Stanford & Madoff Victims Unite!!!!!

By Robert Schmidt and Jesse Westbrook

WASHINGTON, USA (Bloomberg) — Victims of Bernard Madoff and accused Ponzi schemer Allen Stanford are banding together to lobby Congress for a law that could require Wall Street firms to pay billions of dollars to cover some of the losses they suffered.

They also gleaned another lesson: The broader the geographic base of support, the better the chance of legislative success. The result is a coalition of the Democratic-backed, East Coast, and mostly Jewish investors defrauded by Madoff, with the Republican-backed, largely Christian, Sunbelt residents victimized by Stanford. The disparate groups now find themselves bound by a common notion: They’ve been cheated, and they want the government to make them whole.

“We had been trying for a year, breaking our necks to get attention from Democratic members,” said Angela Shaw, 40, of Dallas, whose family lost $4.5 million in the Texas-based Stanford’s alleged fraud. “We realized that working together, maybe these things will be heard.”

Together, the groups hope to persuade Congress to add a requirement to the regulatory overhaul bill, now under Senate consideration, that brokerage firms pay about $4 billion in additional fees to the Securities Investor Protection Corp. fund. SIPC protects US investors’ accounts against fraud or bankruptcy. The victims also want Congress to require the fund to compensate them up to $500,000 each in losses.

The lobbying initiative “gives new meaning to the word chutzpah,” said James Cox, a professor at Duke University School of Law. “This is just a tax increase. It’s levied on banks but customers end up paying.”

Until recently, the two groups were going at it alone, and not winning much support except from lawmakers in their regions.

Shaw’s Stanford group had backing from Richard Shelby of Alabama, the senior Republican on the Senate Banking Committee, and other panel Republicans like Bob Corker of Tennessee, David Vitter of Louisiana and Kay Bailey Hutchison of Texas, said Shaw, who also works part-time as a spokeswoman at the Federal Reserve Bank of Dallas.

“These are very Christian” people, Shaw said, referring to the Stanford victims. A lot of members were marketed the Stanford securities “at church.”

What she needed was Democratic votes. An aide to Vitter suggested she join forces with Helen Davis Chaitman, 68, a New York-based lawyer with Becker & Poliakoff LLP and the Madoff victim leading a similar effort.

Senator Christopher Dodd of Connecticut, the banking committee’s Democratic chairman, and other panel Democrats such as New York’s Charles Schumer, Rhode Island’s Jack Reed and New Jersey’s Robert Menendez, were sympathetic to Chaitman’s cause, she said.

The Madoff victims also hired professional lobbyists in December. One of their advocates, Russ Klenet, has his own history with Ponzi schemes, although Chaitman said she didn’t know that when he was hired.

Klenet, whose firm, Russ Klenet and Associates, is based in Fort Lauderdale, Florida, lobbied for Mutual Benefits Corp., whose executives in 2005 settled for $25 million an SEC complaint that they defrauded 31,000 investors of more than $1 billion. The Florida-based company sold investments in life insurance policies that were purchased from terminally ill people.

In an interview, Klenet said he was one of 11 lobbyists hired by the company and that he aided the SEC probe. The experience, he said, gives him empathy for the Madoff investors.

“Representing that company made me very, very attuned to what goes on in these Ponzi schemes,” he said.

The Senate Banking Committee, which has been negotiating privately for months on the details of the regulatory bill, has not met formally to discuss the victims’ request. The House in December passed an overhaul measure without any restitution.

No lawmaker has come out against the investors’ campaign, which may face some obstacles. While the financial industry, which benefited from a $700 billion bailout fund in 2008, has low standing in Congress, its lobbyists could argue, once they learn about the victims’ request, that they had nothing to do with the frauds.

Stanford was indicted in June of defrauding at least 30,000 investors of $7 billion through a Ponzi scheme that sold allegedly bogus certificates of deposit. Stanford, in jail awaiting trial, denies the charges.

Madoff, now serving a 150-year prison sentence, pleaded guilty to a fraud that cost investors up to $65 billion. The scam funneled money from new clients to pay returns to earlier investors.

Both groups of victims want the Senate measure to require brokerage firms, which paid only $150 each annually into the SIPC fund for more than a decade until 2009, to pony up the estimated $4 billion in retroactive charges.

SIPC, created by Congress in 1970, has a limited mandate, unlike the Federal Deposit Insurance Corp., which insures bank accounts up to $250,000 per depositor. The fund is arguing that the Stanford investors are not covered because they purchased their fraudulent securities from a foreign bank — Stanford’s investment products were issued through a bank in Antigua — even though his firm had operations in the U.S. and made payments to SIPC.

SIPC also won’t cover the claims of Madoff victims who withdrew more money from Madoff’s funds than they put in. The investors say that that unfairly denies them many years’ worth of returns they thought their money was earning.

Stephen Harbeck, president of SIPC, said his fund has enough money to cover all legally permissible claims up to the $500,000 maximum. SIPC has agreed to pay more than $650 million to other Madoff claimants.

Harbeck declined to comment on the victims’ lobbying. “Speaking only for myself, I cannot see where it would be good policy to change the law to pay fictional, contrived investment profits in a Ponzi scheme,” Harbeck said.

Some of the Madoff victims in Chaitman’s group are separately involved in legal cases against SIPC. They lost one round on March 1 in federal bankruptcy court in New York when the judge agreed with SIPC that it shouldn’t base payments on fictional account statements. They are appealing.

Chaitman lost her life savings in the Madoff fraud. She started her campaign on behalf of 350 Madoff victims about eight months ago and has since met with more than 70 lawmakers or their staff, she said.

When she began, Chaitman said she didn’t know that the House offices were on one side of the Capitol and the Senate on the other. “Now, you can put me in any basement and I’ll know just where to go,” she said.

As the groups’ leaders walked the Capitol halls separately over the past several months, they learned how to find the Senate’s Dirksen Office Building and to call their proposal “revenue neutral,” meaning no cost to taxpayers.

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