Clawbacks from Madoff Investors: Questions of Economics, Equity, and Law

Abstract

There has been much discussion of the potential clawback liability of investors who withdrew money from Bernard L. Madoff Investment Securities (“BMIS”) accounts. Counsel for Irving Picard, the court-appointed trustee in the BMIS liquidation proceeding, has stated that Picard will pursue clawbacks against investors who withdrew fictitious profits “in substantial dollar amounts over the course of many years.” However, in the first formal requests made in letters sent to 223 investors in the week ending April 22, 2009, Picard has reportedly requested the return of all redemptions made by these investors within six years of December 2008, rather than just redemptions of “profits.” He may also pursue clawbacks against individual investors in feeder funds. This article anticipates and discusses four questions that will be among the issues litigated in the context of clawback actions.