Back From the Brink

BAMBOOZLED BY MADOFF

Once upon a time, Connie and Neil Friedman were living the good life as retirees in Palm City, Florida, withdrawing $100,000 a year from the $3 million nest egg that insurance man Neil had amassed. Certified as a master gardener, Neil devoted himself year-round to his hobby, and the couple dined out often with friends.

Then, overnight, the Friedmans' fortune evaporated. They had invested with a business acquaintance named Bernard Madoff, the now-notorious securities broker who last December confessed to running the largest pyramid scheme in history, a $13 billion fraud in which early investors were paid fictitious returns as new investors' deposits came in. The Friedmans were left with just the $50,000 that Connie, 70, insisted they always keep liquid, just in case.

"I no longer eat like I used to," says Neil, 74. "I've lost 15 pounds since December."

Living on $24,000 a year from Social Security, the Friedmans are rigorously watching their spending. Neil is determined to get on with his life: he was hired temporarily by the U.S. Census Bureau, earning $14 an hour, and is thinking about a business helping homeowners grow organic vegetables. He is not eager for Connie to work. "She has a full-time job taking care of me," he says.

Like other Madoff victims, Neil was able to claim a theft loss on his 2008 tax return and received about $40,000 back from the government. He can also carry losses on his phantom income going back three to five years. Eventually he hopes to recover money from the Securities Investor Protection Corporation (SIPC), which guarantees investors against losses when a brokerage firm fails. "If I am very lucky, I could get almost $1 million back," he estimates.

In the meantime, fortunately, the Friedmans have no debt, although they did have a $216,000 mortgage until a few months ago. That was when their neighbors, a couple in their 50s who had read about the Friedmans' plight in the local newspaper, paid off the mortgage in return for a note that will come due when the Friedmans sell their house or die. With that magnificent gesture, says Neil, "I discovered that people I thought were acquaintances were really friends."