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Some of Madoff's clients might be facing serious legal problems---- some investors were writing personal checks that were placed with a separate financial entity that was not listed on the SEC. That might be construed as money-laundering and tax evasion.

Plus investors who made money on this scheme will have to give it back......under the legal doctrine of "fraudulent conveyance" meaning that investors who withdrew their money before the fraud was revealed, will be forced to return their profits or even part of their initial investments. Returning funds is mandatory for clients who knew Madoff's business was fraudulent.

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Keep in in mind that the SEC received complaints ONLY from Madoff's competitors. Not one client ever filed a complaint...........

Now Bernie‘s investors were savvy, astute successful business people, accustomed to constructing, picking apart and analyzing financial statements. One investor who spoke to reporters was a stockbroker (her family invested with Bernie for generations---the family's patriarch founded the wildly successful Stop and Shop supermarket chain). Other inevstors gave Madoff $100-500 millions to "invest" for years and years.

ORGANIZING LEGAL PRINCIPLE The following should foreclose any cockamamie ideas that taxpayers are gonna bailout these mega-millionaires (who most assuredly have money stashed offshore out of sight of the SEC and IRS).

The compelling legal principle of “condonation” is operating here---implied forgiveness for certain behavior. Meaning investors implicitly “condoned” Madoff’s actions over a period of time--sometimes decades.

His investors willingly acquiesced to Madoff's activities in several ways:

(1) Sending Madoff enormous sums of money, sums that were spread out over time (some families invested for generations), even AFTER they had the opportunity to assess their investments;

(2) Referring other investors to Madoff (if the investment was so bad, why did they bring in other investors?);

(3) Taking profits out of the investment, rolling it over, or putting more money in;

(4) Writing PERSONAL checks to Madoff's subrosa spinoff vehicle that was not listed on the Securities Exchange (tax evasion modus);

(5) Accepting, without question, Madoff’s obviously flawed monthly statements.

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REFERENCE: by Ronald D. Orol, MarketWatch reporter, based in Washington.

EXCERPT There were several things that alerted some in the hedge-fund industry that an investment with Madoff may not have been as safe as it initially appeared. Aksia LLC, which researches hedge funds and advises institutions about investing in the industry, said that it never recommended that clients put money in some of the "feeder funds" that allocated their capital to Madoff. On the surface, these feeder funds looked like institutional-quality vehicles, but there were "a host of red flags," Aksia Chief Executive Jim Vos and colleague Jake Walthour wrote in a letter to clients after the Madoff scandal erupted last week.

The funds were marketed as using a "split-strike conversion" investment strategy that is "remarkably" simple, but the returns it purportedly generated could not be replicated by Aksia's quantitative analyst, Vos and Walthour wrote.

The Madoff funds supposedly traded in the Standard & Poor's 100 index options market, but that market is relatively small and may not have been able to handle trading by vehicles with roughly $13 billion in assets, they said. The feeder funds had almost all their assets custodied with Madoff Securities, the brokerage unit of Madoff's firm.

Aksia checked into the auditor of Madoff Securities and discovered it was a firm called Friehling & Horowitz, which had three employees -- one of whom was 78 years old and another was a secretary. The firm's office in upstate New York was 13 feet by 18 feet. Madoff's Web site claimed the firm was technologically-advanced, but it sent paper confirmations of trades via US mail at the end of each day, rather than providing electronic access to this important information.

Paper copies provide a hedge-fund manager with the end-of-the-day ability to manufacture trade tickets that confirm the investment results.

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THEY HAD TO KNOW THIS WAS A SCAM. Bernie‘s investors were savvy, astute successful business people, accustomed to picking apart and analyzing financial statements. WANT MORE PROOF? Bernie's "investors" were writing PERSONAL checks to Madoff's subrosa separate "investment" vehicle that was not listed on the Securities Exchange. This is clearly a money laundering, tax evasion modus.

HOW'D HE DO THAT?

The Securities Investor Protection Corp (receiver of Madoff's now-defunct fund) is examining Madoff's New York Mellon Bank accounts that appear to have sent and received money from offshore locations..........

Signicantly many of the entities invested with Madoff are tax-exempt non profit "charities and foundations"---which the IRS has labled as massive tax evasion schemes. Madoff might have manufactured falsified “loss statements” as a tax evasion ploy.

To pull off a $50 billion scheme, the Madoff cabal would have had to involve investors, relatives, associates, co-conspirators (or subsets of them), businesses and tax-exempt organizations........colluding together with similar goals like tax evasion and money laundering.

Madoff may have escaped scrutiny by routing his scheme through telephone lines with a maze of complex telecommunications' systems equipped with call-forwarding and voice mail systems, and numerous postal and commercial mail boxes..........and perhaps unregulated money-transfer systems that operate below the oversight radar in ethnic enclaves and places like NYC's Diamond District.

The "investment" monies could have been disguised (to evade the IRS) by routing through a network of domestic and international bank accounts using counterfeit checks.....opening commercial bank accounts in the name of bogus businesses and wire-transferring and/or depositing "investment" checks into those accounts.

The checks could have had invalid bank routing numbers, forged endorsements, or been drawn on the proceeds of other counterfeit checks deposited in other bank accounts. Before banks discovered the fraud, the funds might have been transferred out of the accounts……probably offshore----leaving banks unable to recoup their losses.

State and federal tax authorities could have been swindled, if the scheme involved filing hundreds of phony tax returns in real or fictitious names, falsely claiming federal EITC credits (meant to benefit low-income earners).

In an international scheme with offshore ties, the co-conspirators or subsets of them might have obtained hundreds of taxpayer identification numbers for phantom citizens with worldwide addresses, and used the information, along with phony passports, to claim hundreds of bogus tax refunds.

Investigators poring over Madoff's books have discovered he routinely falsified documents. Using classic fraud techniques, Madoff kept two (or more) sets of books. One set keeps track of losses at Bernard L. Madoff Investment Securities LLC's (his investment advisory arm), while the other set of books is what investors were shown.

NOTE The SIPC is financed by the securities industry and hands out reimbursements to investors who lost money through LEGIT brokerages. It was not intended to reimburse individuals involved in shady schemes with people like Madoff.