Bernard Madoff Fraud Case Hurt My Investments

Bernard Madoff stands accused of defrauding investors, including some very famous people, of billions of dollars in a so-called Ponzi scheme. People and charitable foundations affected include such notable names as Elie Wiesel and Steven Spielberg. They also include far less famous names - including me. Before any readers of this jump to conclusions, I want to be clear that I'm far from being in the same league as the multi-millionaires - or even billionaires - who were affected by Bernard Madoff. That was why I was utterly shocked and surprised to get the call from a financial adviser on Sunday, December 14.

The news? I was informed that I'd lost thousands of dollars I'd invested in a fund, one which had a portion of its money invested with Madoff. Not the kind of news one wants to hear on a Sunday - or any day, especially during a recession. All things considered, though, I was lucky. For one thing, getting the call relatively late in the game was better than being called on Friday. That meant that there were investors, plenty of them, who'd lost far more than I had.

I was way down on the list and I assume investors were called in order of priority, according to the amount of money lost. If there is any small bit of luck to be found in losing money, it is the fact that we weren't wiped out financially. The losses hurt but they also served as a timely lesson about how to invest and save money. Because we'd followed those lessons, my husband and I were left relatively unscathed. Financially scorched, perhaps, but not burned to the ground. We'd survive. But what about all those people who lost their life savings to Madoff? What about the foundations which had to shut down?

Bernard Madoff allegedly hurt more than the super wealthy

Some people, like the ones noted here at CNBC.com, lost their entire life savings to investments handed over to Bernard Madoff. They could find it very difficult to recoup those losses, especially during their retirement years. That couple lost nearly a million dollars, a figure that may sound high but really isn't, not if a middle class individual or couple live within their means and save regularly. Not all of Bernard Madoff's alleged victims were uber rich. I've never owned, let alone flown, on a private jet. We stick to a budget and I drive an older Toyota Corolla. We don't live on a champagne and caviar budget and I usually cook our meals, although I'm not above calling for a pizza delivery on busy days.

When I learned that we'd lost thousands of dollars and might never get them back, it took awhile to digest. I had to think about how we'd tweak our savings plan to factor in the loss. Then I wanted to know how and why this could happen. If it happened to me, perhaps it could happen to you.

Bernard Madoff, the S.E.C, Shana Madoff - and warning signs that might have been missed

Of course, I was left feeling shaken and baffled by that phone call. I was told that I didn't even qualify as an individual investor with Madoff because the fund had other funds within it and I hadn't invested solely with Madoff. Because Bernard Madoff had only controlled a portion of those funds, that limited my exposure. The downside? That might also limit any chance of recouping my investment losses. Individual investors might be covered by insurance. I probably wouldn't have coverage. Ouch.

So how did Bernard Madoff get away with it and why did people put their entire life savings or invest funds for their organization with Bernard L. Madoff Investment Securities? Good question. According to a New York Times article here on December 17, The Securities and Exchange Commission indicated that it had not caught multiple signs or "opportunities" to unearth what could turn out to be a huge financial deception. Shana Madoff, niece to Bernard Madoff, happens to be married to Eric Swanson and Swanson happens to have served as a lawyer for the Securities and Exchange Commission. At this point, though, the news is still developing by the hour. Any assumptions about what happened are still just that. I have plenty of suspicions but have to wait for news to go on record.

Where things stand now with Maldoff -- and some hard financial lessons learned yet again

At this point, I'm counting my blessings...sort of. Because my parents always urged me to diversify savings and investments, damage was limited. There was never any temptation to put everything into Bernard L. Madoff Investment Securities - or any one fund. We never sunk all of our money into our home, either. Debt has been limited and we're wary of high credit card expenses, unless we can pay them off within the month.

We've taken advantage of corporate retirement plans as well as a variety of options. Checking bank statements and other financial accounts is a priority. Even so, we couldn't avoid this pitfall. Lessons learned? No matter how carefully one saves or plans, unexpected events can happen. Recessions come along and so do executives like Bernard Maldoff, someone who is being investigated for financial fraud. Even the Securities and Exchange Commission may not be foolproof when it comes to catching fraud early on. Going forward, I intend to ask more questions about any bit of money invested or saved. I'm not going to take the word of even trusted financial advisors automatically - even if returns have been decent for many years.

I still don't know if this financial loss could have been avoided but I'm glad the damage was limited. It still seems ironic that I could be grateful for suffering a loss - but I am. Grateful that it wasn't worse...and wondering how others who are less lucky will fare, when losses of more than $50 billion are being noted...so far. The investigation into Bernard Madoff's actions has just started and could end up hitting more national and international financial firms, including banks. Stay tuned.

Sources

Personal experience

One Retired Couples Plight: We Lost Everything, CNBC.com, Dec 15, 2008: here

S.E.C Says It Missed Signals on Madoff Fraud Case, Dec. 16, New York Times, here