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Haven't Madoff's Victims Suffered Enough?

10/01/2013 10:28 EDT | Updated 11/26/2013 05:12 EST

As if the victims of Bernard Madoff had not suffered enough, the Justice Department has now inflicted on them the albatross of Richard C. Breeden. Breeden was the chairman of the Securities and Exchange Commission in the term of President George H.W. Bush (1989-1993), in which capacity he claims a myriad of pettifogging advances in corporate governance rules. But he is perhaps best remembered for the SEC's decision, under his watch, not to charge the then president's son, George W. Bush, for selling $848,000 of stock in Harken Energy, shortly before an announcement of a larger than expected loss for that company and the erosion of its share price over the next year of 70 per cent, though it later recovered that decline. The issue is not so much whether the future president got a free pass for an insider sale as whether Breeden had spared George W. Bush the usual frenzied legal assault because his father was Breeden's boss.

As one who has been subjected to the full panoply of Breeden's misplaced fervor, I would certainly not reproach him this uncharacteristic act of restraint, and would not begrudge the future president the benefit of it; my impression is that Breeden did the right thing in that case, if for the wrong reasons. For most of his career, few who came into his cross-hairs were as fortunate.

Building on his SEC connections when he retired with the administration, Breeden fashioned for himself a status as Mr. Corporate Governance. He became the go-to person for companies where discontented shareholders secured an examination of their companies' inner workings; or where irregularities justified a court-appointed monitor. He caught a fad at its crest and this has been an immensely lucrative business for him, and his otherwise completely undistinguished law practice, shared with a few fellow-harpies in Greenwich, Connecticut.

Breeden has enjoyed astonishing success in being named as monitor to Worldcom, KPMG and many other companies, as well as a special counselor to Fannie Mae, a few years before it collapsed. In every case, he was exceedingly well-paid. My experience of him was at Hollinger International, where he was the counsel of the special committee; launched lawsuits on behalf of the company against me, the former chairman, that failed; authored a special committee report that I believe defamed the entire management and promised a miraculous recovery in the company's profitability, only to see the company descend into bankruptcy, wiping out $2-billion of shareholder value while salvaging $300-million for himself and the chosen beneficiaries of his largesse, as well as for those of us who benefited from an indemnity for legal expenses that his persecution generated. I sued him and the co-authors of the scurrilous special committee report for defamation, and after a desperate and unsuccessful attempt to claim that I had no right to launch such a suit in Canada, Breeden and the others agreed to a $4-million payment to me as part of the overall settlement of all the outstanding suits, for over $10-million in my favour. (I spent three years and two weeks in federal prison, despite the fact that all of the charges credulously launched at the behest of Breeden's special committee were abandoned, rejected by jurors, or vacated. Two counts were retrieved by a lower court judge whom the high court severely criticized but to whom it remanded the vacated counts for the assessment of the gravity of his own errors.)

The bloom is well off the Breeden rose and the times and the zeitgeist have passed on and are less receptive to the wholesale assault of successful businessmen than they were. His stint as a hedge fund manager was wholly unimpressive. It is thus perplexing that the Justice Department chose Breeden as "special master" of $2.35-billion of recovered assets for redistribution to investors of Madoff's. This is money largely accumulated from forfeitures and is separate from the $9.4 billion court-appointed trustee Irving Picard recovered in civil suits and settlements, of which about a half has been distributed. Breeden purports to be having difficulty sifting between "victims" and "customers," a distinction without a difference. How much money will he accumulate for himself in payments while he defers a distribution in what should be a fairly simple process of prorating payments to victims? Given the destruction he wrought in our company and the self-enrichment he generated, and given also the fact that lawyers have scooped $700-million on the Madoff account already, those awaiting return of their stolen savings with cupped hands should prepare themselves for disappointment.

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