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Madoff: The Pain Runs Deep

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December 17, 2008, 6:31PM EST

We’ve all seen the victims of natural disasters, ordinary people standing in the rubble of their homes, their lives changed forever in mere minutes by a hurricane, tornado, or earthquake. For victims of the Bernard Madoff financial disaster, the shock is much the same—only they still have their homes, for the moment at least, as they try to figure out what has happened to their lives in the wake of Madoff’s alleged $50 billion Ponzi scheme.

There are plenty of corporate victims in the alleged fraud, including HSBC Holdings (HBC), Banco Santander (STD), BNP Paribas (BNPP.PA), Royal Bank of Scotland Group (RBS), and the Dutch pension fund of Royal Dutch Shell (RDSA). But the full roster of personal victims—from theman repeatedly muttering “Oh my God,” into a cell phone on a commuter train, a copy of The New York Post in his hand, to the more than 100 people who have contacted a Long Island (N.Y.) law firm that has filed a class-action suit against Madoff’s investment company—isn’t yet known.

So far, the list includes Carl Shapiro, a 95-year-old former garment industry executive who reportedly had $400 million of his personal wealth invested with Madoff, as well as $145 million from his family foundation; Irwin Kellner, chief economist for MarketWatch and the lead plaintiff in the class action, who invested more than $2 million; and Lawrence Velvel, 69, dean of the Massachusetts School of Law, who told the Associated Press he and a friend may have lost millions of dollars between them in bad Madoff investments.


“This is a major disaster for a lot of people,” Velvel said. “You work all your life, you finally manage to save up something, and somebody who’s entrusted with it, it turns out suddenly he’s a crook. Lots of people are getting fully or partially wiped out.”

Madoff—who has been lying low since the scandal broke—made a brief appearance at a federal courthouse in Manhattan on Wednesday, Dec. 17, completing paperwork for his $10 million bond after a judge set new conditions for release, including a curfew and monitoring bracelet. Madoff did not respond to questions from reporters as he left the courthouse.

Other boldface names with exposure to the alleged fraud, either personally or through foundations, include Senator Frank Lautenberg (D-N.J.); real estate magnate Mortimer Zuckerman; Nobel Prize winner Elie Wiesel; and film director and producer Steven Spielberg. In addition, many of the charities that either invested with Madoff or relied on donors who did are likely to be hurting badly as the ripple effects of the scheme are felt.


At stake are not only comfortable retirements for the wealthy but also college tuitions, jobs, and plans for retirement someday. MarketWatch columnist Robert Powell writes that when the Madoff story broke, he felt sorry for an acquaintance who had lost his investment. Then he found out that the foundation his wife worked for had invested its money—and its employee retirement accounts—with Madoff as well. The foundation is closing, and Powell’s wife is out of both a job and her 401(k).

Indeed, contrary to first impressions, not all who apparently have lost big sums are the private-banking sort. Andrew Cohen, a former trader for Madoff’s firm, told CNBC he left just about all his money invested with his old employer when he left in 2000 to become a personal trainer and yoga instructor and to spend more time with his family.

“I left most of my money in there because I trusted him,” Cohen said. “One moment I was enjoying a very, very happy life.…Suddenly I get a phone call from some friends of mine, and in one minute I find out that my whole net worth is just about gone.”


Indeed, it was the trust many had in Madoff that is making the sudden crash of their investments even harder to take. Richard Spring, a former securities analyst who lives in Boca Raton, Fla., told The Wall Street Journal he had about $11 million—or 95% of his net worth—in Madoff investments. Spring said he put other investors in touch with Madoff as well. “I’m heartbroken that so many people have been hurt so badly,” Spring said.

If there is an epicenter to this unnatural disaster, it’s Palm Beach, Fla., where Madoff had a home. Many wealthy members of the Palm Beach Country Club invested with Madoff. The Palm Beach Post noted a hedge fund manager’s report that “a number of high-priced Palm Beach homes were put on the market over the weekend by victims who have been nearly wiped out financially.” Levi Touger, of Royal Pawn & Jewelry, told the Associated Press that people have been calling him since last week seeking loans, offering everything from yachts to four-carat diamonds as collateral.

Other victims in Palm Beach will be people who might never have invested a dime with Madoff, such as Senio Figliozzi, the barber who told Bloomberg News he regularly gave Madoff $65 haircuts in his shop off Worth Avenue. With a monitoring bracelet and curfew, it’s unlikely Madoff will be back in for a trim any time soon.

Mintz is’s B-schools channel editor in New York.


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