$1.5 Billion and Counting: Madoff Case Remains Golden Goose for Trustee and His Law Firm

Bernie Madoff is long gone. The lawyers are going strong

Fifteen years after the FBI arrested Madoff on Dec. 11, 2008 for running a massive Ponzi scheme — and two years after his death in a federal prison — lawyers are still sifting through the fallout of his nearly $65 billion fraud.

More than $14.6 billion has been recovered for Madoff’s victims so far by Irving Picard, the court-appointed trustee overseeing the liquidation of Madoff’s firm, and his legal team. Picard has estimated that Madoff’s fraud cost his customers $17.5 billion.

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The case has been a windfall for Picard, 82, and his law firm, 1,000-lawyer Baker & Hostetler. Since Picard’s appointment 15 years ago, they have been awarded more than $1.5 billion in fees, court records show.

The fees through November 2022 have amounted to nearly 17% of Baker & Hostetler’s revenues in that time, according to a Reuters analysis of court records and law firm data from the American Lawyer — an unusually large proportion from one case for a firm its size.

SEC Says Its Binance Case Should Advance Despite DOJ Settlement

The Securities and Exchange Commission says Binance Holdings Ltd.’s recent $4.3 billion settlement with the Justice Department and other US authorities bolsters its own case against the world’s biggest crypto exchange.

Despite not being part of the agreement, the SEC argued on Friday that the federal court in Washington hearing its case should weigh admissions by Binance and the firm’s former chief executive, Changpeng Zhao, in the Nov. 21 settlement. The firm and Zhao have asked the court to dismiss the SEC’s lawsuit.

SEC Probes Investment Advisers’ Use of AI

The Securities and Exchange Commission is asking investment advisers how they use and oversee artificial intelligence, as agency head Gary Gensler continues to express skepticism about the technology.

The SEC’s examinations division has sent requests for information on AI-related topics to several investment advisers, part of a process known as a sweep. The agency wants details on topics including AI-related marketing documents, algorithmic models used to manage client portfolios, third-party providers and compliance training, according to one such letter obtained by Vigilant Compliance, a regulatory compliance consulting firm.

FBI Guidance to Victims of Cyber Incidents on SEC Reporting Requirements

The Securities and Exchange Commission’s new requirements for companies to disclose material cybersecurity incidents take effect on December 18, 2023. The FBI, in coordination with the Department of Justice, is providing guidance on how victims can request disclosure delays for national security or public safety reasons.

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The FBI recommends all publicly traded companies establish a relationship with the cyber squad at their local FBI field office. The FBI also strongly encourages companies to contact the FBI soon after a cyber incident is discovered. This early outreach allows the FBI to familiarize itself with the facts and circumstances of an incident before the company makes a materiality determination. If the victim of a cyber intrusion engages with the FBI, that doesn’t trigger materiality. However, it could assist with the FBI’s review if the company determines that a cyber incident is material and seeks a disclosure delay.

The SEC Has the Power to Save Itself From Constitutional Doubts

Jarkesy doesn’t have to create a sea of change. There’s an easy fix: Congress, the SEC, or even the Supreme Court itself could avoid major disruption in administrative enforcement and adjudication by recognizing a “right to remove.”

A regulated party should have a right to remove an SEC enforcement action for civil penalties from an in-house agency adjudication to a federal court. This proposal would resolve the constitutional issues presented in Jarkesy and result in better regulatory policy.

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Congress could similarly amend the Securities Act to codify this right to remove in SEC proceedings. But a virtue of this path forward is that we needn’t wait for Congress to act.

The SEC itself can and should implement a right to remove itself. Without even engaging in notice-and-comment rulemaking, the agency could promulgate a regulation tomorrow detailing when and how regulated parties can request the SEC to remove an agency adjudication to federal court.

SEC to Consider PCAOB’s 2024 Budget

The SEC has scheduled a meeting for December 13, 2023, to consider approving the PCAOB’s 2024 budget of $384.7 million, which is a significant increase of 11% over its revised 2023 spending plan of $347.3 million.

This follows unanimous approval by the board for its 2024 budget on November 16. The SEC, as the securities market regulator, oversees the PCAOB. And changes to its standards and annual budget must be approved by the commission.

Vehicle Safety Issues Trigger Securities Suit Against GM

There was a time, not that long ago, when class action securities lawsuits were mostly about accounting and financial disclosure-related issues. In more recent years, securities suits increasingly are about operational issues, in which unfortunate business developments are the basis of securities fraud allegations — a phenomenon that has been called “event-driven litigation.” In the latest example of this kind of litigation, a plaintiff shareholder has filed a securities class action lawsuit against General Motors alleging that the company, which sustained a product recall related to its vehicle airbags and suffered a significant setback in its driverless vehicle development efforts when one of its driverless vehicles struck a pedestrian, misled investors about vehicle safety issues. A copy of the plaintiff’s December 8, 2023, complaint can be found here.

The Power Vacuum at the Top of the Crypto Industry

Arguably the biggest beneficiary of crypto’s current reshuffle is Coinbase’s Mr. Armstrong, who declared this month that Bitcoin “may be the key to extending western civilization.” Coinbase’s share price has nearly tripled over the past six months, even after the Securities and Exchange Commission sued the firm as part of the agency’s broad crackdown on the industry.“

Coinbase is now the last man standing,” said John Todaro, an analyst at Needham who tracks the crypto industry. “There’s less competition out there.”

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Wall Street was once the enemy of the insurgent crypto industry, but after a bruising 18 months of bankruptcies and arrests, crypto proponents have greeted the collaboration between Coinbase and BlackRock as a potential salvation.“

Crypto isn’t disrupting Wall Street; it’s merging with it,” said Ms. Allen, the American University professor. “It’s fairly obvious — they think they can make some money here.”