A government watchdog agency has agreed to conduct a “comprehensive evaluation” of the methods used by the trustee who is recovering funds from Bernard Madoff’s massive Ponzi scheme.
Congressman Scott Garrett earlier this year asked the General Accounting Office for a formal review of trustee Irving Picard.
Also under review by the GAO will be the roles played by the Securities Investor Protection Corp. , and the Securities and Exchange Commission, which are overseeing Picard’s investigation into Madoff’s fraud.
“I was pleased to hear that the GAO has agreed to undertake this important review. The public deserves to understand the trustee’s motivations for excluding so many innocent investors from SIPC protection and questions need to be answered regarding the SEC’s role in the affair,” Garrett said in a statement.
Garrett and three other members of Congress earlier this year raised what they described as “serious concerns” for the methods used by Picard to extract funds from former Madoff clients.
The lawmakers are skeptical about Picard’s demand that many former Madoff clients return funds determined as profits, what’s known as a clawback. If during Picard’s investigation he determined that a client withdrew more money than was invested with Madoff, the trustee wants the difference returned.
“The trustee’s approach flies in the face of the SEC’s investor protection mandate, yet the SEC has stood to the side and allowed SIPC and the trustee to go forward,” Garrett said.
In addition, the lawmakers want the GAO to look into how Picard was hired and whether his appointment by SIPC is a conflict of interest in that Picard is being paid by the same entity whose money is ultimately at stake when Picard decides who will and who won’t be reimbursed.
“We are pleased the GAO has agreed to shine a light on SIPC and its Trustee’s approach to the Madoff liquidation,” said Ron Stein, president of the Network for Investor Action and Protection, an advocacy group. “NIAP continues to have serious concerns about the Trustee’s methods, compensation, and accountability, as well as SIPC’s rubber stamp throughout the process. We commend Rep. Garrett for his continued commitment on behalf of innocent victims of investment fraud.”
SIPC President Stephen Harbeck said in a statement, “SIPC and Trustee Picard will fully comply with the GAO investigation and look forward to having the opportunity to share all available information.”
An SEC spokesman couldn’t immediately be reached for comment.
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