Madoff’s house arrest is not an act of honor

By MICHAEL SMERCONISH

I’ve got the title for a biopic about Wall Street’s Bernard L. Madoff: “Bleak End at Bernie’s.”

French aristocrat Thierry Magon de la Villehuchet killed himself after putting his family, friends and clients in a “catastrophic” financial situation by investing with Madoff, who was charged last month in a $50 billion securities-fraud scheme. De la Villehuchet was found in his Manhattan office two days before Christmas, his feet up on his desk and a trash can positioned nearby to catch the blood from his lacerated biceps and wrists.

De la Villehuchet, the chief executive officer of Access International Advisors L.L.C., believed he had lost all of about $1.4 billion he had invested with Madoff. “He felt responsible and he felt guilty,” his brother said.

So de la Villehuchet took action. It was “a positive act of honor,” his brother told Bloomberg News.

That might be a stretch. But it certainly demonstrates more accountability than Madoff, who is charged with putting his investors on this perilous path. Madoff posted $10 million bail and is confined to house arrest in his Park Avenue apartment.

Before his arrest, Madoff told his two sons he was “finished,” his business insolvent and its founder left with “absolutely nothing,” according to news accounts. After his arrest he told the FBI he was “broke.” His scheme? “It could not go on,” he explained to investigators.

I’ve been thinking about the different ways in which Madoff and de la Villehuchet handled their respective predicaments. And the lawyer in me has an idea.

I think de la Villehuchet’s estate has a meritorious civil action against Madoff for wrongful death. At the least, a jury should consider whether Madoff is legally responsible for de la Villehuchet’s death, even if Madoff has no assets.

Here is the legal foundation of the claim:

The scope of the alleged fraud made it likely, if not certain, that there would be many investors whose losses would be enormous. History tells us that investors who lose everything manifest a propensity toward suicide (either out of guilt or because they cannot bear to live in a world without opulence).

So the suicide of an investor would not be what’s called a “superseding intervening cause,” an unforeseeable result, of fraud at this scale. To the contrary, it would be the precise harm that should have been anticipated.

Ordinarily, a financial planner who negligently manages money might be responsible only for his client’s financial losses. On the other hand, de la Villehuchet’s estate could argue that Madoff’s alleged misconduct enlarged the scope of his duty to his investors. They could argue that deliberate choices were made that defrauded investors, maliciously and intentionally exposing them to economic catastrophe. Madoff, they could argue, should be held responsible when one of his alleged victims commits the type of act — like suicide — that should have been anticipated.

I shared my thinking with a former colleague, Paul Lauricella, who is one of Philadelphia’s most successful trial lawyers. He told me Madoff’s attorneys would respond that there must be a limit to the outcomes for which their client could be considered civilly responsible.

Financial sociopath

“The fundamental fallacy with such an argument is that it confuses carelessness with calculated criminality,” Lauricella told me. “Madoff was not merely careless. He was, by all accounts, a financial sociopath who knew that his clients would ultimately find themselves devastated. He knew that he was going to ultimately ruin the people whom he had deceived and swindled.

Knowing he was “finished” last month, Madoff reportedly wanted to hand out bonuses earlier than usual to certain employees. More recently, his sons told prosecutors that Madoff, whose assets had been frozen, sent them several packages containing, among other things, “some very valuable jewelry.”

Not quite signs of remorse or guilt, Madoff’s acts, materialistic and shortsighted, are feeble attempts to pad the fall of those caught up by his operation.

X Smerconish writes a column for The Philadelphia Inquirer. Distributed by McClatchy-Tribune