Madoff

[Belgarath]

Hey - for some of you investment law savvy types:

If someone HAD actually received a distribution or distributions from Madoff's fund during the last (x) years, is there any possible recovery by the receiver? In other words, you cashed out and received 20 million. But that 20 million (or some of it) is based upon fraud or theft of funds from other investors - can the receiver sue you to recover all or a portion of these funds? If so, perhaps a client ought to at least be able to recover the amount of the investment, but just get whacked for the gain or a portion of the gain?

I know NOTHING about these issues, so I'm probably not even asking the right questions...

[Guest mjb]

Hey - for some of you investment law savvy types:

If someone HAD actually received a distribution or distributions from Madoff's fund during the last (x) years, is there any possible recovery by the receiver? In other words, you cashed out and received 20 million. But that 20 million (or some of it) is based upon fraud or theft of funds from other investors - can the receiver sue you to recover all or a portion of these funds? If so, perhaps a client ought to at least be able to recover the amount of the investment, but just get whacked for the gain or a portion of the gain?

I know NOTHING about these issues, so I'm probably not even asking the right questions...

Based upon the precedent in the Bayou Fund case, yes it is possible to recover distributions received as a fraudulent conveyence under section 548(a)(1) of the Bankruptcy code to the extent the distributions were not made in good faith and for "fair value". The Bankruptcy law allows recovery of fraudulent conveyances within two years of the date of the bankruptcy filing but the time period can be greater under state law, e.g., 6 yrs under NY law. Once it is established the the transfer of assets was fraudulently made by the fund, the recipient must prove that the distribution was received in good faith and paid fair value to avoid having to return the distribution.

Investors who received taxable distributions from Madoff also paid income tax on phantom income which was never earned but the statute of limitations for amending a tax return is is generally 3 years from the date the return was due.

[Belgarath]

Thanks for the information. It seems like it will be very challenging for a Plan Fiduciary to put a value on these funds for purposes of valuations and distributions.

[Guest mjb]

Thanks for the information. It seems like it will be very challenging for a Plan Fiduciary to put a value on these funds for purposes of valuations and distributions.

Assuming that the fiduciary kept investment records the plan should be able to keep all contributions, as well as earnings for years that are beyond the s/l.

Since Madoff's ponzi scheme is now estimated to have gone on for 20 years or more with 8000 unsuspecting customers it will be very intersting to see how the courts will rule on the need for investors to provide records of contributions that were made 10 or more years ago, esspecially since most investors invested their money with feeder funds who transferred the money to Madoff without disclosing to the clients that the funds were invested by Madoff. All the clients have is a record of contributing to the feeder fund. Also what will constitute proof of an investment.

[david rigby]

Interesting overview on NPR/All Things Considered from 12/31/08 (recording about 5 minutes).

http://www.npr.org/templates/player/mediaP...&m=98913251

No doubt, you can find some more recent items.

[Belgarath]

One would hope that the IRS is reasonable when it comes to a Trustee's good faith attempt to place a value on the investments. It seems like this is new ground.

[Guest mjb]

It was reported today that after Madoff was arrested investigators found $173M in checks in his desk that were going to be mailed out to frends and family.

[K2retire]

One would hope that the IRS is reasonable when it comes to a Trustee's good faith attempt to place a value on the investments. It seems like this is new ground.

"IRS" and "reasonable" in the same sentence? My you are an optimist!

[Guest mjb]

Interesting overview on NPR/All Things Considered from 12/31/08 (recording about 5 minutes).

http://www.npr.org/templates/player/mediaP...&m=98913251

No doubt, you can find some more recent items.

The max recovery under SIPC is $500,000 per account and only if the funds were misappropriated by the broker. SIPC does not pay for invesment losses (e.g., bad trades on invested assets) and the investor will have to prove the account was looted in order to recover. I dont know how SIPC will treat losses by mutiple investors in feeder funds that gave their assets to Madoff. Will it be one account or multiple accounts? If all 8000 Madoff clients can recover, the maximum exposure of SPIC is $4B.