SWISS BANK GIVES $235M BACK TO MADOFF PAYOUT FUND (notes suggest "investors" specified returns)

A $235M payment by Banco Santander would return about 85% that Geneva-based Optimal Investment Services (bank's hedge fund affiliate) withdrew in the years before the fraud collapsed. $1.2B would be available to compensate Madoff's victims. A number of banks and hedge funds that steered customers into the fraud have been sued...they should have figured the operation wasn't legit. Investors who withdrew profits are asked to return the money b/c gains were fictitious. Banco Santander says clients of Optimal had $3B in presumed wealth evaporate in the fraud.

WSJ reported the NY U.S. Atty’s office has uncovered documents suggesting large Madoff investors knew their returns were fraudulent. Some players got specific percentage returns that were agreed to in advance. That would suggest investors realized Madoff was running a scam. Prosecutors are continuing to probe Madoff family members and employees, but the investigation now includes investors who have claimed to be among the hardest-hit victims of the fraud, both directly and through their foundations. Aiding investigators is their discovery that Mr. Madoff was a "meticulous" record keeper who kept correspondence between some clients and the firm, said people familiar with the probe.

HOW'D HE DO THAT? To pull off a $65 billion scheme, the Madoff cabal would have had to involve investors, relatives, associates, co-conspirators (and/or subsets of them), businesses and tax-exempt organizations........all with similar goals. HUGE RED FLAG Some investors were writing personal checks to Madoff.

Madoff may have routed his scheme through telephone lines with a maze of complex telecommunications' systems equipped with call-forwarding and voice mail systems, and numerous postal and commercial mail boxes..........and perhaps money-transfer systems that operate in ethnic enclaves and places like NYC's Diamond District.

The "investment" monies could have been disguised (to evade the IRS) by routing through a network of domestic and international bank accounts using counterfeit checks.....opening commercial bank accounts in the name of bogus businesses and wire-transferring and/or depositing "investment" checks into those accounts.

Madoff's phony checks could have had invalid bank routing numbers, forged endorsements, or been drawn on the proceeds of other counterfeit checks deposited in other bank accounts. Before banks discovered the fraud, the funds might have been transferred out of the accounts……probably offshore----leaving banks unable to recoup their losses.

State and federal tax authorities could have been swindled, if the scheme involved filing hundreds of phony tax returns in real or fictitious names, falsely claiming federal EITC credits (meant to benefit low-income earners).

In an international scheme with offshore ties, the Madoff co-conspirators or subsets of them might have obtained hundreds of taxpayer identification numbers for phantom citizens with worldwide addresses, and used the information, along with phony passports, to claim hundreds of bogus tax refunds.

Investigators poring over Madoff's books have discovered he routinely falsified documents in a fraud that could take months to unravel. In a classic fraud MO, Madoff kept two (or more) sets of books. One set keeps track of losses at Bernard L. Madoff Investment Securities LLC's (his investment advisory arm), while the other set consisted of "investors" writing Madoff personal checks.

Madoff's methods may have included limited-recourse loans to artificially inflate "asset value," so that he could fraudulently borrow real money based on “assets” that didn’t really exist.

Madoff's Web site claimed the firm was technologically-advanced, however investigations found the firm sent paper confirmations of trades via US mail at the end of each day, rather than providing electronic access to this important information. Paper copies provide a hedge-fund manager with the end-of-the-day ability to manufacture trade tickets that confirm the investment results.

It could be postulated that most of his investors figured Madoff was doing something illegal---Wall Street was whispering Madoff was laundering proceeds from Russian mob activities.

If Madoff was helping gangsters steal, some investors might have figured they could make a profit on the deal.

THIS IS HOW DO-GOODER LIBERALS AVOID PAYING TAXES Madoff's operation included many tax-exempt "charities and foundations." The IRS has pinpointed foundations as the locus classicus of tax evasion. There's a zillion ways one can evade taxes within a foundation or charity---and live the high life---tax-free. People running them pull money out as salaries, expenses, travel, employ relatives, etc. Checks one foundation or charity wrote to another foundation or charity should be scrutinized..... could involve the biggest frauds, in the form of tax evasion, money laundering, etc. Phony line items might include PR, maintenance, admin, legal fees, etc. This is how do-gooder liberals evade taxes.

UPDATE A May 15 report said a fund for victims run by the govt, the Securities Investor Protection Corp, has collected about $1 billion from those who profited from Madoff and the assets of his defunct firm. SIPC CEO Stephen Harbeck said his group believed in "taking an aggressive position" in going after the Madoff family. Wife Ruth Madoff, her sons and Madoff‘s brother Peter used millions of dollars of investor money to fuel their lavish lifestyles for decades. Madoff claimed he acted alone and kept the others in the dark. Lawyers for Ruth and the others have denied the family knew about Madoff's$65 billion fraud. SIPC has so far identified 8,848 victims of Madoff's scam, and that he expects to have paid out $61.4 million to 125 people claiming $368.3 million in losses by the end of next week. The payouts are expected to swell to $100 million by Memorial Day.

Madoff’s ‘Dull’ Returns, Investigation Didn’t Alarm Notz Stucki
Jan. 28, 2009 (Bloomberg), By Warren Giles

Notz, Stucki & Cie., a Swiss money manager, probed and later dismissed concerns about Bernard Madoff investments, which offered “dull but steady” returns. “Certainly some people raised concerns,” the Geneva-based firm wrote of Madoff in a Dec. 20 letter to investors obtained by Bloomberg News. “We were aware of these and investigated them. All our enquiries led us to believe that he was operating a legitimate, profitable business.”

Notz Stucki told clients the loss faced on the investments is $737 million, “assuming a complete loss of all assets managed by Madoff.” The firm’s due diligence included visits to Madoff’s offices, regular meetings with Madoff himself and research with auditors, custodians, lawyers, administrators and counterparties. “No evidence to suggest improper practice was ever found,” the letter said.

Founded in 1964, Notz Stucki specializes in funds of hedge funds and has one of the “most effective networks of contacts in the industry,” according to a Standard & Poor’s report dated June 2007. Geneva-based Union Bancaire Privee and Banque Benedict Hentsch & Cie. also disclosed client losses linked to Madoff, who told authorities he ran a $50 billion Ponzi scheme, prosecutors said.

Notz Stucki declined to comment. The money manager invested with Madoff through Plaza Investments International Ltd. and two feeder funds, according to the letter. It also had a 7.6 percent exposure to Plaza through DGC Pendulum Ltd. and its feeder funds. Notz Stucki managed both Plaza and DGC Pendulum.

‘Highest Standing’ Madoff’s annual returns over the past five years ranged from 8.5 percent to 11.7 percent, and included “several months” of negative results, the letter said. While the “split-strike” strategy Madoff purported to use would have produced returns of about 5 percent annually, Notz Stucki was led to believe that the results were boosted by proprietary models predicting short-term market movements and sophisticated execution systems, the firm said in the letter. “Rather than being too good to be true it was ‘dull but steady,’” the money manager wrote.

The Swiss firm said that Madoff, a former chairman of the Nasdaq Stock Market, had the “highest standing in the financial world and the wider community.” The fact that Madoff’s business was regulated by the SEC and the Financial Industry Regulatory Authority was also viewed as a positive, the investor letter said. Madoff, 70, was arrested on Dec. 11 and charged with using billions of dollars from new investors to pay off older ones.

Seeking Redress Notz Stucki said in the letter that it was in discussions with lawyers and planned to pursue “all possible avenues” that might lead to a recovery of assets or other redress. Notz Stucki employs more than 90 staff and has “several billion Swiss francs” under management, according to its Web site.

The company has six partners, including Christian Stucki, who co-founded the money manager with Beat Notz, and has offices in cities including Zurich, London, Luxembourg, Bermuda, Montreal, Mumbai, New York and Singapore. Notz Stucki’s business is “to cherry pick individual talent” in fund management, and the firm’s partners “invest their personal assets alongside their clients, participating in the same risks and returns,” according to the Web site.

UBP, the world’s largest investor in hedge funds, had about $700 million in investments linked to Madoff, the money manager said last month. Benedict Hentsch had 56 million francs ($49 million) at risk.

Santander Offer Banco Santander SA’s Optimal Investment Services hedge fund unit, also in Geneva, had 2.3 billion euros ($3 billion) with Madoff. Santander, based in the Spanish city of the same name, said Jan. 27 it will offer $1.38 billion to clients who lost money with Madoff and close seven funds run by Optimal. Manuel Echeverria resigned as chief investment officer of Optimal last year and joined Notz Stucki. In an e-mail, Echeverria declined to comment.

UBP said in letter to clients last month that Madoff’s investment strategy “was not supposed to generate outsized returns” and that it relied on Madoff’s reputation as a regulated dealer and broker as well as regular audits.

Contact Warren Giles in Geneva at wgiles@bloomberg.net Last Updated: January 28, 2009. SOURCE http://www.bloomberg.com/apps/news?pid=20670001&sid=aTin2dVRnU.k

First, I made an arithmetic mess in my post above. It should've been $100 for €1,000 ($1,400) or 7%, i.e. $0.07 on a $1 of investment.

More details about Santander settlement here: Spanish bank settles dispute with Madoff trustee - AP, May 27, 2009

A Spanish bank that was among the biggest losers in the Bernard Madoff swindle has cut a deal to avoid a legal brawl with the trustee trying to unwind the massive Ponzi scheme.
The settlement, announced Tuesday, calls for Banco Santander to pay $235 million to resolve potential legal claims over withdrawals a subsidiary made from its investments with Madoff in the 90 days before the fraud collapsed.
In exchange, the trustee has agreed to recognize that Santander's hedge fund subsidiary, Optimal Investment Services, lost far more in the scam than it withdrew.
Two funds managed by the Geneva-based firm had a net loss of $1.55 billion.
Official recognition of that loss will allow Optimal to eventually recover a large share of whatever money is available for Madoff's victims.
Counting the millions that Santander has now agreed to contribute, that pool of reimbursement assets is now worth about $1.2 billion.
The settlement, which still needs to be approved by a U.S. court, represents the latest step Santander has taken to resolve its entanglements in the case.
About 93% of the bank's clients have already signed on to a separate settlement in which the bank agreed to refund all of their lost principal.

$1.2B is a total pool recovered to date by trustee Picard.

You'll have fun with this one, from Madoff Scam Ensnares Credit Suisse - FR, NYP, December 30, 2008.

UBP Scrambles Over Madoff Ties
LONDON — As investors around the world size up losses on Bernard Madoff’s alleged Ponzi scheme, one purveyor of investment services to the world’s wealthy — Swiss private bank Union Bancaire Privée — is scrambling to explain its ties to the New York financier.
Half of UBP’s 22 funds of funds, which channeled clients’ money into other hedge funds, put at least some of that money into Madoff-related investment vehicles, including one run by J. Ezra Merkin, chairman of car-loan company GMAC LLC, according to a recent letter from the bank to investors.

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