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					THE MADOFF PONZI SCHEME
AND THE GATEKEEPERS WHO
  FAILED TO PREVENT IT
May 7, 2009

Presented by:          Janene M. Marasciullo, Esq.
                       Michael L. Zigelman, Esq.

Offices in New York, Philadelphia, New Jersey, San Francisco and
Los Angeles
OVERVIEW AND SUMMARY

   Madoff’s Admission
   General Allegations Made
   Impact Upon The Financial Services
      Industry
   SEC Files Suit
      CURRENT MADOFF –
     RELATED LITIGATION
   Suits Currently Pending
   Who Are The Plaintiffs and
      Defendants
   General Allegations and Causes of
      Action
   Recent Developments
    EMERGING TRENDS –
     WHO IS AT RISK?
   Investment Advisors
   Hedge Funds
   Plan Fiduciaries
   Broker Dealers
   Steps Being Taken to Mitigate
       Potential Liability and Exposure
        EMERGING TRENDS
         CONTINUED . . .
   The Gatekeepers
    –   Fund of Funds
    –   Accountants/Auditors
    –   Lawyers
    –   Government Regulators
           SEC
           FINRA
IMPACT UPON INSURERS

   Types of Coverages
     Potentially Impacted
   Possible Policy Defenses
   Other Potential Coverage
     Issues
 TYPES OF COVERAGES
POTENTIALLY IMPACTED
   Investment Advisor/Mutual Fund
       E&O and D&O Policies
   Securities Broker Dealer E&O
       Programs
   Accountants E&O Policies
   Lawyers E&O Policies
   Fidelity Bond
     POSSIBLE COVERAGE
         DEFENSES
   “Fraud” and/or “Personal Profit”
      Exclusions
   Definition of Loss
    – Disgorgement of fees, commissions
   Breach of Warranty/Prior Knowledge
   Rescission
       OTHER POTENTIAL
       COVERAGE ISSUES
   Notice of Circumstances
   Admission of Liability/Cooperation
       Clauses
   “Other Insurance”
   Allocation Issues
   Choice of Law Issues
CLAIM HANDLING ISSUES

   Pre-Claim Assistance
   Coordination of Defense Counsel
   Coordination of Coverage Counsel
   Other Insurance Policy Allocation and
      Coverage Investigation
       UNDERWRITING
      CONSIDERATIONS
   Manuscript Endorsements
    – Madoff Exclusion
   Revised Policy Application
      Procedures
   Policy Questionnaires
     THE SECOND (AND THIRD)
      WAVES – WHAT CAN BE
            EXPECTED
   Timing of Secondary Claims
    – 2nd and 3rd Quarter of 2009
   Notice of Circumstances Evolving into
      Claims – 2nd Half of 2009
   Additional Expectations
    – Claims Asserting Improper Investment
      Advice, Failure to Warn or Investigate
      Investments
    – Claims Arising From Auditor Financial
      Statement Work on Feeder Funds
    THE SECOND (AND THIRD)
     WAVES – WHAT CAN BE
           EXPECTED
   Fiduciaries – Dual Roles as Both
       Plaintiffs and Defendants
   Pass-thru Litigation
    – Impact Upon Coverage
   Clawback Opportunities/Redeemer
       Claims
    – Bayou Fund Ponzi Scheme
    – Fraudulent Conversions & Transfers
       BAYOU FUND PONZI
           SCHEME
   Bayou Group – Connecticut Hedge Fund/Pyramid
       Scheme
    – Resulted in Bankruptcy Filing
   Trustee Demands Return of Money
    – Target Investors Who Received Money from Bayou
    – 2 Years Before Bankruptcy Petition Filed
    – October 2008      Court Approves “Clawback”
   Fraudulent Conveyances/Transfers Under
       Bankruptcy Laws
   Bayou Decision’s Effect on Madoff Investors
    – Possible Allowance of Redeemer Claims
    – Statute of Limitations Issue?
       BANCO SANTANDER
   Investments with Madoff
    – $3.1 Billion Loss
   Aftermath
    – Inversiones Mar Octowa Limitada, et al. v. Banco
      Santander, et al. (Southern District of Florida)
   Banco Santander’s Mitigation Attempts
    – $1.77 Billion Settlement
    – Preferred Securities with 2% Annual Coupon
   Attempts to Block Proposed Settlement
    – Motion Filed by Putative Class
    – Allege Settlement Offer is “Misleading” and “Coercive”
    – No Mention of Lawsuit Within Settlement Offer
          CONCLUSIONS

   Liability of Pre-Claims Unknown, But
       Fund Industry Needs to be Pro-Active
       by Acting Quickly
   Potential for Exposure More Volatile
       Here Given Large Losses
    – Sympathy For Investors
    – Aggressive Trustees of Bankruptcy Estates
    – Search For Deep Pocket Defendants
             CONCLUSIONS
              CONTINUED
   Future Impact on Financial Services
       Industry

    – Testimony of Harry Markopolos (February 3, 2009)

    – http://online.wsj.com/Public/resources/documents/Markop
      olosTestimony20090203.pdf

    – Principles and Best Practices for Hedge Fund Investors –
      Report of the Investors’ Committee – To the President’s
       Working Group of Financial Markets – January 15, 2009

    – Best Practices for the Hedge Fund Industry – Report of
      the Asset Managers’ Committee – To the President’s
      Working Group of Financial Markets – January 15, 2009
QUESTIONS & ANSWERS

				
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