Some of Aspen’s wealthiest residents have been stung hard by the collapse of Bernard Madoff’s alleged $50 billion investment scam. The 70-year-old money manager, who federal authorities say targeted elite enclaves around the world, unsurprisingly had a foothold in this notoriously well-heeled resort town.
Sources acquainted with local Madoff investors say the number of Aspenites with significant losses from his firm’s collapse likely numbers above 50 and possibly much higher.
“If I had to extrapolate based on the people I know and the people I know I don’t know, I would guess it’s between 75 or 100,” said Wally Obermeyer, who runs Aspen-based Obermeyer Asset Management and is among the most highly regarded wealth managers in the nation.
Restaurateur and retailer Leonard “Boogie” Weinglass said he personally knows 10 Aspenites who had significant investments with Madoff and some who had 90 to 95 percent of their life savings wiped out when the Madoff bubble burst last week. Those victims collectively lost around $150 million.
Madoff, former chairman of the Nasdaq stock market and head of Bernard L. Madoff Investment Securities LLC, was arrested by federal agents in New York last Thursday on securities fraud charges. The allegations stem from an invitation-only offshoot investment firm Madoff ran that apparently had no legitimate investments. Authorities believe it may be the largest-ever “Ponzi” or “pyramid” scheme, where a manager takes investments and uses them to pay other investors as false profits. The alleged scam was exposed when Madoff’s clients tried to cash out in light of the ongoing global financial crisis.
The Aspen victims bought into Madoff’s firm progressively over the last two decades, sources said. And as his firm reported consistent positive returns, word of his financial success spread through the upper echelons of Aspen society in exclusive sanctuaries like the Aspen Mountain Club.
The Madoff effect on Aspen may be as intense, though likely not as widespread, as it reportedly is in Palm Beach, Fla., where the 70-year-old alleged Ponzi scammer hung his hat part-time. Hundreds of millions of dollars have been lost and nest eggs throughout that community crushed in the Madoff fallout, with the area’s Jewish community bearing the brunt.
Aspen’s Weinglass said he had been solicited by Madoff’s representatives, but decided not to buy in because Madoff did not use an independent, transparent investment custodian.
Vectra Bank Senior Vice President Charlie Bantis said he personally knows two Aspen investors who “have lost all their liquidity” and at least four who have taken significant hits.
“We are definitely going to see a fallout,” Bantis said yesterday.
With their cash evaporated, some local Madoff victims are expected to sell their Aspen homes and other assets. A source within the local real estate industry said as many as a dozen high-end homes are expected to go on the market as a direct result of the Madoff scandal, and that some were already being shopped around in tony areas like Red Mountain and the West End.
“For people who had an appreciable amount of their money invested [with Madoff], it’s going to change their lifestyle,” said Obermeyer the wealth manager, “and that might require downsizing everything, including where they live.”
The confluence of the currently anemic real estate market and the immediate need for Madoff victims to acquire cash-in-hand may lead to mansions being sold for relative cut-rates and at a loss for their owners, sources say. Madoff victims do have legal avenues to recover their losses — including an already-filed class action suit — but none are as expedient as unloading assets.
“It potentially will accelerate a decline in values, particularly in high-end homes,” Bantis said. “My feeling is that some folks will have to sell their homes — and at a price you would not normally see.”
Every facet of the real estate industry in New York City has been shaken by the Madoff collapse, the New York Times reported this week. Development deals are reportedly getting axed there, as banks are expected to call in loans that used Madoff investments as collateral. And a Madoff-sparked fire-sale of victims’ penthouses and apartments is reportedly already under way there.
Hundreds of non-profits across the country have been shaken by the scandal, reportedly including those of film director Steven Spielberg and Nobel Lauerate Elie Wiesel.
By all indications, Aspen’s charitable organizations and non-profits are likely to lose some of their donors as well. One source for this story confirmed that at least one Madoff victim supports a high-profile local non-profit organization. But while their donors may be hurting, there is no indication that local non-profits themselves directly had significant — if any — holdings in Madoff investments, unlike some in Florida that have reportedly been wiped out in the wake of the investment scandal.
The Federal Bureau of Investigation yesterday issued a statement urging Madoff’s victims to come forward and contact them. None have yet publicly identified themselves in Aspen.
Obermeyer pointed out that the Madoff collapse would have wrought much worse results had it come five or 10 years further down the line, with investors continuing to give their money to Madoff.
“It’s a lesson that it’s extremely important to do good due diligence when making an investment,” he added.
But it’s also demoralizing.
“It’s sad, it’s tough times for people,” Weinglass said. “He had a lot of awfully bright people fooled.”
andrew@aspendailynews.com
