Madoff Brokerage May Fetch No More Than $10 Million - What is left for Victimized Clients

Madoff Brokerage May Fetch No More Than $10 Million

By Edgar Ortega and Linda Sandler

Jan. 16 (Bloomberg) -- Bernard Madoff’s brokerage, which is being sold to pay victims of his alleged $50 billion Ponzi scheme, may fetch no more than $10 million based on a profit report drawn up by investment bank Lazard Ltd.

Madoff’s institutional brokerage is being marketed to potential bidders. The business had earnings of just $1.12 million last year, according to the Lazard documents, which were obtained by Bloomberg News. That and its “tarnished” brand may yield an offer of eight times profit or fail to draw bids at all, said Larry Tabb, founder of TABB Group, a financial-market research and advisory firm.

“If folks are looking at the sale of the broker-dealer to make up the $50 billion that was lost from the Ponzi scheme, I am not sure they will be happy with the outcome,” Tabb, based in Westborough, Massachusetts, said in an e-mail. “I can’t see how they would get more than $10 million.”

The brokerage, known as Bernard L. Madoff Investment Securities LLC, was taken over by the Securities Investor Protection Corp. after Madoff’s arrest on Dec. 11. The company employed about $90 million of capital during an average day, according to the Lazard documents.

The brokerage’s proprietary trading unit, with net capital of as much as $250 million, lost $11 million last year, depressing the company’s profit from $8.76 million in 2007 and $41.4 million in 2006, the Lazard documents state.

Madoff Sons

Mark Madoff, 44, and Andrew Madoff, 42, Bernard Madoff’s sons, jointly ran the brokerage’s market-making and proprietary trading businesses, according to a person familiar with their roles. They operated on a different floor from their father’s investment management business after moving to the firm’s office on Third Avenue in Manhattan in 1987 and did not execute trades for the money management unit, the person said.

Madoff’s lawyer Ira Sorkin and Lazard managing director Barry Ridings declined to comment. Lazard did not provide the documents to Bloomberg News.

Madoff, 70, built his business on the brokerage, a pioneer in electronic trading.

“Madoff pioneered a lot of the tools and techniques that have become commonplace in equity trading today,” said Kevin Foley, president of Aqua Securities LP, an electronic trading venue for large stock trades.

Victims

As a money manager, Madoff is charged with one count of securities fraud. Victims range from New York University to philanthropist Carl Shapiro and retired people around the world. Under house arrest at his Upper East Side home with an armed guard and surveillance cameras on every door, Madoff faces as much as 20 years in prison as well as a $5 million fine if convicted.

The brokerage paid bonuses to employees excluding Madoff family members of more than $7 million in 2008 and 2007, the Lazard documents, presented in December to prospective buyers, show.

A buyer of the business would gain software and technology that could handle as many as 1.4 million trades a day, according to the Lazard documents. The company employed 97 people excluding family members as of Dec. 20.

The case is U.S. v. Madoff, 08-mag-2735, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Edgar Ortega in New York at ebarrales@bloomberg.net; Linda Sandler in New York at lsandler@bloomberg.net.