For Phyllis Molchatsky, investing with Bernard Madoff wasn't a way to get rich. It was a plan to keep Parkinson's disease from stealing her life.
In 2001, Molchatsky was diagnosed with the degenerative nerve disorder. Doctors told her she needed to quit her job as an office manager, she says. Molchatsky was not yet 55.
Though she had saved nearly $2 million, she wanted assurance that she would have enough to care for herself and have a family. She turned to her broker for help. He showed her a fund that was invested with Madoff.
"I wanted someone who was a little bit more conservative, someone who could let me sleep at night," Molchatsky said.
Molchatsky's investment, which eventually soared to $3.8 million, according to reports from her broker, is now gone. She worries she will someday become a financial burden to her adopted son and her partner, and expects to have to sell her suburban New York home. "It was all my money," Molchatsky said. "I wanted my son to have a better life than I had."
Madoff pleaded guilty on March 12 to securities fraud, perjury and nine other charges. He faces up to 150 years in prison when he is sentenced in June.
Meanwhile, Molchatsky, like many Madoff victims, is desperately trying to recover her losses. But with Madoff insolvent, victims are finding few avenues for restitution. Bankruptcy courts and other entities, some of which provide relief to investors in bankrupt brokerages, will likely have insufficient funds to cover the losses. Prosecutors in the case have estimated Madoff's fraud at nearly $65 billion -- a figure that includes fictitious earnings claimed on investors' statements.
As a result, many victims are turning against those believed to have willingly, or unwittingly, perpetuated Madoff's alleged fraud by endorsing his business. That includes the investment firms that entrusted Madoff with clients' money, their auditors, even the federal government.
Taking on Wall Street's top cop
On Dec. 23, Molchatsky filed an administrative claim against the Securities and Exchange Commission, a preliminary step for any lawsuit against a government entity. The claim alleges the SEC was negligent in failing to uncover the largest Ponzi scheme in history.
"We feel that this was a classic case of negligence by the SEC," said Howard Elisofon, a New York attorney who is suing the SEC on Molchatsky's behalf.