On Friday February 21st 2009, Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC on behalf of Securities Investor Protection Corp. ("SIPC"), held his first meeting with investors who were defrauded by Bernie Madoff. At that meeting, Mr. Picard said "We have found no evidence to indicate that securities were purchased for customers' accounts'' for "perhaps as much as 13 years.'' It was "cash in and cash out,'' he said. In short, the detailed monthly statements sent to investors were pure fiction.

This disclosure is important to the defrauded investors since it makes it more likely that each investor will be able to recover up to $500,000 from SIPC rather than $100,000 that would be available if there were actual securities held in the Madoff accounts. "We are operating out of a crime scene,'' Picard said at the meeting. He added that his office has received 2,350 customer claims as of noon yesterday. Those claims exceeded about $US1 billion, Picard told reporters after the meeting. "That's my recollection, plus or minus,'' Picard said, adding, "I can't tell you today how many of the 2,400 claims will be allowed.''

Mr. Picard told the assembled investors that his office has located Madoff firm books and records at its Manhattan offices, the basement of its Third Avenue building, at a warehouse and at a "backup site.'' "At the warehouse, we recently inventoried approximately 7,000 boxes and that's in addition to the file cabinets worth of materials we found at the premises and that we've been able to review under the watchful eye of the FBI,'' Picard said. "We're getting a feel for how this operation worked.''

Mr. Picard also reported that he found no separation between the company's broker-dealer division and its investment advisory unit. "We have found nothing to suggest there was any difference, any separateness,'' Picard said at a meeting today with Madoff clients in US Bankruptcy Court in Manhattan. "It was all one.'' Picard said he reduced overhead for the Madoff firm by about $300,000 a week. When he came in, it had about 175 or 180 employees, he told the clients. Now he has only 60, including 45 at the market-making operation, which he said are necessary. The trustee told the investors that he wants to sell the firm's market-making unit in "a matter of weeks.'' "That appears to have some value,'' he said. "We're in the process of getting some bids.''

David J. Sheehan, a partner at Picard's law firm, Baker Hostetler in New York, spoke to the audience about what he called the "dreaded clawbacks.'' He said the trustee would seek to recover money that investors withdrew over the amount they put in. "We will be seeking to recover false profits from people who received them in substantial amounts over the years,'' Sheehan said. "You have to think of it this way: It's your money.'' Mr. Sheehan later said clawbacks would be determined on a case- by-case basis, taking into account such factors as the size of the investment, the time period over which any money was invested, the investor's relationship with Madoff or other insiders and a review of account statements.

Mr. Sheehan added that investigators are reviewing "thousands and thousands of e-mails" from Madoff's operation, and plan to issue dozens of subpoenas in the coming weeks related to Madoff's business dealings. Mr. Sheehan also said that the assets of Madoff "insiders" could also be seized and liquidated. "We are looking at every member of the Madoff family," he said. But the investors were told the effort has been hampered by secrecy and a lack of cooperation by Madoff's inner circle, who have "lawyered up."

Toomre Capital Markets LLC ("TCM") wonders how the various individuals who provided services to the Madoff operation will be treated. For instance, how will Frank Avellino and Michael Bienes be viewed? Will they be regarded as Madoff "insiders" and their significant assets subject to seizure and liquidation? How too will the various individuals who ran "feeder funds" that invested primarily with Madoff be viewed? Might Walter Noel and the other partners of Fairfield Greenwich Group be viewed as Madoff "insiders" and hence have their personal assets seized and liquidated?

Reader thoughts and comments are welcome.