Some Madoff Investors Seek US Bailout; 'Clawback' Defenses Outlined
Many wealthy investors who put their money into the $50 billion Ponzi scheme Bernard Madoff allegedly operated under the guise of a hedge fund may have lost virtually all their money.
Although the Securities Investor Protection Corp. provides six-figure coverage of theft losses, it doesn’t protect against investment losses, and claimed securities purchases that prove to be fictitious are a gray area, as discussed in earlier ABAJournal.com posts. And for those who pooled their money in partnerships and joint accounts, rather than investing individually, SIPC coverage is expected to be considerably more limited or even nonexistent.
“But one group of Madoff investors is pushing for more, reports the Christian Science Monitor. “Led by Howard Merson of Stowe, Vt., they are circulating a draft petition to Congress for ‘full restitution’ of those implicated. They are seeking a five-year carry back, a deduction of losses against assets held in 401(k) and IRA accounts, and big changes to restitution rules at the Securities Investor Protection Corporation.”
Meanwhile, much has been said about potential “clawbacks” by a trustee overseeing the liquidation of the Bernard Madoff investment firms that could strike fear into the hearts of a fortunate few Madoff investors who withdrew money before news of the situation struck. However, there are significant defenses for those who acted in good faith, says Seyfarth Shaw in a press release today that analyzes the situation in detail.
Hence, the only given in potential clawbacks cases is that unraveling legal complexities is likely to keep a number of attorneys busy.
“The good faith defense may well provide a measure of protection to entities that successfully obtained redemptions from Madoff Securities, particularly where some very sophisticated institutional investors, as well as the SEC, did not detect Madoff’s alleged fraud,” writes the Chicago-based law firm, referring of course to the U.S. Securities and Exchange Commission. “Whether those entities should have, or even could have, detected the fraud is another issue that is likely to spawn considerable litigation.”
Related coverage:
Bloomberg: “Madoff Investors Assail Trustee Claim Cutoff Date”
ABAJournal.com: “Some Madoff Investors Made Money—and Are Now Lying Low”
ABAJournal.com: “3rd Parties Will Pay for Alleged $50B Madoff Fraud, Experts Predict”
ABAJournal.com: “It May Take SIPC 5 Years to Sort Out Madoff Mess & Pay Investors”
