If you cashed out of Bernie Madoff’s Ponzi scheme, it may fall on you to help pay back the victims.
WSJ:The alleged deception by Mr. Madoff far exceeds the scale of past hedge-fund frauds, including the high-profile, $400 million scheme by Connecticut hedge-fund company Bayou Group LLC. Bayou’s co-founder Samuel Israel III went on the lam on the day he was to report to prison for a 20-year sentence earlier this year.
Though dramatically smaller in scale, Bayou is being discussed in connection to the Madoff scandal. That is because the federal bankruptcy court overseeing the Bayou case decided this year that investors who had pulled their money out of Bayou in some cases years before Bayou’s fraud was detected had to reach into their pockets to give back profits, and even some of their initial investments, to help offset losses by other investors who got snared in the scheme.
That decision was based on a legal notion called fraudulent conveyance, which concerns the illegal transfer of property with the intent to commit fraud. The concept could be mixed news for Madoff’s investors, depending on their situation.
“I’m sure there are some people who are thinking their lives are over, but the good news is that because Madoff is thought to have run a Ponzi scheme, investors could get money back from other Madoff investors who already took money out,” said Brad Alford, who runs Atlanta-based investment adviser Alpha Capital Management LLC.
The article notes that victims may also be eligible for $500,000 payment from a non-profit set up by the SIPC, depending on the nature of the fraud. So between that and the potential to get cash from the Madoff feeder funds, like Tremont, there may a little something out there worth fighting over.