NationStates Jolt Archive

http://www.newsday.com/business/nationworld/wire/sns-ap-madoff-false-profits,0,663965.story

Hundreds and maybe thousands of investors in Madoff's funds have been withdrawing money from their accounts for many years. In many cases, those investors have withdrawn far more than their principal investment.
No one knows yet how many people will emerge as net winners in the scandal, but the numbers appear to be substantial. Many of Madoff's long-term investors have, over time, cashed out millions of dollars of their supposed profits, which routinely amounted to 11 percent to 15 percent per year.
Asked for an example, Levitt said one caller, whom he declined to name, invested $1.8 million with Madoff more than a decade ago, then cashed out nearly $3 million worth of "profits" as the years went by.

What do you think they should do?

Yeah, that's all great untill you realize that the only way those "profits" can be paid out is with new investor money. Someone lost alot. Maybe not some early investors, but plenty did lose alot.

That's kinda how the scam works.....A few people turn out ok, it's the rest that are the problem.

Should those that did profit give their profits to those who lost money? I mean, the money is technically theirs.

Should those that did profit give their profits to those who lost money? I mean, the money is technically theirs.

it's, at best, a legal gray area.

it's, at best, a legal gray area.

Of course. But they will most likely be asked to give their profits back. So I'm asking for your opinion on the matter. As far as I know, I'm not paying you hourly for that opinion, so you can be as unlegal as you want! ;)

Should those that did profit give their profits to those who lost money? I mean, the money is technically theirs.
its very likely that some of that money will have to be returned. it will be a long drawnout process to figure out who put in what, who took out what, and how far back they need to go.

Of course. But they will most likely be asked to give their profits back. So I'm asking for your opinion on the matter. As far as I know, I'm not paying you hourly for that opinion, so you can be as unlegal as you want! ;)

Why would they be asked to give the profits back? As far as they knew, it was a legit investment.

also, it's not just liquid cash, but their investments that are gone. sure they may have withdrawn couple millions over the years, but the tens of millions they thought they had are no longer there. It's as if you looked at your saving and saw the 0 there. sure you were withdrawing money untill now, but that's not the point.

Why would they be asked to give the profits back? As far as they knew, it was a legit investment.
because it doesnt matter if they knew or not. there were no profits. there was only other investors money. those who got some back dont have a bigger claim on it than those who didnt.

because it doesnt matter if they knew or not. there were no profits. there was only other investors money. those who got some back dont have a bigger claim on it than those who didnt.
There are never any profits untill you have the money in hand. Investments are inherently risky...by taking on an investment, you accept that risk. It is not their fault that the investment turned out to be a fraud, and as such, it is not their responsibility. They were all duped...these people just happened to make out okay.

There are never any profits untill you have the money in hand. Investments are inherently risky...by taking on an investment, you accept that risk. It is not their fault that the investment turned out to be a fraud, and as such, it is not their responsibility. They were all duped...these people just happened to make out okay.
uhhuh

but it wasnt actually an investment but a scam.

they didnt know it was a scam but that is irrelevant. just like any other crime you might be unknowingly involved in you dont get to profit from it once its found out.

its going to be a very complicated case.

Well allow me to give you a bit of a legal overview. What Madoff engaged in, in a general term, is what is commonly referred to as "larceny by trick". Larceny generally refers to as a non violent theft, or a taking of another's personal property, with the intent to deprive that person of that property, without the use, or threat to use, violence (incidentally, theft via violence is what we refer to as "robbery")

"larceny by trick" is the legal maxim that describes the form of non violent theft in which the proper owner of the property willingly hands it over to the thief, however was "tricked" into doing so. It is distinguished from regular larceny in which the thief takes the property, without force, and without the knowledge or consent of the owner. When the owner does turn it over, via use of fraud and deceit, it's larceny by trick.

Many jurisdictions just call it "criminal fraud". Some states, like Massachusetts, do not distinguish between the various forms of larceny, such as regular larceny, larceny by trick, and embezzlement, and just refer to them all as "larceny". Either way, regardless of the term, what Madoff did was steal. He stole that money. Those that received stolen money from others as "interest payments" in the scheme, essentially received stolen goods.

However, in most states, an element of the crime of receipt of stolen goods is that the person knew, or reasonably should have known, that the goods were stolen. Nobody knew this scheme was going on, and everyone thought it was legitimate interest payments, so they're likely not guilty of any crime.

Likewise, the fact that they received it innocently will probably immunize them from any claims against them for equitable relief. Meaning they most likely don't have to return it.

Ethically? Hard to say, I'd say they should at least return that money, less any interest they could have reasonably, legitimately made, on those investments.

they didnt know it was a scam but that is irrelevant. just like any other crime you might be unknowingly involved in you dont get to profit from it once its found out.

That's not...entirely true. There is something called the clean hands doctrine. if you receive stolen goods (see my analysis earlier about why we can classify that money as stolen goods) and you received it innocently, neither knowing nor should have reasonably known that it was stolen, arguments can be made under the law that it is yours.

Should those that did profit give their profits to those who lost money? I mean, the money is technically theirs.

There is a cut off date. I don't know what is off hand. But if you roll under the cut off you are okay.

Otherwise you are in the grey area. I think that you probably would be pooled and the loses would spread around. So basically nothing plus whatever can be recovered.

But don't feel sorry for anyone who invested, they knew it was a scam.

Under federal law, the court-appointed trustee trying to unravel Madoff's business can demand that people who profited from the scheme return some or all of the money.

These so-called "clawbacks" are generally limited to payouts over the last six years, but could still amount to big bucks for some investors.

When a hedge fund run by the Bayou Group collapsed and was revealed to be a Ponzi scheme in 2005, the trustee handling the case sought court orders forcing investors to return false profits. Many experts anticipate a similar process in the Madoff case.

Applying for the aid could give the trustee evidence he needs to initiate a clawback claim. On the other hand, investors who ignore the letter would most likely forfeit any chance of recovering lost funds.

No matter how they respond, it may only be a matter of time before investors wiped out in the scandal turn on those who unknowingly enjoyed the fruits of the fraud.
As I am not a legal mind, I turn to the article to contend with you.

uhhuh

but it wasnt actually an investment but a scam.

they didnt know it was a scam but that is irrelevant. just like any other crime you might be unknowingly involved in you dont get to profit from it once its found out.

its going to be a very complicated case.
Most people do actually get to keep the rewards from the scams they unknowingly buy into...all those people buying rolexes, pirated music, stolen cars, etc.

Granted, there is rarely a high level of documentation, as there is this time. But I really do not see any reason why those who innocently invested and happened to win should pay those who innocently invested and happened to lose.

Mind you, I have a personal tie to some of this money, and I'd love to see it returned to the rightful owner...but given that a complete balance can't be restored, I don't think others should be punished for making the same mistake as those who lost.

As I am not a legal mind, I turn to the article to contend with you.

meh, this is why I should read shit before posting. What I gave was a very general and broad overview. Specific laws on specific topics, of course, can counter that.

But don't feel sorry for anyone who invested, they knew it was a scam.

A scam involves tricking somebody - how can it be a scam if everybody is aware of it?

A scam involves tricking somebody - how can it be a scam if everybody is aware of it?

You don't know who the actual victim is.

All very Twilight Zone and such.

I read or heard somewhere that Ponzi schemes are very difficult to uncover if you're looking for one. Can anyone elaborate or link something that might support that idea?

As I am not a legal mind, I turn to the article to contend with you.

He's confusing bona fide purchaser in good faith/holder in due course with federal financial stuffs about being a beneficiary of fraud.

Most people do actually get to keep the rewards from the scams they unknowingly buy into...all those people buying rolexes, pirated music, stolen cars, etc.

Granted, there is rarely a high level of documentation, as there is this time. But I really do not see any reason why those who innocently invested and happened to win should pay those who innocently invested and happened to lose.

Mind you, I have a personal tie to some of this money, and I'd love to see it returned to the rightful owner...but given that a complete balance can't be restored, I don't think others should be punished for making the same mistake as those who lost.
well the amount that can be gotten back is limited eh?

but if it can be reasonably got back from those who profited, it will be.

it is not "fair" that those who let it ride should be the losers while those who took their fake profits stay as winners if it can be evened out somehow. and it is my understanding that the law reflects this idea.

Oh and its worth mentioning that in the article,
The issue came to the forefront this week as about 8,000 former Madoff clients began to receive letters inviting them to apply for up to $500,000 in aid from the Securities Investor Protection Corp.
So those who actually did lose money are protected for up to quite a bit.

well the amount that can be gotten back is limited eh?

but if it can be reasonably got back from those who profited, it will be.

it is not "fair" that those who let it ride should be the losers while those who took their fake profits stay as winners if it can be evened out somehow. and it is my understanding that the law reflects this idea.

Best I know, and Neo Art seems to back this up with the caveat that specific laws may change this, those who participate innocently are safe.

For example, lets say I buy a stock, and sell it just before it releases information that causes the company to go bankrupt. I am safe so long as I innocently removed my money, unaware that this information would be released. Had I gotten insider information, then I am responsible.

As these people were under the understanding that this was a legit investment, and innocently took their money out, they are not legally responsible to give the money back. If it comes to light that they knew what was going on, then they are responsible.

it's, at best, a legal gray area.
That's why Jesus invented Thunderdomes.

Oh and its worth mentioning that in the article,

So those who actually did lose money are protected for up to quite a bit.

Quite a bit in nominal terms, yes. But in relative terms, not really. Look at Elie Wiesel's charity. They lost around 15 million dollars. 500,000 is around .03% of the money lost.

Best I know, and Neo Art seems to back this up with the caveat that specific laws may change this, those who participate innocently are safe.

For example, lets say I buy a stock, and sell it just before it releases information that causes the company to go bankrupt. I am safe so long as I innocently removed my money, unaware that this information would be released. Had I gotten insider information, then I am responsible.

As these people were under the understanding that this was a legit investment, and innocently took their money out, they are not legally responsible to give the money back. If it comes to light that they knew what was going on, then they are responsible.
no they are not.

they are immune from criminal prosecution but are still on the hook for money they got out of the scheme.

from the link that i just bothered to read:

"Under federal law, the court-appointed trustee trying to unravel Madoff's business can demand that people who profited from the scheme return some or all of the money.

These so-called "clawbacks" are generally limited to payouts over the last six years, but could still amount to big bucks for some investors."

Quite a bit in nominal terms, yes. But in relative terms, not really. Look at Elie Wiesel's charity. They lost around 15 million dollars. 500,000 is around .03% of the money lost.

Were most of the investors in Madoff's scheme businesses and charities and trusts and the like? I was speaking more to it being a lot for individuals.

See here is how it worked: Madoff set up a SOOPER SEKRIT fund that only the very select could invest in. This fund implicitly guaranteed a 1% return every month - more or less - forever.

So you are 'asked' to join the fund. Well, now, after hearing it described, you think this is a very good bargain, because such results cannot be true. And so before you put the money in you go ask someone "how is it that Mr. B. gets such phenomenal returns, month after month, year after year. It is the monotonic stairway to heaven, and such things cannot possible exist."

"Ah", the knowledgeable person, or current investor in the fund, says. "You have to remember that old Bernie is a founding member of the Nasaq, and a huge market maker, so he sees the orders coming in before they get executed. So he can front run a huge volume of stock and always scalp a little extra for his 'friends'."

So you feel good about the whole thing. This guy is on my side and is using his 'sooper sekrit' knowledge - which we all know is kind of illegal - to make me and him money. What can possibly go wrong?

no they are not.

they are immune from criminal prosecution but are still on the hook for money they got out of the scheme.

from the link that i just bothered to read:

"Under federal law, the court-appointed trustee trying to unravel Madoff's business can demand that people who profited from the scheme return some or all of the money.

These so-called "clawbacks" are generally limited to payouts over the last six years, but could still amount to big bucks for some investors."
Interesting. I, as could be assumed, have yet to read the article ;)

I find it interesting, though. Say giving the money back places someone in severe financial hardship...I wonder if they would be asked to return the money...
Were most of the investors in Madoff's scheme businesses and charities and trusts and the like? I was speaking more to it being a lot for individuals.
From what I recall, many investors were organizations (pensions, charities, and the like), with many wealthy investors as well. Few invested small ammounts.

See here is how it worked: Madoff set up a SOOPER SEKRIT fund that only the very select could invest in. This fund implicitly guaranteed a 1% return every month - more or less - forever.

So you are 'asked' to join the fund. Well, now, after hearing it described, you think this is a very good bargain, because such results cannot be true. And so before you put the money in you go ask someone "how is it that Mr. B. gets such phenomenal returns, month after month, year after year. It is the monotonic stairway to heaven, and such things cannot possible exist."

"Ah", the knowledgeable person, or current investor in the fund, says. "You have to remember that old Bernie is a founding member of the Nasaq, and a huge market maker, so he sees the orders coming in before they get executed. So he can front run a huge volume of stock and always scalp a little extra for his 'friends'."

So you feel good about the whole thing. This guy is on my side and is using his 'sooper sekrit' knowledge - which we all know is kind of illegal - to make me and him money. What can possibly go wrong?
exactly.

i guess you hope you die before whatever sketchy thing he is doing comes to light.

He's confusing bona fide purchaser in good faith/holder in due course with federal financial stuffs about being a beneficiary of fraud.

I'm not confusing, I'm simplifying :tongue:

Bona fide purchaser doctrine only refers to a PURCHASE of stolen goods. Holder in due course only involves commercial paper and negotiable instruments. Neither which directly apply to the situation at bar.

Now, in fairness, I didn't know about the specific exemption here (though now that I read it, it does ring a bell), but neither the bona fide purchase in good faith nor the holder in due course doctrine are exactly applicable, as it neither involves a purchase, nor a negotiable instrument.

Interesting. I, as could be assumed, have yet to read the article ;)

I find it interesting, though. Say giving the money back places someone in severe financial hardship...I wonder if they would be asked to return the money...

From what I recall, many investors were organizations (pensions, charities, and the like), with many wealthy investors as well. Few invested small ammounts.
the whole thing is going to be a huge litigious mess. thousands of highpriced lawyers fighting for every scrap of money.

See here is how it worked: Madoff set up a SOOPER SEKRIT fund that only the very select could invest in. This fund implicitly guaranteed a 1% return every month - more or less - forever.

So you are 'asked' to join the fund. Well, now, after hearing it described, you think this is a very good bargain, because such results cannot be true. And so before you put the money in you go ask someone "how is it that Mr. B. gets such phenomenal returns, month after month, year after year. It is the monotonic stairway to heaven, and such things cannot possible exist."

"Ah", the knowledgeable person, or current investor in the fund, says. "You have to remember that old Bernie is a founding member of the Nasaq, and a huge market maker, so he sees the orders coming in before they get executed. So he can front run a huge volume of stock and always scalp a little extra for his 'friends'."

So you feel good about the whole thing. This guy is on my side and is using his 'sooper sekrit' knowledge - which we all know is kind of illegal - to make me and him money. What can possibly go wrong?
There was an article comparing Madoff and Buffett. Their practices towards their investors were almost identical...they both promised huge returns...better than anyone could imagine. Both acted in high levels of secrecy. It just so happened that Buffett could be trusted while Madoff couldn't.

There was an article comparing Madoff and Buffett. Their practices towards their investors were almost identical...they both promised huge returns...better than anyone could imagine. Both acted in high levels of secrecy. It just so happened that Buffett could be trusted while Madoff couldn't.

It's really not the same though because BRK files 10q's and 10'k's so they are actually audited.

Nobody ever knew exactly what Madoff was doing. Though a great many people knew it wasn't exactly legal.