraud?  IN other words, is the coverage expanded in cases of fraud?

 
I also heard a report somewhere that people that were lucky enough to get their money out in advance of the Madoff collapse may have to RETURN the funds, as they were received through means of fraud (I forget the exact wording).  Imagine that???
Dec 19, 2008 9:08 am
B24:

Depends how many clients there were.  Are there any other rules regarding  fraud?  IN other words, is the coverage expanded in cases of fraud?

 
I also heard a report somewhere that people that were lucky enough to get their money out in advance of the Madoff collapse may have to RETURN the funds, as they were received through means of fraud (I forget the exact wording).  Imagine that???




Have you seen any of Madoff's clients being interviewed? Did you notice how none of them are smiling because the SIPC is going to return ALL of their money to them?

Dec 19, 2008 9:28 am

This should be interesting to see how this plays out.  While SIPC would typically come into play with regards to failure or fraud at a brokerage (such as Madoff's b/d), SIPC does not cover investments in hedge funds (his main business) or other investment
contracts (such as limited partnerships) that are not registered with
the SEC.  I suppose much will depend on where a particular client's assets are actually held - in a brokerage account at his b/d or directly at his hedge fund.  And how they will determine that issue might even be in question if none of the records can be trusted. 

This could take a while to sort out ...