Report: Westport Customers Had $60 Million With Madoff

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News, Business

Friday, February 06, 2009

More than $60 million of Westport National Bank customers’ money was in an account that the bank had with Bernard L. Madoff shortly before he was arrested in December and charged with operating a global Ponzi scheme, The New York Times said in a story appearing in today’s editions.
New information reported about Westport National Bank’s links to Bernard Madoff. (CLICK TO ENLARGE) Dave Matlow for WestportNow.com/file

None of the money belonged to the bank, a division of Connecticut Community Bank, but the account was in its name, the newspaper said. The bank has said it merely acted as a custodian for customers investing with Madoff.

Because the bank held an account with Madoff in its name, the true customers may not qualify for the federal securities insurance program that is expected to cushion investors’ losses, the Times quoted lawyers as saying.

The Times story for the first time identified the person who was the apparent link between the bank and Madoff.

It said many of the disputed custody accounts paid fees to Robert L. Silverman, a professional actuary who runs PSCC Consulting Services at 1175 Post Road East, not far from the bank.

An Internet search showed a Robert Silverman of Wilton who had made a political contribution and listed his company affiliation as “PSCC Inc.”

“Though it was one of many routes by which billions flowed into Mr. Madoff’s hands, the odd arrangement in Westport is one of the few to involve routine customer accounts at a federally regulated banking institution in the United States,” the newspaper said.

The bank’s role became public on Dec. 31, when lawyers for a Florida couple said they were investigating how money the couple had put into a bank custody account wound up being lost with Madoff. That couple thought they were investing with Westport National, the lawyers said. (See WestportNow Dec. 31, 2008)

The bank’s president, Richard T. Cummings Jr., said at the time that the bank had simply maintained custody accounts for customers who knowingly invested with Madoff. Cummings declined then to say how much money was involved, and he did not respond to several requests for information this week, the Times said.

But documents the bank sent recently to customers show about $60.7 million in the bank’s Madoff account at the end of November, said Adam Rabin, a lawyer for the Florida couple based in West Palm Beach, according to the Times.

Although each customer had a separate custody account at the bank, money in those accounts was apparently pooled into a single account with Madoff, the newspaper said.

The Securities Investors Protection Corporation does not cover fraud losses, but could replace up to $500,000 in cash or securities missing from customer accounts of liquidated brokerage firms, the Times said.

The corporation, a government agency, is overseeing the liquidation of the Madoff firm, and if it extends coverage would typically apply it only to official Madoff accounts.

“In this case, that would be the Westport National account, with a maximum coverage of $500,000,” the Times said.”In a letter to customers recently, the bank said it would argue to the Securities Investors Protection Corporation trustee that each custody account at the bank should be individually insured.”

The newspaper added: “Further examination of the Westport National arrangement shows that many of the disputed custody accounts paid fees to Robert L. Silverman, a professional actuary who runs a small pension consulting firm about half a mile from the bank.”

The Times said PSCC Services got about four-fifths of the fees the bank collected from customers, and more than a dozen customers have told their lawyers that Silverman recommended the arrangement.

Some customers said the connection was personal — they knew Silverman socially and he had recommended the custody accounts as a good investment, their lawyers said, according to the Times.

Other bank customers, including at least 10 small medical practices in Connecticut and Florida, had used Silverman’s business to set up profit-sharing or retirement programs, the newspaper said.

Silverman did not respond to several messages left at his Westport office this week, the Times said, adding that Cummings, the bank president, responded to questions about the arrangement by providing a statement issued by the bank on Jan. 2.

That statement emphasized that the bank had not provided any investment advice to the affected customers and that the customers had given Madoff “full discretionary authority” to invest their money. (See WestportNow Jan. 2, 2009)

The arrangement seemed odd to specialists on bank custodial services, the Times said. It quoted a banking information specialist as saying the “record-keeping” fee paid by the bank to Silverman was about three times the going rate--a fee he called “unconscionable.”

Neither the bank nor Silverman responded to requests for comment about the fee arrangement, the Times said.

News, Business

Friday, February 06, 2009

Report: Westport Customers Had $60 Million With Madoff

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