I sent Rafeeq’s reflections along to CounterPuncher Pam Martens, a former Wall Street stockbroker who really did exercise due diligence on behalf of her clients and who was on to Madoff’s game back in the early 1990s. I strongly recommend her recent piece on the Madoff affar on this site, which we ran last Monday.

Martens wrote me back as follows:

The author [i.e. Rafeeq] is missing a few important points. First of all, the Securities Investor Protection Corporation (SIPC) will only cover a maximum of $500,000 per account owner; some accounts had tens of millions in them. Secondly, the account owner would have to show beyond a shadow of doubt that they actually gave money to Madoff in order to seek a SIPC refund and would be subject to jail time themselves if they lied. Since Madoff never owned a bank, all records of incoming funds and outgoing funds, along with the name of the beneficial owner, would be easily accessible at his clearing banks, two of which are listed in court documents as JPMorgan Chase and Bank of New York Mellon. And, finally, the author neglects the most important point: why would Madoff be willing to spend the rest of his life in jail to make others rich from SIPC refunds. I'm not buying this story. My guess (and it's just a guess at this point) is the following happened: the people who had been with Madoff since the ‘60s, ‘70s, and ‘80s had multiplied their original investment (on paper) many times over at the fictional annual rate of 10 to 13 per cent. Many wanted out once the market was down over 40 per cent. Once he paid them out, he had little left to meet regular income payouts and meet his high family salaries, overhead, multiple homes, yachts, private plane interests, office and payroll in London, country club memberships on Long Island and Palm Beach, etc. Then, apparently, some large redemptions were requested, totaling $7 billion. If he didn't pay, those people would have turned him in anyway. He had no choice but to fess up.