From the June 29, 2009 Bloomberg TV Interview:

ATTORNEYS DAVID ROSENFIELD AND MICHAEL SHAPIRO ON BLOOMBERG TV JUNE 29, 2009

SPEAKERS: DAVID ROSENFIELD, ATTORNEY, HERRICK FEINSTEIN; MICHAEL SHAPIRO, ATTORNEY, CARTER LEDYARD AND MILBURN; and MATT MILLER, BLOOMBERG NEWS

(This is not a legal transcript, Bloomberg TV cannot guarantee its accuracy.)

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MATT MILLER, BLOOMBERG NEWS: We are joined by two attorneys who specialize in white-collar crime. David Rosenfield is a former prosecutor in the fraud division in the U.S. Attorney's office for the district of New Jersey. He is now a white collar defense counsel at Herrick Feinstein.

Michael Shapiro is a lawyer at Carter Ledyard and Milburn, a firm representing victims of Madoff's $65 billion Ponzi scheme. Welcome to the show, gentlemen, thanks for joining us.

Let me start out by asking - we say he is going to spend the rest of his life in prison. Is that necessarily the case? Because we've already heard that he can come back and request a different sentencing in about a year.

ROSENFIELD: I don't see any way that he is going to get out ever, 150 years is just above and beyond and I can't imagine any circumstances under which any judge would ever let him out.

MILLER: Michael, if he does come forward and actually cooperate a little bit?

SHAPIRO: Look, there's a procedure under federal law that if he provides information that the government considers significant, the government can request that he be resentenced. The real question is, a reduction of the sentence by 50%, still leaves him with 75 years. A reduction by 66% still leaves him with 50 years.

So as a practical matter, what kind of information could he give to warrant that kind of reduction other than telling the government where Bin Laden can be found? Other than that I don't see -

MILLER: Where does this leave Bernard Madoff in that case? It seems like there would have been no reason for him to cooperate in the first place, right, if he's going to get a minimum of 12 to 20 years, he's going to die in prison anyway. Did he help at all? Was he cooperating at all? Because Ira Sorkin in his statement said that he actually did.

ROSENFIELD: Well the government seemed to be saying he hasn't cooperated much at all. He says he showed them where some of the assets were, he didn't fight. He helped turn over the assets, but in terms of who else was involved with him, he has not helped them at all, from what I understand, from what I read. That obviously is something that the judge took into consideration and the prosecutors are saying.

SHAPIRO: And to the extent that the potential people he cooperated against include his wife and his children, how realistic really is it to expect that he is going to do that? I think most people, in a similar circumstance, would say, if I am going to die in prison, but I can protect my wife and children, that is what I am going to do.

I don't think he really has the kind of information that at this point could help himself. The other issue now to be resolved is where is he going to serve his time? With a 150-year sentence, he is going to be classified at the highest security level. And there is a good chance that he could be sent - if not just a federal penitentiary, but to one of the super-max security facilities. Which would be unprecedented.

MILLER: Is there no way around that? Is that just something that is sort of tripped off by our sentencing?

SHAPIRO: It's a two-pronged factor. One is, what is your risk as an escape risk? A 150-year sentence puts him at the maximum level in that regard. The other thing is the government can use the type of facility that he is sentenced to - that he has to serve his sentence, as a way of putting pressure on him to try to get him to cooperate.

Those places, Marion, Illinois, the super-max facility in Florence, Colorado, those are not pleasant places to be for anyone, much less a 71- year-old white-collar offender.

MILLER: Let me ask David, as a former prosecutor, what is the next move here? Victims are talking about going after SIPC, obviously as you would expect, but what does a prosecutor look at? Michael mentions the wife and children that are thought to maybe have been in a position to help in this kind of massive Ponzi scheme.

ROSENFIELD: At this point, the prosecutors are going to go after anyone and everyone that they think may have been involved. That includes the brother, the sons, the wife.

And then of course all the people on the 17th where Madoff worked. Lots of people were involved there, 10, 12, 15 people. The government is going to want to know and find out, were they involved, did they help create all these phony account statements and so on? They did do that, but did they know what was going on? So the next part of the investigation is who else was involved? Who else can we criminally indict?

MILLER: And of course the SEC - we saw the victim there wearing a T- shirt that said something about the SEC. You can't overlook the fact that they let this happen.

SHAPIRO: Yes, of course the problem for all of those people is that as a general matter, you can't sue the government. The government is immune from suit, unless it specifically waives immunity.

If your car gets hit by a mail truck, you can sue the post office for the damage. But that is the exception to the rule. Generally, you can't sue the government for failing to do its job.

MILLER: We are going to take a quick break here, gentlemen. David Rosenfield and Michael Shapiro are going to stay with us to talk more about this. The maximum sentence for Bernard Madoff, 150 years in jail. Keep it here to learn more about the mastermind of the biggest Ponzi scheme in world history.

(BREAK)

MILLER: We're back with David Rosenfield, a former prosecutor in the fraud division of the U.S. Attorney's Office in New Jersey, now a white- collar defense counsel at Herrick Feinstein.

And Michael Shapiro joins us as well, a partner at Carter Ledyard and Milburn, which is representing some of the Madoff victims. Let me start here with you, Michael. We heard Sharon Lissauer there mention offshore accounts, hidden assets. Is it really likely - I mean, as someone who's also representing Madoff victims, is it really likely that there are going to be the stashes of money that you can find?

SHAPIRO: I think it is not likely. The nature of a Ponzi scheme is that the money comes in and the money goes out. The money goes out to early investors and that is undoubtedly what happened here. As millions came in, eventually billions came in, the vast majority of it went out to the investors who invested early on.

Certainly a lot of it went to Madoff and his family to live the lifestyle that they lived. It is unlikely that there are these hidden stashes. Certainly if there are, the government will do everything that they can to discover that.

MILLER: Then of course you wonder, who on earth would benefit from any kind of hidden money? As a prosecutor, don't you go after the people that possibly could pick up this cash? I mean, even if the media scrutiny dies on Ruth, there will still be prosecutors watching to make sure that she does not all of a sudden come up with $10 million or the kids all of a sudden buy a new yacht and a new vacation home. How likely is that?

ROSENFIELD: I don't think that is very likely at all. I am sure that the prosecutors will be closely monitoring what they're doing, what their lifestyle is, what their accounts are holding.

Ruth Madoff's been given I guess $2.5 million so you're going to have to move out of the $7 million penthouse and move somewhere else. So the prosecutors are going to be watching, what's going on with her, what kind of car is she driving, where is she going, what vacation is she taking? So they'll be watching.

MILLER: It's not likely she'll be tapping the $100 million account from her Zurich-based bank.

ROSENFIELD: I don't think so.

MILLER: What about, Michael, the victims? There is some question as to how complicit victims were in this. If you hear about an investment opportunity that you can only get in the backroom of a country club and you're pretty much guaranteed 13% returns, it's a little bit like an item of clothing or a watch that falls off the back of a truck, right?

SHAPIRO: I have a number of clients - I have a couple in their 70's, worked their whole lives, one in the retail fabric business, the woman as a sideline had a plant business. She supplied plants to offices. They put together a nest egg about 10, 12 years ago. Knew somebody, who knew somebody who introduced them to Madoff.

After much cajoling, he agreed to allow them to invest their $6 million with him. They took out almost nothing. They saw it grow, they thought to $10 million. And now they learn that they have zero dollars. The woman is back in the plant business to support them in their retirement.

MILLER: These are heartbreaking stories of course. But some of the victims must have thought, okay, maybe he's frontrunning, maybe he's got insider information, and were happily collecting these returns on the way up.

ROSENFIELD: Some of the victims may have thought that. You never know. The returns weren't outsized. Thirteen percent a year, you're not talking about 100%, 150%. Over time, nice, stable returns. That is what sucked a lot of people in, as well as the fact that you had to go to Bernie Madoff and say please, please can I invest with you? That's really almost unheard of.

MILLER: You've got to wonder what he was thinking. Everybody's wondering this, what was he thinking, but I wonder why he agreed to plead guilty and go straight to jail. Wouldn't it have been possible for him to stay in his luxury apartment?

SHAPIRO: That is an interesting question, Matt. My colleagues and I have asked ourselves that, to the extent he was out on bail before he entered the plea, if he had said, you know what, I am going to go to trial, that would be a year, 18 months down the road. Presumably, he would remain free on bail during that period of time.

The worst that could have happened to him is he would have been convicted and gotten 150 years in jail, which is exactly what happened to him. It would be interesting if Ike Sorkin is ever in a position to explain what the thinking was behind that.

MILLER: And someday there'll probably be a book deal that allows them to do that. We will take a quick break here on Bloomberg. Michael and David, if you could just stay with us, we will talk more about Bernie Madoff's 150-year sentence when we come back.

(BREAK)

MILLER: We are back now with David Rosenfield and Michael Shapiro talking about the 150-year sentence that Bernie Madoff got and everything around it. Michael, we were talking about Ira Sorkin, whether or not he can explain to us of the interesting questions that people have about this afterwards. How much longer is Ira Sorkin going to be working with Bernie Madoff? Will there be appeals here, will there be attempts to get the sentencing reduced? Will that business continue?

SHAPIRO: Yes, it will continue for a while. They undoubtedly will appeal to the Second Circuit on the grounds that the 150-year sentence is unreasonable. I do not know that the appeal will have much chance of success, but with a 150-year sentence, you take a shot. They will be involved in the designation process where he will serve his sentence. Beyond that, after that process is done, there is not a whole lot that Ike Sorkin's going to be able to do for Mr. Madoff.

MILLER: I wonder - we were talking about this a little bit during the break. How does Ira Sorkin get paid? This guy must be stripped of every last dollar that he had. How do you pay your defense attorney?

ROSENFIELD: Well I think that the money had to come from Ruth Madoff. There were reports that she got $10 million from her father a number of years ago. That is the only way he could be paid that I can think of is money from Ruth Madoff, that's her money. Not money that she got from him. Her own money.

MILLER: The kids - they must have earned money working for Dad, but of course they took big loans from the Madoffs as well. Will the kids end up broke as well as Ruth after this?

SHAPIRO: I think the government's going to go after the family members hammer and tong to get back every penny they can. Don't forget, the day before Madoff turned himself in on December 11th, December 10th, Ruth Madoff withdrew $15 million from her account at Cohmad Securities.

Cohmad has now been sued. That's Cohn, Madoff, Cohmad Securities. They have been sued now by the SEC. Anywhere there is money to be found, one branch of the government or another is going to go after it.

MILLER: It sounds like legal fees are going to probably be generated higher than the amount of money they can actually recover for victims. Obviously you're both lawyers, but isn't that likely?

ROSENFIELD: The legal fees are going to be very high, both for the sons, Ruth Madoff, obviously Bernard Madoff's legal fees are very extensive. So yeah, there are going to be legal fees for them, for all the other people that were involved who worked at Madoff Securities. Everybody has gotten a lawyer who worked there. And the legal fees are going to be extensive. Many people are going to have to pay out of their own pocket.

MILLER: We are going to take a quick break here. Gentlemen, if you have the time, I'd love if you could stick with me. Michael Shapiro here and David Rosenfield, a couple of lawyers talking with me about Bernard Madoff and his 150-year sentence.

A high number, but of course he was accused of running the biggest Ponzi scheme in world history. We will hear more from victims of the Ponzi scheme when we come back. We will talk about the outcome of today's decision and the likely decision that will follow. Stay with us here on Bloomberg News.

(BREAK)

MILLER: Now we're back with David Rosenfield, a former prosecutor in the fraud division in the U.S. Attorney's office in New Jersey, now a white-collar defense counsel at Herrick Feinstein.

And Michael Shapiro, a partner at Carter Ledyard and Milburn, which is representing some of the Madoff victims. Michael, let me ask - you told us a heartbreaking story about an incredible loss by one of your clients here. How angry are the people you represent with the SEC? Because it looks like anybody who went over there and just asked to go through the records once, could have figured out that this was a scheme.

SHAPIRO: They are incredibly angry. The couple I told you about - the very first question they asked me was, we want to sue the SEC. For two reasons, one is they felt the SEC failed them. And two, they knew that the government at least has money. Madoff doesn't, so they were hoping that they could recoup some of their losses by going after the SEC.

I had to give them the bad news that it was not possible. So you know what they said to me? They said, 'Why can't Congress do for the Madoff victims what they did for the families of 9/11, pass a law allowing the government to help us out?' I said, that is beyond the power even of me and my law firm. You really have to talk to your congressmen, your congresspeople, about that. It is certainly something that could be done.

MILLER: Can't we see something from SIPC? I mean, this is - the agency mentioned by one of the victims here? They normally refund at least some portion of investor losses in these kind of cases.

SHAPIRO: SIPC is going to do that. They will refund up to $500,000 for people who lost that much or more, as direct investors with Madoff. That leaves out an entire large group of people who invested through the so- called feeder funds. They are not eligible for SIPC reimbursement at all. And of course if you had $5 million or $6 million invested and you get that $500,000 you're not feeling like you have been made whole.

ROSENFIELD: Let me just say that my law firm, Herrick Feinstein, is directly suing the SEC on behalf of a number of investors under the Federal Tort Claims Act, if the SEC completely screwed things up, which the argument is that they did, you can sue the SEC. We have done it. They've rejected our claim, but we're going after it.

(BREAK)

MILLER: Now we are back with David Rosenfield, a former prosecutor in the fraud division of the U.S. Attorney's office in New Jersey. He is now a defense lawyer at Herrick Feinstein and Michael Shapiro is a partner at Carter Ledyard and Milburn.

We were talking about what Madoff victims can do and Michael, you represent an number of Madoff victims and you are actually suing the sec although you've had some glitches along the way.

ROSENFIELD: Well we are suing the SEC on behalf of some of the victims Madoff. What you have to do is first, you file a claim - a case with the Securities and Exchange Commission themselves, which we did. The commission then has six months to either accept or reject your claim. They just rejected our claim. Now we can go to federal court and file a complaint and go after the SEC. We are doing that.

MILLER: What do you expect best case scenario to get out of this?

ROSENFIELD: If the SEC is found culpable, then we can get the money back for the investors that lost money. The government's a deep pocket. And our allegations are that they completely missed the boat on this. So we are going after the SEC to get money back for the investors, all their money.

MILLER: And Michael, you mentioned that you'll have a problem getting money back from SIPC, if you were a direct investor with Madoff you can get up to $500,000 back from them. But you have a problem if you go through feeder funds. Were victims investing 100% with Madoff through feeder funds? Could you have lost your entire nest egg going through some of these -

SHAPIRO: Sure, a lot of people did. A lot of people did, a lot of institutions did. For example, Elie Wiesel's foundation was invested 100% with Madoff through a feeder fund. He didn't know it, but that's the fact, and his foundation lost everything. New York University lost a lot of money. Those institutions or people have brought in many cases suits against the feeder funds themselves. But of course, that is a very expensive proposition.

MILLER: Why is that? You have to argue that they did not do due diligence, right?

SHAPIRO: Yes, and in many cases it is clear that they did not. That - the allegations in the SEC complaint and other complaints against Ezra Merkin, for example, says that he was just basically a conduit, a funnel. Money went to him, from him to Madoff, and he in turn received large fees back from Madoff, as did many of the other feeder funds.

I mean hundreds of millions of dollars in finder fees that Madoff paid to these feeder funds. So the feeder funds are being sued by the investors. They are being sued by Irving Picard, the SIPC trustee, and hopefully, there will be a lot of money returned that way.

I wish David and his firm success in their suit against the SEC. I think, though, there is going to be one glitch - major glitch, and that is going to be something called sovereign immunity. You can't sue the king. In this case, you can't sue the government. Cases against the SEC have been brought in the past, and time and time again, they have been dismissed on the grounds of sovereign immunity.

MILLER: All right, hang on a second. I want to give David a chance to answer that.

(BREAK)

MILLER: All right, just a recap in case you missed it. Bernard Madoff has been sentenced to 150 years in prison. And we're just getting actually headlines across from his wife, Ruth Madoff, making a statement, saying that the silence up until now has not been due to a lack of sympathy, but she says nothing I can say seems sufficient. She is embarrassed and ashamed.

And she was devastated by her husband's massive ponzi scheme. She feels betrayed and confused. All right, we'll talk more about that in a moment. We're back, though with David Rosenfield. He is now a white collar defense counsel representing some of the Madoff victims. Herrick Feinstein and Michael Shapiro also representing some of those victims, a partner at Carter Ledyard Milburn.

And we have been talking about the possibility of suing the SEC. And Michael points out that there is a problem when you are suing the king, since of course he makes all the rules. How do you expect to overcome that in your fight against the SEC?

ROSENFIELD: Well there are ways to breach sovereign immunity. Obviously, there are very limited circumstances. But if what the government did was so egregious and if they completely missed the boat and did a horrible job, under certain circumstances, it will rise to the level of the government is responsible. The government is liable and people can recover from the government. Obviously it is a very steep standard. But in this case, the SEC completely screwed things up.

MILLER: And you have to admit, Michael, the SEC has been flagged a couple of times, right? And had never done anything here.

SHAPIRO: Apparently this fellow Harry Markopolos gave him a road map. And they crumpled it up and put it in a desk drawer someplace. No one ever looked at the road map. And that is certainly a great indictment of the way the SEC handled this. And hopefully going forward in the future -- under the newly - Rob Khuzami, who has been appointed as Chief of Enforcement, former prosecutor in the southern district of New York, is a terrific guy. And if anyone can straighten things out, Rob will be able to do it.

MILLER: Now you said you hope to get back a large portion of the money for the victims. We have so far accounted for about $13 billion that has actually been lost, over 1,000 victims. What do you think as far as a percentage, Micheal, that we can get back here. When you look at people like Ezra Merkin who collected hundreds of millions of dollars in these feeder funds in fees? And when you look at, for example, the Madoff's assets. They've obviously got a very valuable apartment and very valuable houses around the world. What can you get back?

SHAPIRO: Well Picard apparently has gotten together about $1.25 billion in assets so far. Even the most expensive apartment in New York, what does it go for? $40 million, $50 million? That is a drop in the bucket. If they go after these feeder funds for hundreds of millions of dollars, maybe they can get together another $1 billion, $1.5 billion. So if you can get up to $2.5 billion, $3 billion out of $13, you're talking about the approaching maybe 25%.

MILLER: Which is rough, obviously, for some clients, especially clients who invested this money a decade or two decades ago.

ROSENFIELD: And the government is saying that $13 billion is the floor, that's the minimum amount. As further investigations are done, they expect it to go up and it could go up considerably.

MILLER: The $65 billion figure that we hear about, this includes, right, the false gains that Madoff claimed that he made?

SHAPIRO: Sure. That is really an artificial number because as we know, those gains were created by his Madoff's imagination. So it could have been $70 billion. It could have been $100 billion. It's whatever he decided to put down that month on the statements. That is not the real number. The real number is, what did people put in to invest with Madoff? And what did the feeder funds send to Madoff? And that number is probably going to be in the $13 billion to $20 billion range.

MILLER: Michael, we're already hearing about some people refusing settlements that they are being offered because they want to look at the numbers with the artificial gains. What sense does that make?

ROSENFIELD: Well people want to get as much as they can possibly get back. And if they put in X amount of money, they got gains from it, they want not only what they put in, but the gains. But of course they'll be lucky to get back even a fraction of what they put in. The gains that they made, there is no chance of that.

(BREAK)

MILLER: All right, we are back with David Rosenfield. He is a former prosecutor in the fraud division of the U.S. attorney's office in New Jersey, now a defense lawyer at Herrick Feinstein. Also, Michael Shapiro here, a partner at Carter Ledyard Milburn, which is representing some Madoff victims. Actually, you both represent some Madoff victims.

And we were talking a little bit during the break about Ruth's statement, how sad and ashamed she is. Let me start with you, Michael, and ask - we were talking about the fact that only a little while back she was asking for $65 million. And she still has more money than most normal people, obviously.

SHAPIRO: Well let her put her money where her mouth is. Let her turn her jewelry over to Irving Picard. Let her turn the artwork over to Picard. I mean, keep the bare necessities. A gold necklace, her wedding ring, her engagement ring. Beyond that --

ROSENFIELD: See if you can get a small apartment in New Jersey, a Ford Focus, and that is it.

SHAPIRO: Yes, exactly right. If you want to try to help the people, help them in the way that you can. Certainly, she can't make any of them whole, but she can do something. And that is what she should do. If in fact she is devastated, ashamed, and wants to help.

MILLER: It seems unlikely to me that Ruth will be doing this. But, you know, the interesting thing is the kids actually worked with their father on a daily basis and I believe they actually owed him money, right? One of the kids took out a $30 million loan. They could be more in the hole than Ruth.

ROSENFIELD: They could be. There was a $30 million below interest loan that Bernie Madoff made to his sons. And from what I know, the government is going after that money. So they could find themselves well underwater.

MILLER: What is the next step as a former prosecutor here and how long does it take to work up a case like this? It seems like it should be fairly easy since there were never any trades made. It was just a simple ponzi scheme, right? And there has got to be a paper trail of the lack of paper here.

ROSENFIELD: Right, the next step is to thoroughly investigate, look through all the records, interview whoever you can who knows anything about what was going on. And try and figure out who other than Bernie Madoff was involved and there had to be other people for this size of a massive ponzi scheme. There had to be.

MILLER: What do you think, Michael? I mean, who else do we get involved here? Do we go after the sons, the brother, the wife, the accountants?

SHAPIRO: People working on the 17th floor, people who were in putting the information that went on to the account statements. The question I have myself is, where did that information come from? It wasn't coming from confirmations from trading, because there were no trades. There were no confirmations. So where was the financial information that went on to the statements coming from? The people who were inputting it, where were they getting it from?