Image: Steve Hillebrand / U.S. Fish and Wildlife Service

Investors who profited because of Allen B. Stanford’s suspected securities fraud / Ponzi scheme may face clawback lawsuits under the Bankruptcy Code, according to Bloomberg.Com’s "Stanford Receiver May Need a Decade to Pay Victims".  Investors who collected profits from Bernard Madoff’s Ponzi scheme could too face clawback because of litigation by Madoff trustee Irving Picard.

The articles "Madoff Victims May Have to Return Profits, Principal" and "Lessons For Madoff Investors From The Bayou Fund Ponzi Scheme" both mention the idea that Madoff investors could be subject to clawback under In re: Bayou Group LLC, et. al. 396 B.R. 810 (Bkrtcy S.D.N.Y. 2008) via its October 16, 2008 Decision.  Among other things, the October 16 Decision permitted clawback from some investors in a securities fraud, by applying 11 U.S.C. § 548 (a) (1) (A) and local N.Y. law regarding fraudulent transfers. 

The October 16 Decision viewed funds paid-out to investors before a Ponzi scheme was discovered, as presumptively fraudulent transfers. The Decision placed the burden on these particular investors to show that their funds were received in good faith and for value, as more fully set forth in the K & L Gates article: "The Madoff Dissolution: A Consideration of the Bayou Precedent and Possible Next Steps". 

Furthermore, "Madoff’s Investors Redemptions: Subject to Clawback", more recently asserted that Mr. Madoff’s guilty plea might especially expose investors to clawback litigation as Mr. Madoff’s plea demonstrates his actual intent to commit fraud.  This means that a clawback claim against an investor could be strengthened, as actual intent is one of the factors addressed by the Bayou Court’s October 16 Decision.

Finally, (as I mentioned at my September 4, 2009 "Asset Search News" Roundup"), the clawback complaints reproduced below have been filed by Madoff trustee Irving Picard against some former Madoff investors:

(Click On Each Image To View The Clawback Complaints)


Copyright 2009 Fred L. Abrams

(Edited October 11, 2009)