Conn. Madoff victim deplores regulatory failures

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Conn. Madoff victim deplores regulatory failures
By Don Michak
Published: Tuesday, February 3, 2009 9:08 AM EST
The 140 participants in a retirement plan organized by a group of Fairfield physicians that lost $11.5 million in the alleged Ponzi scheme run by New York financial adviser Bernard Madoff may only recover $500,000, according to a partner in the medical practice.

Henry A. Backe Jr., a surgeon with the Orthopaedic Specialty Group, told members of the Senate Banking Committee last week that the nongovernmental entity that took over Madoff’s firm after his arrest in December was expected to rule that participants the retirement plan weren’t individual customers of Madoff.


He said that meant they “would have to share in a maximum $500,000 recovery” allowed by the Securities Investor Protection Corp., a nonprofit corporation created by Congress but funded by its private-sector members.

“This is not right or just,” Backe said. “Our pension plan functioned as an individual retirement savings plan. Each participant received individual statements; each was able to roll over money from outside accounts to their own accounts within the pension plan. Each participant was allowed to, and some did, take loans out against their account. The intent was individual accounts and the plan operated that way.”

Backe in his testimony also blasted federal regulators, saying the revelation that the Securities and Exchange Commission had information linking Madoff to a Ponzi scheme as early as 1992 had added “further insult to injury.”

Citing the repeated efforts of a Boston investor — Harry Markopolos — to get the SEC to investigate, Backe said the agency had been provided “with a roadmap” to unmask Madoff as a fraud.

“But the agency allowed Madoff not only to continue in operation,” he added, “but to continue to take in billions of additional victims’ funds, including the funds of the OSG plan.”

Backe implored the government to provide better oversight, especially through the SEC, and he asked that the IRS clarify or expand its definition of “theft loss” so that those hurt by Madoff could rebuild their pension plans on an accelerated schedule.

Backe began his testimony by insisting that his practice, which had established its retirement plan more than three decades ago, had followed all federal rules and regulations and was “diligent in our fiduciary responsibility.”

“We have hired pension administrators for record keeping, our pension documents have been kept current with appropriate amendments by attorneys, and our accountants have completed every required filing since the plan’s inception.”

Backe said the plan, whose participants include 15 doctors and 125 nurses, X-ray technicians, medical assistants, and administrative employees, hired Madoff 16 years ago.

It invested all of its assets with Madoff Investment Securities Co., he said, and as of last November the plan had a net capital investment with the firm of $11,581,000 and a statement balance of approximately $33 million.

Backe said partners in the medical practice had regularly made routine visits to Madoff’s office. The retirement plan “took comfort in the fact that its assets were invested with a well-known and highly respected investment adviser and broker dealer” subject to examination and oversight by the SEC and the nongovernmental Financial Industry Regulatory Authority, he said.

“For over 16 years, the OSG plan received confirmations from Madoff for thousands of securities transactions, mostly in blue chip stocks of major U.S. corporations and U.S. Treasury securities,” he said. “We also received from Madoff monthly statements of our account activity, as well as quarterly and annual portfolio management reports.”

Backe said “no concerns were raised” when the retirement plan was audited by the federal Labor Department in four years ago and by independent auditors last year.

He also disclosed that his practice had sent three partners to Madoff’s office last October “to discuss the volatile markets and check on our investments.”

Nonetheless, Backe said, the news “that all the investment activity in Madoff was a scam, and that Madoff was in fact the world’s largest Ponzi scheme,” was “devastating to us.”

He said the practice had to hire several lawyers and that it already had incurred more than $70,000 in legal expenses.