Monday, February 23, 2009

Missing Madoff Money Found in Gibraltar Bank

In a Daily Beast exclusive, Lucinda Franks reports that at least $50 million in Madoff funds has been discovered in a Gibraltar bank.

Now, the fight begins over who actually gets it.

More than $50 million in missing Bernard Madoff funds has been found in the Gibraltar branch of the International Safra Bank and is likely to become the subject of litigation there. The bank, seeing Madoff’s name on transfer documents, froze the money and notified police.

According to a Franks' source close to the investigation, the Gibraltar case is just one of many instances in which banks in Europe and the Caribbean have identified and stopped any monies with a link to Madoff’s investment funds since December, when he confessed to running a massive Ponzi scheme.

Millions of dollars linked to Madoff have been tagged and frozen in offshore banking havens in Europe and the Caribbean.

The Gibraltar funds were deposited at Safra just a few weeks before Madoff was exposed, according to a source close to the Gibraltar police. This money may have been placed with Madoff through a feeder fund operated by Safra, which asked Madoff to redeem a portion, but not all, of its investment—somewhere between $50 million and $75 million. The returned funds were still being held in the Safra branch when the scandal broke.

After the bank put a stop on the funds, local police informed authorities in the US and are now cooperating with the New York investigation.

Gibraltar, like some other offshore havens, has been making great efforts in recent years to police illegal activity. On Friday, there was a proceeding in chambers at the Gibraltar court. The outcome of this hearing is not yet known.

In general the behavior of the international banking community in the Madoff case demonstrates an unprecedented level of cooperation with American prosecutors—far more, certainly, than investigators received in earlier cases such as the BCCI scandal.

There was a possibility, of course, that any overseas transfers in this time frame could be part of a scheme by Madoff to hide assets. But the Gibraltar transfers could also reflect legitimate withdrawals from his investment funds, made without any connection to the Ponzi scheme. Those investors will probably sue to have the funds released, while the New York-based trustees are equally determined to claim the money for victims’ compensation.

Even investors who cashed out of Madoff’s scheme before it collapsed may not be entirely protected from losses. In a legal procedure known as a “clawback,” trustees overseeing fraud cases can force investors to return funds they withdrew earlier from the phony operation in order to distribute it evenly among those affected. Unlike in, say, a stock crash, clawbacks mean that there is no such thing as "getting out at the right time."


Rukoz said...

It is so true. Banque J. Safra has done that to avoid litigation or minimize its losses. They were quick to freeze clients' money to avoid paying it themselves. However, they are being sued in Switzerland for the violation of "Fiduciary Trust" by their own clients. I wouldn't personally ever be a client of Safra and keep an eye on the news re: Criminal Charges against Safra in Switzerland.