Calabasas resident Richard Shapiro never made it to his college graduation. Instead, he went to work and spent decades in the commercial real estate industry.
Overnight, he watched a lifetime of savings disappear in the wreckage of Bernard L. Madoff's Ponzi scheme.
"It was sickening to see your life's work disappear in a second," said Shapiro, one of almost 5,000 investors who lost money to confessed swindler Madoff.
On Thursday night, Shapiro and about 65 other Californians gave state senators an earful at a hearing held by the state Senate's Select Committee on Investment Malfeasance to explore possible state tax remedies.
"I understand that the state is broke," the 56-year-old Shapiro said at the forum, held at the Skirball Cultural Center. "But we're more broke. There are people that are starving."
For The Record
Los Angeles Times Saturday, May 30, 2009 Home Edition Main News Part A Page 4 National Desk 1 inches; 58 words Type of Material: Correction
Madoff hearing: An article in Friday's Business section about a state Senate committee hearing on the effect of Bernard L. Madoff's financial fraud on Californians identified Elliot Kaye as a retired chief operating officer of Parthenia Medical Group Inc. Kaye, who said he lost his $1.3-million retirement fund in the collapse of the Madoff investment firm, isn't retired.
The hearing was held in response to the hundreds of Californians, the majority of whom are elderly with little to no savings left, who have been pushing lawmakers to step in and help recoup money they lost in an investment Ponzi scheme run by Madoff. They want state law changed so they can get back the taxes they paid on income they thought they had earned off their Madoff investments but never received.
In March, Madoff, 71, pleaded guilty in a Manhattan federal court to 11 securities-related fraud counts. At the center of the charges is Madoff's admitted use of new investor money to pay off earlier investors. Many of Madoff's clients were elderly people who relied on their investments into his fund as their only retirement income.
It may take more than a decade to find all of the assets of Madoff's money management firm and pay back victims of the $65-billion fraud, Stephen Harbeck, president of the Securities Investor Protection Corp., told Bloomberg News on Thursday. The Washington agency, formed by Congress in 1970 to liquidate bankrupt brokerage firms, hired the trustee liquidating Madoff's firm, Investment Securities.
Madoff is slated to be sentenced next month and faces up to 150 years in prison.
The state Senate committee also is trying to quantify the losses in state revenue that might result from any tax law changes to accommodate Madoff victims.
No state law allows people to recover taxes paid on phantom income, and the state doesn't allow victims to claim their losses as a theft loss, Senate Majority Leader Dean Florez (D-Shafter) said in an interview.
The Internal Revenue Service is allowing theft losses from Ponzi schemes to be counted against income from the last five years or future income in the next 20 years.
"What the state Legislature has to figure out now is whether or not we can mirror the IRS actions or if we can find a solution in another way. Either way, we need to find a solution," said Florez, who chairs the committee.
Also attending the hearing was Sen. Tom Harman (R-Huntington Beach). The committee will hold another hearing next month in Sacramento.
Florez acknowledged that the cash-squeezed state isn't in a strong position to return tax money to its citizens, but added, "I don't think the state of California should participate in victimizing people twice. We will in essence be participating in a crime and saying the crime is OK if we keep the money."
Some of the more than 400 Californians victimized by Madoff are rich and famous, including director Steven Spielberg. But most aren't.
Taylor Levin, 15 and a 10th grader at St. Francis High School, said in an interview that he lost $1,500 of birthday money that he was saving to buy a car.
"I'm turning 16 on Aug. 23 and now because of Madoff, I won't be able to get a car. Also my mom lost my college fund and I will be taking out loans for that."
Marcia Cholodenko, 72 and retired from the Los Angeles Unified School District, told the lawmakers that she and her husband, Paul, "were really counting on these years being the golden years for us because we had money invested with Madoff. . . . For many years, we were comfortable, and now . . . we're just existing."
Elliot Kaye, retired chief operating officer of Parthenia Medical Group Inc., said he lost his $1.3-million retirement fund, is living on state disability and "if it doesn't turn around, I'm going to go homeless."
"We need immediate assistance and immediate relief, and the state of California is in a position to provide this relief," Kaye, 61, said.
"The state has undeniably reaped the benefits of the taxes we paid on this fictitious income, and it's time for the state to return this money with reasonable return on investment. It's an honorable thing to do."