The issue of how “clawback” efforts by the trustee in the Madoff bankruptcy should work is generating considerable attention lately. Investment News reports that a whole host of investors might be demanded by the trustee to give up whatever gains they received over the past six years, which in turn may spark civil litigation that will itself last years. “The [civil litigation] will spawn a whole industry for the next decade,” according to Bennett Lasko, partner at the Chicago law firm of Drinker Biddle & Reath LLP.
The article further notes that:
“As a general rule, if an investor or a fund took out profits from any investments made with Madoff over a two- to six-year period, they will have to give that money back,” Mr. Lasko said.
Redemptions of principal investments, however, would likely be viewed as outside the reach of the courts, he said.
“This case will test the limits of trustee powers to go after investors,” Mr. Lasko said.
“My guess is the trustee will sue everyone in sight and let the funds sort it out with the investors who may have redeemed money.”
Another clawback-related issue emerged yesterday when a group of Madoff investors who reclaimed their investments prior to the implosion on December 11 filed a motion with the bankruptcy court asking for an extension of two deadlines for filing certain claims in the bankruptcy.
According to Newsday, the motion states that “[i]n the present case, thousands of investors who received distributions from Madoff prior to Dec. 11, 2008, face the possibility of being sued by the trustee and asked to return some or all of those distributions under the Bankruptcy Code’s preference or fraudulent conveyance provisions.” The investors reportedly seek an extension of the claims deadlines because their right to “file claims won’t accrue until the trustee, Irving Picard, wins a judgment, which could be many months in the future and past the current deadline.”
Newsday reports that March 4 is the deadline for claims that will guarantee Madoff account holders can recoup up to $500,000 under the Securities Investor Protection Act.
Read the Investment News article
If somehow the trustee finds a way to “clawback” amounts already paid to investors who legitimately withdrew their principal (and “profits”) then every hedge fund, private equity fund and VC fund would presumably be subject to such “clawbacks” in the future. I would imagine that hedge fund offering documents would be drafted a bit stronger so that investors understand that prior investors are not subject to any future “clawback” based on the manager’s current or later misdeeds.
A convened Court of Common Law could throw any clawback judgment, and even the recognition of the Bankruptcy Court and Trustee themselves, into the legal cesspool. Non-recognition of the Court, and its process, is a valid alternative. Any effort to back up the Bankruptcy Court judgements with physical force could be met with equal physical force, both defensive and offensive.
Think about it, this exactly why a court cannot enforce against a foreign sovereign, as their judiciary does NOT have to recognize the court.
With perhaps tens of billions redeemed non-USA, good luck to the Trustee in getting a red cent back from those venues.
Pomzi scheme, the biggest is Social security. The younger workers pay in money and the government uses the money to pay the old retired members/investors.
The “claw back rule” would allow the young people to use the bankruptcy court to collect from the old members all the money paid to them ,when the system [social security] goes bankrupt.
Claw back? Did’nt the american indians get land back that was taken away?
Claw back seem’s to be another phrase for finding justice.
The Madoff case: The big money players that knew the Ponzi “play” was going on because Madoff told them in confidense about the scheme were warned to pull there money before the December 11 collapse. Thats not “clawback”, thats jailtime for many investors who had the insider knowledge.
FBI-“Follow the Money.
hmmm. You are right. What if an Non American? This justice is for every citizen who resides at US. what judiciary actions will take against Non Americans. Trustee’s be careful.