Sen. Anderson charges: CA profits on backs of Madoff victims

SACRAMENTO — Bernie Madoff may be in prison, but he’s still ripping people off — this time aided by the government of the state of California. So charged state Sen. Joel Anderson, R-San Diego, at a press conference and committee hearing Wednesday morning.

He said the phony “profits” the Ponzi-scheme master promised vanished into thin air. But before that, the “profits” were taxed by California, which now refuses to return the tax assessments to state victims.

Anderson proposed Senate Bill 797, which would align California law with federal income tax law. The IRS lets theft losses from Ponzi schemes and con artists be counted against past and future income, something California currently does not allow for state income taxes.

This would be an alternative to immediately giving the tax money back to the Ponzi victims.

“The state of California kicked you while you were down, and hit you with a tax bill on money you never received,” Anderson explained about the victims.

Madoff’s scheme, the most notorious in U.S. financial history, unraveled in 2007. It cost 16,000 investors $64.8 billion in paper wealth, and at least $17.5 billion in cash losses, according to the New York Times. 

Victims vs. criminals

While well known victims included Steven Spielberg, Kevin Bacon, Ringo Starr and Elie Wiesel, most victims were common people.

Anderson lamented of his reform that there was “no stomach for it in the Legislature.”

“My goal is to punish criminals, not victims, and many of these innocent victims were not wealthy,” he said. “They were teachers, welders and small business owners, saving every penny they could toward their retirement. And it’s not fair the state is taxing them on this fictitious money that was stolen from them.

“We need to protect these victims whose finances and futures have been destroyed by scam artists. Together, with the passage of SB797, we can ensure the state doesn’t re-victimize these innocent Californians. The state should not profit from criminal activity perpetuated against law-abiding citizens.”

Two investment scheme victims phoned in and told their stories of devastating financial loss, and of wrestling with the Franchise Tax Board over the phantom investment gains.

Bernice Tingle, 68, was defrauded of $1 million by a criminal swindler, but she has not yet paid taxes on the phantom investment proceeds. The Franchise Tax Board claims she now owes the state $135,000 after penalties were assessed on her original $84,000 tax bill.

Tingle intended to appear in person, but was rushed to the hospital on her way from Oakland to Sacramento. “The federal government went back and forgave 85 percent of my tax bill,” Tingle said via phone. “I’ve worked too hard to be out on the streets.”

Velma (no last name given), 70, was driving with Tingle to the hearing, and went to the hospital to give Tingle support. By phone, Velma said she lost everything, including all of her retirement money, to another con artist. “I’m in a financial situation right now,” Velma said. “I had to pay taxes on that money.”

Velma said the IRS was finally able to refund her tax money. Yet when she shared the same documents with California’s Franchise Tax Board, it refused to refund her $28,250. “I had to pay the tax bill,” she said.

SB797

Immediately following the press conference, Anderson presented SB797 in the Senate Governance and Finance Committee. But it was evident from the outset several committee members were not on board with him.

Anderson said the Franchise Tax Board’s attitude is, “If you are taxed on phantom profits from a Ponzi scheme, we won’t return the money or forgive the tax bill.”

He added, “Bernice lost $1 million. Now she has to worry about wolves at her door.” Anderson said the state tax board should not keep the “blood money.”

Anderson said other states return Ponzi-scheme tax money. “I went for neutral ground,” he explained, knowing two similar bills addressing the same problem had failed in the Senate Governance Committee – one bill in 2010 by former Sen. Dean Flores, D-Shafter, and the other bill by Anderson in 2011.

You’re on your own

Committee Chairwoman Sen. Lois Wolk, D-Davis, said the issue has come before her committee before, and they’ve never passed the bills. “It’s really offensive to sit up here and hear words like ‘blood money,’ when people make investments that fail,” said Wolk. “There were many people affected by this.”

Wolk added, “It’s not the role of the state Treasurer” to solve the investors’ problems. Wolk recommended a “no” vote by all of the committee members.

Anderson was not dissuaded. “Just say, ‘I am a money-grubbing legislator and I don’t want to give the money back,'” Anderson mocked. “They didn’t lose their money to poor investments; they were scammed. Money was stolen. They are crime victims.”

Anderson asked of the legislators, “Do you feel good at night knowing someone has to fend wolves at the door? We are sending out people from the state to do asset reviews,” meaning they’re preparing the seize the people’s property. “This is about victims. This is the second time I’ve brought this before your committee; it’s the righteous thing to do.”

The bill failed on a 4-2 vote. Reconsideration was granted, and SB797 will be heard again and voted on Wednesday, Jan. 15 in the same committee.