Bernie Madoff Scandal: Uncle Sham

A year after the collapse of Bernie Madoff’s house of cards, two local victims are determined to get their money back from the U.S. government

The DeVitas are lobbying to change the law so victims of all financial frauds, not just Madoff’s, can get their taxes back. Madoff claimed to have lost $65 billion, and his swindled investors may have paid $15 billion in taxes on fake profits. The net winners in Madoff’s scam were state and federal tax collectors. Michael says he tried filing an amended Pennsylvania state tax return to get his taxes back and that it was rejected.

Emma DeVita sits quietly at the kitchen table, serving coffee and coconut cake. A daily reader of the Wall Street Journal for 30 years, she invested with Madoff in 1992 (she and other small-fry investors came in through a feeder fund) and never touched the principal — except once, to pay her husband’s medical bills as he was dying. “I would never have invested in Madoff but for the failure of the SEC,” she says softly. “I’m mad as hell. I’m just glad my husband didn’t live to see this.” He died in April 2008.

A year after Madoff’s arrest, her fight continues. Michael DeVita is signing on to one of many lawsuits for damages against the SEC. The federal agency is protected under what’s known as “sovereign immunity,” but that’s being tested as thousands of Madoff’s victims point squarely at the SEC and its failure to uncover his scam, despite numerous examinations over the years. The victims’ lawsuit, to be filed in January, invokes the Federal Tort Claims Act, which gives citizens the right to sue a federal agency for negligence. “The SEC investigated Madoff several times over the years, and all they did was ask the fraudster if he committed fraud,” Michael says.

In the kitchen, he talks smartly about how he served his country as a naval electrician. His girlfriend’s son just returned from a second tour in Iraq and may go back for a third. “Any time our country called, we wore the colors. We fought the wars,” he says. “It’s the government’s turn to help us.”