Begin forwarded message:
From: anita sands <astrol...@earthlink.net>
Date: December 17, 2008 1:17:14 AM PST
To: anita <astrol...@earthlink.net>
Subject: madoff ponzi hits so called survivors
Madoff fraud could burn early pullouts
BOSTON (Reuters) - Disgraced money manager Bernard Madoff's suspected
$50
billion (33 billion pound) fraud scheme looks set to burn even those who
pulled their investments out long before the scandal rippled into the
global financial system.
Such investors may have counted themselves fortunate, withdrawing their
money years ago to buy a house or to pay for a daughter's education, and
may have even sighed with relief because they ended ties with Madoff
long
before the scandal erupted late last week.
But they, too, could face trouble, lawyers say. Because of a legal
concept
known as "fraudulent conveyance," they could be forced to return their
profits and even some of their initial investments to help offset losses
incurred by others entangled in the long-running Ponzi scheme.
A Ponzi scheme is an illegal investment vehicle that pays off old
investors
with money from new ones, and relies on a constant stream of new
investment. Such schemes eventually collapse under their own weight.
"There were no profits. It was just other people's money," said Brad
Alford, who runs investment adviser Alpha Capital Management LLC in
Atlanta.
Alford is well versed in fraudulent conveyance after one of his clients
withdrew money from a $450 million scheme by Connecticut hedge-fund
company
Bayou Group LLC a year before it collapsed in scandal. "We ended up
settling with the estate, giving back all the profits and half of our
principal."
Bankruptcy-receivership practices make all investors vulnerable, he
added.
"Once they can go into bankruptcy they can go back six years. Anything
past
your principal, I'm guessing, is fair game to be brought back in."
Philip Bentley, a lawyer at Kramer, Levin, Naftalis & Frankel LLP, who
defended investors sued in 2006 by lawyers representing the Bayou
estate,
said he expected the court-appointed trustee now in control of Madoff's
U.S. operations to look hard at who withdrew money from Madoff.
"The trustee is going to look very closely at redemptions and seriously
consider bringing suits just because the trustee's job is to bring in
assets any way he can," Bentley said. "Potentially the numbers are
enormous."
'STAGGERING' LAWSUITS
But the judge could decide to limit how many years back the estate can
demand investors return their money, said Jay Gould, a former
investment-management attorney at the Securities and Exchange Commission
who heads the hedge-fund practice at Pillsbury Winthrop Shaw and Pittman
LLP.
"In this case, because of the magnitude of the losses and the scope of
the
great number of people who were defrauded, this could be a situation
where
people say 'you know we are just going to draw the line here at six
months
or at one year or at this,'" he said.
"But that's not certain. You really are working with people who have
obligations," he said. "The receiver has an obligation under the law to
pursue all the assets wherever they happen to be within the bounds of
the
law."
The law could shock investors who innocently entrusted their money with
Madoff, a 70-year-old Wall Street legend, long before he was accused of
defrauding banks, charities and rich individuals whose assets he
managed at
Bernard L. Madoff Investment Securities LLC, which he launched in 1960.
"I'm sure it will be a surprise to those who had no idea about his
position
but wanted to buy a house, and took the money out," said Tamar
Frankel, who
teaches securities law, corporate governance and legal ethics at Boston
University.
Alford said he expects several types of lawsuits, including one
focused on
fraudulent conveyance and another against so-called feeder funds, or
hedge
funds set up by outside investment advisory firms that marketed Madoff's
investments to high net-worth individuals and pension funds.
And he expects a third group of lawsuits to focus on litigation against
advisers for entrusting 50 to 100 percent of their money with one
manager.
He said this could defy the "prudent man rule" that enjoins money
managers
to handle investors' money as they would their own.
"I think the lawsuits are going to be staggering. This is going to go on
for years and years," he said.
(Reporting by Jason Szep; Editing by Gary
