Madoff Victims May Be Able to Sue Middlemen

Feeder funds could be headed to court
By Kevin Spak,  Newser Staff
Posted Dec 16, 2008 11:45 AM CST
A man walks past the entrance of BBVA bank headquarters in Madrid. BBVA, Spain's second-largest bank, said its clients stand to lose roughly $40.5 million thanks to Madoff-related investments.   (AP Photo/Daniel Ochoa de Olza)
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(Newser) – Bernie Madoff victims searching for avenues to recover their money will find their legal options depend on whether they invested directly with Madoff, Time reports, or though middlemen. Those who worked directly with Madoff will have up to $500,000 covered by the federal Securities Investor Protection Corporation. But they’ll have fewer people to potentially sue than the many who invested through feeder funds or fund-of-funds, who aren't eligible for SIPC protection.

“Some investment advisers did their due diligence, and told their clients not to invest with Madoff,” says one lawyer vetting Madoff suits. “Others didn’t. I think there is a liability there.” Especially dubious are the feeder funds that invested entirely in Madoff, apparently without checking his finances. But getting money from them will be difficult; a similar lawsuit spinning from the Bayou Management fraud was dismissed last year. The judge ruled that the other funds were simply duped.