Conn. Madoff victims turn to lawmakers for reform - Madoff Fraud

Conn. Madoff victims turn to lawmakers for reform
February 27, 2009 - 7:15pm
By SUSAN HAIGH
Associated Press Writer
HARTFORD, Conn. (AP) - Some Connecticut victims of the Bernard Madoff financial scandal urged state lawmakers Friday to enact stronger state standards for investment managers, including a required test, to help prevent future illegal schemes.

While Congress is focusing on tougher oversight, they said Connecticut can also play a role in clamping down on perpetrators of fraud.

"This was nothing more than a bank robbery. This was somebody taking your money and embezzling it," Fairfield First Selectman Kenneth Flatto told members of the legislature's Banks Committee.

Sen. Robert Duff, D-Norwalk, the committee's co-chairman, said lawmakers are grappling with how to respond to the financial scandal this session and find ways to make the system more open and transparent for investors.

Fairfield's pension fund lost about $42 million after its investment advisers invested with Madoff, a New York financier accused of duping investors out of as much as $50 million in what may be the largest Ponzi scheme ever.

Flatto suggested the General Assembly pass legislation prohibiting in-state investment advisers and/or securities companies from having any financial interests in funds or securities they recommend to clients.

He also suggested creating an investment protection monitoring bureau within the State Treasurer's or Attorney General's offices. It would have powers to review citizen or business complaints about investment services.

This week, the town filed lawsuits in state court against NEPC of Cambridge, Mass., and KPMG of Montvale, N.J., for failing to provide due diligence of the town's investments. The lawsuit says NEPC was the town's investment adviser, while KPMG performed an audit of the financial statements of a hedge fund that placed investments with Madoff.

NEPC has said the town's trustees chose to invest with Madoff long before it was retained as a consultant. NEPC said it did not propose or recommend Madoff or any direct Madoff feeder fund to Fairfield or any of its clients and recommended Fairfield reduce its exposure to Madoff.

Dr. Henry Backe Jr., whose orthopedic group in Fairfield lost $33 million in pension fund investments, urged lawmakers to require mandatory fiduciary insurance for broker-dealer investment managers who handle pension funds.

He recalled Friday how his medical group received bogus monthly and yearly statements that showed how their money was being invested in mostly blue chip stocks. The pension fund was audited in 2005 by the U.S. Department of Labor and again in 2008 by a Connecticut auditing firm. No irregularities were revealed.

The 140 participants in the medical practice's pension plan have since learned the money is missing.

"Our employees are scared, are worried and are very angry," said Backe, who has testified before Congress and is now urging state lawmakers to put pressure on Washington to make help make Madoff's investors financially whole.

He said there's a 70-year-old surgeon in his practice who was planning to retire but now has to return to a work a full schedule. Two other surgeons approaching 65 years old are wondering whether they can afford to retire, he said.

Backe said he knows of other medical practices in Connecticut that also invested pension funds with Madoff.

Attorney General Richard Blumenthal said his office is continuing its own investigation into the Madoff matter and has issued subpoenas in hopes of finding money to recoup Connecticut victims.

Blumenthal said he is meeting next week with other state attorneys general whose citizens were similarly affected by the Madoff scandal.

While Madoff's operation was not a hedge fund, Blumenthal is urging the General Assembly to pass legislation this year that requires hedge funds doing business in the state or located here to register with state officials.

(Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)
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