Mass. Attorney, A Madoff Victim, Seeks Justice

The man at the center of the alleged biggest Ponzi scheme in history, Bernard Madoff, is scheduled to appear in court next week. It's a hearing to decide whether there's a conflict of interest for the investment advisor's defense attorney.

Turns out the lawyer's father had an account with Madoff, and the lawyer once represented a Florida firm that invested with him. Such connections show the extent of the $50 billion investment scam. Investigators are still figuring out how many investors are affected.

WBUR's David Boeri introduces us to one Massachusetts attorney — also a Madoff victim — who is on a mission to exact justice.

LAWRENCE VELVEL: Well, I mean, hanging Bernie Madoff by the neck until dead is too good for him.

But not until finding out where he put the money, the dean of the Massachusetts School of Law might add. If Lawrence Velvel conveys a certain sense of frontier justice, dressed in jeans and red workman's suspenders from Alaska's Red Dog Saloon, it's important to stay rational and focused, he says. He's sitting in his Andover office stacked with papers, filled by phone calls and crowded by concerns of fellow victims who call themselves "Madoff Survivors."

They're all determined to get their money back and they see the lawyer and dean as one hope for redemption.

VELVEL: Since December 1, 1992, the federal government through the SEC has been the co-cause of the losses, one can call it an aider and abettor.

One of Velvel's legal arguments strikes at the SEC, because the Securities and Exchange Commission investigated Madoff back then and in effect cleared him, Velvel claims, on December 1, 1992.

VELVEL: That was the day that, through the Wall Street Journal, the federal government — the SEC — announced there was no fraud found here. And it never retracted that. When the government gave this guy a clean bill of health, well lots of people put in money, kept in money, put in more money.

How much money he invested with Madoff, and lost, Velvel won't say. Although, he acknowledges that the investments he began in 1995 were made up a significant portion of his plans for retirement.

VELVEL: You know there is an old saying, David. The first rule of investment success: Don't lose money. The second rule: Don't lose money. And the third rule: Don't lose money. And he didn't lose money.

Of course, Madoff wasn't losing their money because he was stealing their money. But Velvel and his fellow investors didn't find that out until December 11th.

VELVEL: When a fellow called and said, "Now don't fly off the handle or go crazy, but Bernie Madoff was arrested this morning for running a Ponzi fund." Oh boy....(Laughs)

What makes the betrayal worse, says Velvel, was that there were so many small investors, of limited income, who thought they were being relatively conservative by investing in Madoff, who was reporting returns of 10 to 12 percent at a time when some mutual funds were returning as much as 40 percent.

VELVEL: We accepted that our profits would be smaller, our taxes higher and we did that because Madoff had a record of not losing money and we considered that a most important fact.

And following what Velvel calls a conservative strategy — choosing to pursue steady if relatively moderate returns — Madoff's investors were willing to pay a tax rate of 35 percent or more on short-term capital gains taxes. But of course the profits were phantom, and investors paid the government what it turned out they never even owed.

This is an email Velvel got:

'Dear Sir: I write this email with tears in my eyes, engulfed with great emotion. I too am a victim of Bernard Madoff's masterful Ponzi scheme and I too am left with nothing ... I'm a regular, plain person: mom, wife, grandmother ... I am the working poor, owning a small yard maintenance business with my husband, earning enough to get by. No more.

We live in a 1,500 square foot house, and I have one car that runs. My last job was as a maid. My husband and I have three daughters. For the most part, I've stayed home with our girls as they grew up. I worked here and there if we needed money, mostly as a maid. Oh yes, I am poor. And I'm a Jew.'

VELVEL: I certainly think there is a fantastic amount that has not come out. I mean, we know nothing.

Well, enough to strategize how people might get at least some of their money back. Velvel says the IRS could return taxes people paid on non-existent profits. But by statute, the IRS can only go back three years.

Inevitably, the law school dean acknowledges, getting money back will take lawsuits and many more years than many of Madoff's victims have left.