Hawaii appears unscathed by Madoff


POSTED: Tuesday, December 23, 2008

The estimated $50 billion investment catastrophe involving alleged fraud by Bernard L. Madoff Investment Securities LLC of New York may not have had any direct impact in Hawaii, local sources say.





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The French parent company of First Hawaiian Bank, BNP Paribas, has exposure estimated at between $400 million and $500 million, according to news reports.

“;Our parent company continues to be one of the largest, most profitable and strongest credit-rated financial services companies in the world,”; said spokeswoman Susan Kam. “;Through Sept. 30, 2008, BNPP's net earnings were in excess of $6 billion.”;

There is no impact to local operations, Kam said.

“;First Hawaiian Bank has no exposure to the Madoff situation,”; she said. “;2008 will be the bank's best performance year in our 150-year history. Our credit ratings remain some of the highest in the U.S. and we are rated by (the) FDIC in the top tier as well-capitalized.”;

Horror stories of losses suffered by investors from the New York and Hollywood elite to nonprofit organizations have surfaced daily since Madoff's family turned the patriarch in. Authorities said Madoff confessed to family members, some of whom worked in the investment firm, that for years he had been paying returns to certain investors from principal received from others, the Associated Press reported.

So far no such losses have surfaced locally.

The state of Hawaii Employees' Retirement System, which provides retirement benefits for state and county government employees, suffered no impact, said Rod June, chief investment officer.

“;We don't have any exposure to hedge funds; therefore, we have no exposure”; to the Madoff matter, he said.

While not speaking of this case, June said investors sometimes make investments based on other investors who have jumped in, assuming the others have done research so it must be safe.

“;Each investor needs to conduct their own due diligence and not rely on the due diligence of other investors,”; June said.

Local financial analyst Randy Havre had not heard of any local losses.

Friends of his in Santa Fe, N.M., meanwhile, dodged a costly bullet.

“;Three years ago they had sold a business and got a chunk of change. They were trying to put the money with Bernie and he wouldn't take it,”; Havre said.

Stories of investors losing everything via Madoff, Enron, and others “;show that you've got to diversify,”; he said.

His Santa Fe friends have now split the business sale proceeds between four different money managers.

Havre blames some of investors' woes on deregulation, with the repeal of the 1933 Glass-Steagall Act.

Repealed by the Clinton Administration in 1999, the act had mandated the separation of commercial and investment banking to protect depositors from risky investment and speculation.

A former stockbroker, Havre's firm and others were closely scrutinized by the Securities and Exchange Commission and other regulators. However, “;in the last 10 years regulations have just been dropped or (regulators have not been) following them and it's just been 'go for it boys' - it's real cowboy.”;

The Hawaii Community Foundation, a charitable services and grant-making organization, is “;not affected. We had no dealings with that,”; said Kalowena Komeiji, director of communications.

Likewise, Josh Levinson, president and chief executive of the nonprofit Community Links Hawaii, had heard nothing about any local impact among nonprofits it serves, or others.

Tufts University of Massachusetts reported to donors it lost $20 million that had been invested with the Ascot Partners hedge fund. Ascot invested the money with Madoff.

University of Hawaii investment officials could not be reached for comment.

Bishop Street would be among the hard-hit zones in Hawaii. However, Mike Fitzgerald, president and chief executive officer of Enterprise Honolulu, (formerly the Oahu Economic Development Board), was unaware of any “;significant”; impact and referred the Star-Bulletin to the state Department of Business, Economic Development and Tourism.

The impact is widespread throughout New York, but “;we're not aware of anything that has bubbled up here,”; said Steve Bretschneider, chief marketing officer.

Should wronged investors emerge, he said, cases would be referred to the state Attorney General's office, as “;this is a legal, law-enforcement issue, since these people were basically swindled.”;

The Congress-created, but non-governmental Securities Investor Protection Corp. notifies investors via its Web site that it does not yet have a claim form for the Madoff liquidation proceeding. The SIPC will post the form when approved and it also will be mailed by Trustee Irving H. Picard to all known potential claimants.

Havre predicted “;a ton of lawsuits all over the place.”;

In addition to whatever recourse the SIPC may be able to provide, he cited a “;claw-back”; scenario, such as when an entity files bankruptcy and the court orders the return of funds the entity had paid out within a certain time frame prior to its bankruptcy filing.

“;Some of these people that were getting paid money over this period of time, they might have to pay the money back, but do they (still) have the money? Who knows?”; Havre said.

Additionally, some Madoff investors were likely “;paying taxes on their so-called gains that they didn't have, so people will be able to go back and amend their tax returns and at least get their tax moneys back,”; he said.

Madoff has been ordered by a federal judge to provide the SEC a written list by Dec. 31 of his assets and liabilities, which the AP reported is a key step in determining the amount of funds left for his investors to divvy up.

Madoff's assets, personal and corporate, have all been frozen by the court.

The Wall Street Journal prepared an unofficial listing of companies and individuals and amounts they had tied up in Madoff investments for themselves or on behalf of others.