Authorities May Claw Back Madoff 'Profits'

Investors who gained from Ponzi scheme may lose too

By Jason Farago, Newser Staff

Posted Dec 19, 2008 6:35 AM CST

(Newser) – While thousands of investors are furious with Bernie Madoff, he did manage to make a few people very rich during the boom years. With handsome if fraudulent returns of 10% to 17%, investors who withdrew even a fraction of their principal may have ended up in the black. But as the New York Times reports, the authorities might now try to claw back those profits, making even Madoff winners into losers.

It's unclear how many people might have profited from Madoff's practices, which went on for years and entangled tens of thousands of clients who invested directly or via hedge funds. But in previous fraud cases, investors who profited unjustly have faced partial or total clawbacks, and New York State law may allow authorities to retrieve gains over the last six years. That law applies even if the client had no clue that the profits were fraudulent.

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Bernard Madoff at his offices in New York. Investors who profited from Madoff's Ponzi scheme may be forced to return their earnings. (Courtesy Daily Telegraph)

Bernard Madoff, chairman of Madoff Investment Securities, returns to his Manhattan apartment after making a court appearance Wednesday, Dec. 17, 2008 in New York. The judge in Madoff's fraud case has... (AP Photo/Jason DeCrow)

A home owned by Bernard Madoff is shown Monday, Dec. 15, 2008 in Palm Beach, Fla. The 70-year-old Madoff, well respected in the investment community after serving as chairman of the Nasdaq Stock Market,... (AP Photo)

The apartment building where Bernard L. Madoff's lives on New York's Upper East Side is seen Friday, Dec. 12, 2008. Madoff, the founder of Bernard L. Madoff Investment Securities LLC, was arrested on... (AP Photo/Brian McDermott)

Bernard L. Madoff, chairman of Madoff Investment Securities is seen on his Manhattan trading floor in this photo taken Dec. 30, 1999 in New York. The former Nasdaq stock market chairman was arrested on... (AP Photo/The New York Times, Ruby Washington)

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The idea is that the whole thing was a fraudulent undertaking, so nobody should profit from it, and everybody should be put on equitable footing. - Jay B. Gould, former SEC lawyer

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Authorities May Claw Back Madoff 'Profits'