[Editor's note: What follows is this story as it was originally reported. Please see our important correction of the facts below.]
Pity the poor journalists covering the Bernard Madoff fraud saga. The month-old story has fast evolved into the largest and most complex Ponzi case in history and just keeps on getting bigger and more complex.
Madoff is believed to have defrauded countless investors out of at least $50 billion in a scheme stretching back decades. With so many reporters rushing against deadline to untangle an ever-widening web of deceit, lost fortunes and bureaucratic incompetence, mistakes are bound to happen. Which is why it should be anything but surprising that at least three major news outlets—Reuters, Fortune and CNBC—apparently failed to notice that one of the legal experts they turned to on the Madoff story, the San Diego law firm of Bernstein Litowitz Berger & Grossmann LLP, was anything but an unbiased source.
In a Dec. 12 story headlined “Legal experts see wide fallout from Madoff case,” Reuters spoke to Bernstein Litowitz partner Gerald Silk in an effort to put the story—which had broken a day earlier with Madoff's arrest—in some perspective.
“I have had a lot of calls between last night and this morning from people who have lost a lot of money,” Silk was quoted as saying. “There are obviously more questions than answers right now in terms of where investors are going to turn.”
On Dec. 22, Fortune's online edition ran a story in which Bernstein Litowitz attorney Sean Coffey also described being bombarded by phone calls from Madoff investors. Coffey said he received “more than 60 calls” over a four-hour period “from distraught investors whose losses totaled over $1 billion.”
The number of Madoff-related calls Coffey claimed to have fielded reduced dramatically when he spoke on a Dec. 22 CNBC segment of personally receiving “30 to 40 phone calls” from investors. Appearing as a legal expert to address the segment's topic—whether defrauded investors should sue the hedge-fund firms that sent them to Madoff—Coffey strenuously argued that the firms should be held liable.
“I think there are some serious questions that have to be answered,” Coffey said. “But I think, at first blush, these feeder funds are very vulnerable to meritorious litigation.”
Of course he does. Coffey's firm, Bernstein Litowitz Berger & Grossman, is one of two law firms representing plaintiffs in a class-action lawsuit against Madoff. But at no point in either the Reuters or Fortune stories or the CNBC segment is this mentioned. The lawsuit, Irwin Kellner v. Madoff Investment Securities, was filed in New York City on Dec. 12—the same day the Reuters story published—and alleges Madoff's Ponzi scheme robbed investor Kellner of more than $2.2 million.
Calls to Bernstein Litowitz for comment were referred to the firm's New York office, which didn't respond by press time.
Again, it's perfectly understandable that the news media might have missed a single relevant detail in a story as insanely complex as the Madoff case, just as it's perfectly reasonable for a law firm to make the press rounds in the interest of their clients.
Nonetheless, failing to disclose possible bias on the part of a source is a serious journalistic error and worth pointing out.
Correction: The day this story was published, Blair Nicholas, a partner at the law firm of Bernstein Litowitz Berger & Grossmann, contacted CityBeat, informing us that his firm “does not formally represent any plaintiffs in connection with the Madoff situation,” and, therefore the entire premise of David Silva's story is false.
Silva based his story on a number of factors: Other media reported that Bernstein Litowitz Berger & Grossmann was investigating the Madoff case. Silva then found a summary of the case of Irwin Kellner et al v. Madoff Investment Securities on the Stanford Law School Securities Class Action Clearinghouse website, and Bernstein Litowitz Berger & Grossmann was listed as one of the firms representing the plaintiffs. Silva called the law firm for comment and spoke to Nicholas. According to Silva, when asked if Bernstein Litowitz Berger & Grossmann was representing plaintiffs in the case, Nicholas replied, “Yes, we are. It falls out of our New York office.” Nicholas then gave Silva the number of Gerald Silk, who did not return Silva's call.
Nicholas recalls the conversation differently. He says he told Silva he knew nothing of the matter and referred him to Silk. Silva stands by his recollection of the conversation.
When Silva returned to Stanford Law School website, and the reference to Bernstein Litowitz Berger & Grossmann had been changed to a different firm. A Stanford representative told CityBeat the initial reference was a rare error.
CityBeat currently has no evidence that Bernstein Litowitz Berger & Grossmann was ever formally representing plaintiffs in the case, and we regret any confusion the story has caused.