Monday, December 15, 2008

Next Up - Investors As Defendants

Here is a prediction........watch for the receivers appointed to oversee and manage Madoff's firm to start talking about filing lawsuits against his investors.

No, I have not lost my mind. If this is in fact a Ponzi scheme, there is a cause of action available to the receiver, where he can sue investors who had a profit in their accounts. The theory is called fraudulent conveyance, and it has absolutely nothing to do with a fraud, knowledge or even participation by the investor. If the investor was an investor in the Ponzi scheme, and got back more than he put in, he can be sued.

That is an oversimplification of course, but that is exactly what happened when a receiver took over a New Jersey private equity fund - the receiver sued every investor who had a profit.

There are a number of defenses available to the investor, but talk about adding insult to injury.

Watch for it. If the press reports are correct, this will be the next step.
Post a Comment