I did a search and this subject was briefly touched on in GD but there has been no discussion of this in GQ that I could find, and I think it’s more appropriately asked here.
The news (the utmost in reliability and accuracy, I know :smack:) has been describing Bernard Madoff’s investment scheme as a ponzi. So does that mean the feds can go after the early participants and make them disgorge those “profits” to those who lost? Or can it be approached in civil court?
I had a couple friends get burned in the 12DailyPro ponzi about a few years ago and the emails they got from the court-appointed receiver indicated early “winners” might be gone after and might have to give up their ill-gotten gains.
A lot of the $50 billion that disappeared never existed except on paper. Early investors were sent statements showing large growth, yada yada, and most left the money in to continue growing. Those few that asked for disbursements were paid with later investors monies, but by and large it was a paper scheme. The incredible growth that showed in the investors accounts was so much hot air.
It wasn’t until recently when large numbers of investors who were made nervous by the economy in general, or who really needed money because of losses in other funds, asked for their money that it became obvious. There are undoubtedly some people who ended up in the black, but precious few, and not worth going after.
It would be hard to go after the people who took part, even if they made money, unless you could prove they knew about the scheme. If they just invested, then took their “earnings” without knowing the true nature of the scam, then they have committed no crime.
But those are few.
Restitution has to come, I’m afraid, from Madoff himself – his assets (if any) could be liquidated to pay back the investors. But that won’t cover more than a fraction of the losses. Much of the money is probably in his purchases, and if he spent $1 million for a fancy banquet for investors, for instance, that money has all been eaten.
It’s certainly possible that Madoff investors who managed to pull money out might have to return it to the asset pool under fraudulent conveyance laws. It will be up to a bankruptcy judge to decide whether such laws apply in this case. There’s certainly precedent (Bayou Hedge Fund, for instance) although the devil will be in the details. The fact that investors were not aware of Madoff’s fraud is not necessarily protection against clawback.
That wouldn’t happened to have been one of my posts, would it?
The answer to your question is yes, with certain conditions. New York law allows a judge to demand investors return money received at any time within the last 6 years. If you search Google News for ‘clawback’ you should find lots of articles about this. The recent scam involving Bayou Group provides a likely roadmap for the judge to follow. Now the kicker, which is going to piss off a lot of people, is these investors may also have to return part of their principle. The idea being since this was a fraud everyone should bear some of the pain. The law doesn’t care if you got lucky and withdrew your money at the right time. If you can prove you didn’t suspect anything at the time of withdraw then you might not have to give back any more then your earnings. Good luck proving that buddy. I imagine there will be many lawsuits before all is said and done.
One other option is for the investor to sue the fund-of-funds or advisors that gave their money to Madoff. I am starting to see news about this popping up here and there. They will probably argue in court that these funds didn’t perform due diligences before investing with Madoff. I don’t know how successful these people will be though.
Some investors will be protected by the SIPC up to $500,000. Many investors will be able to get tax refunds from the IRS for payments on phantom earnings. Those are small condolences for the ones that lost millions of dollars. I feel bad for the families that had their entire life savings wiped out by this guy. I hope people will look at this and learn not to put all their money with any one company. I already shifted half my money out of my Vanguard MMF and into my checking account while I figure out what I’m going to do with it.
All in all this is just a big mess and every single person involved should expect to lose money. The fact that this scheme has been going on for so long is what makes it so huge. It kinda makes you worry about what else is out there.
What about the investors that were nonprofits (Yeshiva University, the Elie Wiesel Foundation, and I don’t have the info handy at home, but one of the foundations that sponsored an important project of the National Immigrant Justice Center)? That money was long ago spent - are they supposed to do a fundraising campaign to pay back funds they already raised?