Toomre Capital Markets LLC ("TCM") was very surprised to read the February 3rd 2009 headline on the TimesOnline website entitled Madoff Victims Could Reach 3m, Say Lawyers. Acccording to the article,
Javier Cremades, president of Cremades Calvo-Sotelo, the Spanish law firm, said: “Our calculations are that at least three million people were affected by the Madoff affair, three million people who could be directly or indirectly affected by the case.”
The estimate is based on information collected from over 30 firms around the world who are representing the victims of the alleged pyramid fraud conducted by Mr Madoff.
Mr. Cremades, whose firm has filed a US lawsuit in the name of 600 victims who claim they lost €120 million (£108.5 million) in total, said the overall amount involved could turn out to be higher than the $50 billion which has been estimated so far.
Call TCM skeptical of such exaggerated and sensational claims. Assuming that the total size of the Bernie Madoff Ponzi-like fraud is the $50 Billion that Madoff apparently confessed to his sons and the FBI agents on the day of his arrest, dividing three million people into $50 billion suggests that each victim lost close to $17,000.
From all press reports, Madoff and his "feeder funds" had minimum account sizes multiple times larger than this amount. For instance, in the lawsuit Mr. Cremades above is involved with, the 600 investors allegedly lost something in excess of $150 million or something like $250,000 per investor. Taking the statistics further, Mr. Cremades claims of such a large victim pool suggests just for his own clients, each has approximately 14 indirect associated victims.
TCM supposes that families in Spain could be far larger than the averages in the United States. However, it is difficult to imagine that each family accounts for more than four of those indirect "victims". Where do the additional "indirect" victims come from?
One of the largest individual investors who were defrauded by Bernie Madoff was Carl Shapiro and his wife Ruth. He was a major philanthropist who contributed to a number of charities, particularly in the Boston area. One of his beneficiaries was Brandeis University, which has seen its support from key philanthropists cut sharply and is likely facing operating shortfalls in coming years. This has resulted in the university trustees making the very difficult decision to put up a prized art collection up for sale. As a result, are Mr. Cremades and his legal associates including the approximately 5,500 students and perhaps another 5,000 faculty, administrators and staff as part of the Madoff indirect victim pool?
Taking the logic of this inclusion of indirect victims, surely one or more of the philanthropists who were scammed by Bernie Madoff contributed funds to the United Way or the American Red Cross. Why not then include the millions of Americans who will be affected because those charitable organizations have less funds to carry out their various missions? If one were to do so, newspapers could scream in their headlines that tens of millions scammed by Madoff. Of course, if they were to do so, some like TCM might question the underlying assumptions and statistics.