Investors have barely had time to tally their losses from Bernard Madoff’s alleged $50-billion Ponzi scheme, but securities attorneys aren’t wasting a moment in laying claim to their piece of the scandal.
Some lawyers are aggressively prospecting for clients, and a few firms already have taken cases to court -- one less than 24 hours after the revelation of Madoff’s alleged wrongdoing. Several more cases were filed Tuesday.
Although such rapid-fire lawsuits are typically bare-bones, often consisting mainly of information gleaned from other court filings or news reports, rushing to the courthouse steps can generate attention and attract clients.
“The jockeying amongst the lawyers has already begun,” said Andrew Stoltmann, a Chicago securities attorney. “It’s very clear right now that there’s a contest on to sign up the biggest-losing clients and the biggest number of clients.”
Meanwhile, on the regulatory front, Christopher Cox, chairman of the Securities and Exchange Commission, said the agency’s staff had repeatedly received credible allegations of wrongdoing by Madoff since 1999 but didn’t fully investigate them.
Cox said the agency’s inspector general would conduct a full review of the SEC’s history related to Madoff.
Given that Madoff and his trading firm appear to have limited assets, lawyers for investors are training their sights on the financial institutions and other middlemen that recommended that investors place their money with him.
These firms, including funds that invest in hedge funds, charge fees to investors for the ostensible purpose of vetting money managers.
Investor attorneys say the intermediaries didn’t do basic legwork to ensure that Madoff’s firm was operationally and financial sound.
“If they sent a second-year MBA [student] to investigate Madoff, they didn’t do a thorough job,” said Jacob Zamansky, a New York attorney who is preparing suits against several intermediaries.
Lawyers say they want to learn whether certain individuals and firms directed investors into Madoff’s fund in exchange for commissions or other financial benefits.
A Seattle law firm filed a class-action suit Tuesday against Stanley Chais of Beverly Hills, alleging he ran a limited partnership that funneled investor money to Madoff.
Chais did not return calls seeking comment.
Depending on the agreements that investors had with intermediary firms, they might have to pursue their claims through arbitration, Zamansky said.
Some legal experts question whether investors will end up recovering much, if anything.
Proving malfeasance by middlemen could be tough because investors would have to show the firms acted recklessly, meaning they disregarded warning signs about Madoff’s alleged fraud, said James Cox, a securities-law professor at Duke University.
Even if investors can prove wrongdoing, he added, many intermediaries are relatively small and unlikely to have major assets that can be tapped to pay off investors.
“I think the money they’ve lost is gone, and the thought that they’re going to get it back is whimsical,” Cox said.
Investor attorneys acknowledge that it won’t be easy to unravel the Madoff case and get money back for investors.
“I’ve spoken to as many lawyers who think it’s a deep black hole as those who think it’s a bonanza for their clients and themselves,” said Robert Schachter, senior partner at Zwerling, Schachter & Zwerling, a New York law firm that is considering a Madoff-related case. “It’s just too early to tell.”