Madoff, Madoff, Madoff

So much has been written about Bernie Madoff and the implications of the massive losses he caused that another Madoff post seems redundant. Unless, of course, you're worried about liability.

Not only Madoff, but also the accounting firms that touched Madoff's company (and the funds and advisers that were touched by him) are being swept up into the morass of litigation. In a corporate word association game, the word litigation should automatically elicit the word insurance.

How then do accountants seek a defense and indemnity for alleged liabilities arising from the Madoff Affair?

An interesting perspective on these issues was recently discussed at an industry symposium hosted by The CPA Journal. The symposium was called "Are CPA's the Next Madoff Victims? The Accountant's Liability." An edited transcript of the participants' comments was published by insurancenewnet.com.

Dan L. Goldwasser, shareholder and member of the accounting law practice group at Vedder Price, spoke at length about dealing with insurers and the need to disclose potential liabilities to them and the possibilities for finding coverage.

The area of damage control in the Madoff situation really boils down to two or three things that you can do. The most important thing you can do is to protect your insurance coverage. That is going to be your main line of defense - and hopefully you all have insurance coverage.Insurance companies are obviously very mindful of their potential exposure from the Madoff scandal. You've got to protect your coverage, and in that regard, you have to think about some of the things that iasur- ance companies do to try to get out from covering your claim.

Probably the first thing that they do is they look to see when you may have discovered your potential loss and whether it was under their watch. You've got to report your claim as soon as you feel you have circumstances which may give rise to a claim. That's what the language of your policy will say. You've got to immediately consider: "Should we be notifying our insurance company right now? What should we be telling the insurance company?" Obviously, there is a dilemma here, because if you say, 'I had 10 clients with total investments of $50 million with Madoff' and you send that notice to your insurance company, there's a good chance that your insurance company may say, 'I don't want to do business will you anymore,' and terminate you as a policy holder. That's a consideration - but I don't think it's a major consideration."

Goldwasser then goes on to discuss many other steps an accounting firm should be thinkng about and how to protect its very important assets represented by its insurance coverage. Goldwasser was followed by Ric Rosario, CEO and director of Cantico Mutual Insurance Company, who also provided a perspective to consider. This is an interesting symposium that any accounting firm concerned about its potential liability with respect to Madoff, or any actual or alleged, "crooked" investment scheme, ought to consider reviewing.

Click here to read the full article.