MADOFF's GIFTS TO LAWYERS AND ACCOUNTANTS

People, schools, foundations, charities, pension plans, trusts, and businesses are among those on the 162 pages of victims of Bernard Madoff. Many additional investors are finding that investments they had made with various investment funds (including hedge funds) or "funds of funds" (private investment vehicles ostensibly designed to diversify across multiple funds) were in fact invested with Madoff, and are thus in peril.

It appears that these victims gave their money to Madoff, and, true to his name, he made off with it. The list is available on the internet, and it makes interesting reading. Many of the victims should have known better.

The investment markets, over time, produce positive results, but it is impossible to earn 10% or 12% each year for decades. In fact, the accounts of Madoff's victims may not have earned anything at all, because it appears that his company may not have been buying and selling securities at all.

The collapse of this apparent Ponzi scheme will keep lawyers and accountants busy for a long time. There are many issues to be sorted out.

It will be necessary to find what is left of the wreckage. This apparently is less than half a billion dollars, even including Madoff's penthouse, his property in Palm Beach, and his yacht.

Then it will be necessary to determine what each victim should receive if there were enough to pay everyone, which, of course there is not.

Then comes the question of what the victims should pay. If what victims were receiving was not earnings on their funds, (if, in fact, there were any earnings at all) but were part of the funds of other victims, then they should give back what they received. At the same time, of course, the other victims should be giving up some of their accounts, because part of what they had received was not income on their funds, but instead was part of the funds of others.

Sorting out these issues will keep lawyers and accountants busy for years. The victims may derive some benefit from writing off Madoff losses, and we will talk about the tax situation next week.