After they retired, Ronnie Sue Ambrosino and her husband, Dominic, crisscrossed the country in their RV. They kept an American flag in the cab, and flew it on occasion. Ronnie Sue’s e-mail address included the words “patriot” and “USA.”
“I wasn’t a zealot or anything,” she said, “but I was very proud to be an American.”
That’s all changed. In the year since the Ambrosinos lost their entire life savings to Bernard Madoff’s colossal Ponzi scheme, “on top of the financial devastation, I’ve lost total faith and confidence in my government,” Ambrosino said. She can’t even say the pledge of allegiance now. “I cannot say, ‘and justice for all.’ There is no justice for all.”
Ambrosino’s story is not uncommon. Much has been made of Madoff’s high-profile losers, but many of his victims were middle-class and working-class people who have been trying to cope after waking up on December 11, 2008, to discover that their financial future was suddenly unclear. The Forward spoke with more than a dozen of these individuals, and the predominant responses were anger and disappointment — not with Madoff, but with the government institutions that were meant to protect investors: the Securities and Exchange Commission, the IRS, Congress, the Securities Investor Protection Corporation and SIPC’s public face, Madoff bankruptcy trustee Irving L. Picard.
“SIPC was created and passed to protect the investor and to create an aura of trust and reliability. That’s completely vanished,” said Howard Schupak, 60, a manager at a building supply company in New York City.
Schupak and his wife, a college professor, had hoped to retire at 65; now they must work well into their 70s. Both his and his wife’s elderly parents were also invested with Madoff, so any inheritance the Schupaks might have been able to fall back on has been “zilched out,” he said. He now rakes his own leaves, shovels his own snow — and drives on local roads to avoid paying tolls.
“My future is an entire cloud,” he said. “I cannot count on anything. Trust has been completely shattered. Trust in our government, our overseers, trust that there was at least an attempt to have a level playing field.”
But Stephen Harbeck, president and CEO of SIPC, the government agency in charge of recovering investors’ money from bankrupt or financially troubled brokerage firms, is quick to point out that SIPC is not insurance. “That word is not in our statute,” he told the Forward. The SIPC Web site has a section called “Why we are not the FDIC,” and says specifically that SIPC “was not chartered by Congress to combat fraud.”
“These people are victims; there’s no question about that,” Harbeck said. “But it’s simply not the case that our statute covers every form of loss and every situation.”
Victims also accuse the SEC of negligence, citing the eight times that the agency investigated Madoff’s firm over a period of two decades and found no wrongdoing. “For 10 years they should have been on top of this, and they completely continued to ignore it,” said Don Coen, a Colorado artist.
Last August, the SEC’s independent inspector general released a scathing report that essentially corroborates Coen and other victims’ point of view; the report paints a portrait of inexperienced and incompetent investigators who were intimidated by the smooth-talking Madoff into overlooking “significant red flags concerning Madoff’s hedge fund operations.”
The Coens had never even heard of Madoff until last December; their savings were in a local investment group that in turn invested in Madoff. So far, they have been able to stay in their home, but “we lost all of our cushion,” Coen said. “It would have been nice to have that money to take trips, to start a fund for our grandchildren to go to college. I feel very fortunate; being an artist, I am able to make an income.” Still, “I always thought, if anything ever goes wrong, I’ve got this big cushion to protect us. That’s gone.”
Whether one invested directly in Bernard L. Madoff Investment Securities LLC or invested indirectly, like Coen, didn’t matter much at the outset — all the money disappeared. But it matters a lot now, because only direct investors fall under the auspices of SIPC.
Victims with no formal education in taxes, finance or the law have learned to navigate a labyrinth of acronyms, laws and legal findings that are changing all the time. “By the end of this, we’ll have all earned our law degrees,” said Steve Norton, 64, of Florida, who, along with his partner, Martin Harnick, 71, was a direct investor who lost his retirement money.
Direct investors may be entitled to up to $500,000 restitution. At issue is the definition of “net equity”—how much a person’s account was worth. Picard, the trustee charged with liquidating Madoff’s assets and overseeing victim restitution, has argued that investors are entitled to only the amount they put in, minus the amount they took out. This makes victims like Ronnie Sue Ambrosino angry. Her last statement from Madoff, dated November 2008, showed more than $1 million dollars, much of which was interest she thought she’d accumulated over time.
“I was told I had a certain amount of money,” she said. “I made life decisions based on it. I sold a house. I sold a business. I retired. We paid taxes on money that Irving Picard says doesn’t exist.”
A hearing to decide the definition of “net equity” is set for February 2, 2010, in federal bankruptcy court in Lower Manhattan, and in the run-up to that day, anger at SIPC in general and at Picard in particular is brewing. It doesn’t help that Picard’s firm, Baker & Hostetler LLP, has billed the government more than $37 million for less than a year of work. (This fee includes a 10% “public interest discount.”) “If the SIPC can afford to pay them, why can’t they afford to pay us?” asked Judy Rafferty, who at 67 had to return to work as a legal secretary.
Harbeck’s argument is that “any anger directed at Irving Picard is misdirected. He is not the villain of the piece. The villain of the piece is going to spend the rest of his life in jail.” The money used to pay Picard, Harbeck said, has no bearing on how much money is available to pay victims. “We’ve repeatedly said, and it is absolutely true, that none of the customers’ assets will ever be used to pay administrators’ expenses,” he said.
Indirect investors, meanwhile, have no recourse to SIPC. For relief, they must sue the individual feeder funds that invested their money with Madoff. Tom Christen from Colorado worked for 33 years as an electrical engineer; when he retired in 2003, he could have chosen to receive a pension, but “that was at the time when all these different companies were failing, and people were losing their retirement,” he said. Christen took a lump sum instead of a pension, and put it into an investment group, which in turn invested with Madoff.
Since last year, Christen and his wife have had to refinance their house to cover their bills, and have put off replacing their old car. At 67, Christen has been applying for jobs and has quickly learned to hide his age on his résumé. The Christens have signed on to a lawsuit against the investment firm Agile Group, in Boulder; even if they are successful, however, Christen said he doesn’t “hold out much hope” of getting back the money.
All this anger and desperation has led some people to become activists in ways they’d never dreamed. Victims have founded organizations, testified before Congress, and scrutinized legislators’ public statements and formal positions on relief for victims of financial fraud.
“I’ve never been this involved in an organization to try to effect change,” said Ilene Kent, from New York City, one of the co-founders of the Network for Investor Action and Protection, an advocacy group born of a Web site and a listserv for Madoff victims. “I never used to understand the phrase, ‘I want to make sure this never happens to anybody else.’ People used to say that, and I’d go, yeah, right. I get it now.”
When Candace Newlove, 49, was raising her daughters, “I made a decision to provide for them,” she said. She worked 80-hour weeks as a mortgage banker, and put away every penny she could. A year ago, Newlove’s personal savings dropped overnight to $10,000 from $800,000. “The ironic thing is, I missed their childhood. Now they’re in their 20s, and I don’t have anything to provide for them. We lost it all.”
Still, Newlove said, the experience has been like “a new lease on life for me. I’ve decided to do life differently this time around.” A ceramics and fiber artist, Newlove is organizing benefit shows to help raise money for schools in Afghanistan. “That feels really good,” she said. “I guess I’m taking the time now to step outside of me and my family. The big lesson is, you can’t take this stuff lying down.”
Contact Beth Schwartzapfel at firstname.lastname@example.org
This story "Victims Lose Faith That Government Protects" was written by Beth Schwartzapfel.