Wednesday, September 29, 2010
Making lemonade from lemons...
There is a push to reimburse Madoff's victims for losses they never really incurred.... Some of the victims want to be reimbursed not just for the money they gave to Madoff but for the money they thought they had.
Yeah, it can be pretty upsetting to find out that the millions of dollars you thought you had doesn't really exist. But you didn't really lose that money, you only lost the illusion you had that much money. The real loss is the amount given to Madoff less any money Madoff gave back. And the SIPC - as they should - only compensates people for real losses, not for imaginary losses.
If, for some screwy reason, these people succeed in getting taxpayers to reimburse them for money they never had, I see a great 'investment' opportunity, one that yields a fifty-to-one return on investment. And not only that, the federal government stands behind this... and not just your initial investment but the entire 50-to-1 return.
Here is how it will work. You send me $10,000 to 'invest' on your behalf. At the end of a year, I will send you a statement showing that there is now $500,000 in your account. (In reality, your account will contain only your initial investment of $100,000, no more and no less) You'll then inform me that you want to close out your account. I'll send you a check for $9,000 (your $10,000 deposit less a $1,000 account opening fee that you've agreed to pay) and a letter informing you that I am sorry but there really isn't $500,000 in your account. You'll then take this letter along with your account statement to the SIPC and get reimbursed for the amount of your 'loss'... a federally guaranteed 50-to-1 return on investment.
While I don't play a lawyer on TV, I don't think there is any fraud, at least as the authoritative Wikipedia defines fraud, as you haven't lost anything. You end up with the return I promised so I haven't committed any SEC violations. I haven't taken any of your money and bought boats or planes or anything that would constitute embezzlement or the like. I won't be sending you money that comes from newer account holders so there's no Ponzi scheme aspect to this.
Seems like a winner... at least for you and me. The taxpayer gets screwed... but that's nothing new, is it?