Ponzi precedent suggests that some of those fortunate enough to withdraw money from Bernie Madoff accounts before the scheme collapsed may have to give it back.
If you redeemed before 2002, you’re safe. If you redeemed in the past 90 days or redeemed because you were suspicious that Bernie was running a Ponzi scheme–you’re probably hosed. If you just innocently redeemed betwee 2002 and 2008, you may be able to fight to keep your winnings (even though they never really existed).
WSJ: [I]nvestors who received redemptions from Mr. Madoff as far back back as 2002 are intensifying efforts to determine whether they will be expected to return those funds under pressure from a court-appointed trustee. Particularly vulnerable are investors who received a payout within 90 days of the collapse of Bernard L. Madoff Investment Securities LLC…
The trustee now in charge of Mr. Madoff’s firm could try to wrest from investors any fictitious profits they got as far back as six years before its liquidation, the limit for New York cases. Such “clawback” provisions are based on the logic that the redemptions were paid using other investors’ money. That would make the payments fraudulent transfers, not an asset.
Investors who became suspicious of Mr. Madoff’s investment-advisory business might have a tougher time defending themselves against clawbacks than those who had no idea, according to Greg Blue, a partner at Morgenstern & Blue LLC in New York.
If the trustee sues investors to get back redeemed principal, investors could improve their chances of keeping funds if they can show there were no red flags alerting them to possible fraud at the Madoff firm or, “if there were ‘red flags,’ that you conducted a diligent investigation that convinced you that there were no problems,” Mr. Blue said.
See Also: Bernie Madoff: The Complete Fraud
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