The Madoff case is only the beginning

The financial crisis has spawned more litigation in one year than in the six years of the savings and loan scandal.

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    Bernard Madoff pleaded guilty to all charges related to his investment scam at a federal court in New York Thursday.
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When Bernie Madoff was handcuffed and led away to jail Thursday, it represented perhaps some small sense of closure for the victims he bilked.

But the Madoff case is a mere prologue to a huge passel of securities-fraud litigation now coming down the pike.

The financial crisis last year alone produced more federal cases -- 576 -- than in the six years of the Resolution Trust Corp., which handled the savings and loan crisis two decades ago, according to Navigant Consulting, a Chicago-based consulting firm.

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Caseload builds

And that was just for 2008. This year, litigants are filing two new financial-crisis cases for every case that's being resolved, Navigant said.

So what case will become the emblem -- the Enron -- of this economic crisis?

As big as it is -- and as heart-wrenching for those who lost their life savings -- Mr. Madoff's swindle sits apart from the financial-crisis litigation that will jam the courts for years to come.

His Ponzi scheme unraveled during the financial crisis but didn't cause it. He was apparently the single mastermind of his fraud as opposed to the dark web of thousands of mortgage brokers, investment advisers, regulators, ratings agencies, insurers, and so on who were responsible for the biggest Wall street debacle since the 1930s.

The search for villains
Most financial crises have their poster boys: the Keating Five politicians of the savings and loan debacle, Ken Lay of Enron fame, and so on. It's not yet clear who might -- or should -- vie with Madoff for that dubious limelight.

The two hedge-fund managers at Bear Stearns and the two former brokers at Credit Suisse Securities indicted on fraud charges last year were probably too far down on the totem pole. The FBI, whose investigations of mortgage fraud as of December had led to 523 indictments and 282 convictions, has targeted mostly small- and mid-level operators, the New York Law Journal reported. The federal investigations of bigger companies like Fannie Mae, Freddie Mac, and American International Group have not yet led to high-level indictments.

Focus on bonuses?

The public focus may turn to those executive bonuses paid out as giant firms were failing. On Wednesday, New York Attorney General Andrew Cuomo filed documents with the New York Supreme Court alleging that Merrill Lynch had misled the US House of Representative over some 700 bonuses of $1 million and more.

Perhaps there should be no poster boy. In an era when so many made bad decisions and were asleep at the switch, is it fair to highlight someone as The Culprit?

That's what has made the Madoff story line so compelling. His fraud was simple and obvious and quickly admitted to.

In the murkier case of Merrill Lynch, a New York state justice is expected to rule Friday whether the attorney general can publicize the names of those 700 bonus recipients.

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