Madoff losers won't have to return withdrawals

Posted Apr 24th 2009 11:00AM by Zac Bissonnette
Filed under: Law, Scandals

The Wall Street Journal reports (subscription required) that "Investors with Bernard Madoff who had a net loss due to his fraud won't be asked to return funds they withdrew from his firm in recent years, said a lawyer who is charged with recovering the firm's assets."

The trustee had recently sent letters to a number of investors asking them to return a total of $735 million in funds withdrawn over the past six years -- the legal limit for how far back the court can go in a fraud case. In a way, it makes sense to limit the demands for funds to people who made money: If you invested $10 million with Madoff and withdrew $8 million, why should you have to send money in to the trustee to take your chances in the bankruptcy court?

The only fair way to handle it, if they're going to do it this way, is to ask others to return no more than their net gain. Otherwise, you end up with this situation: One guy invested $10 million and withdrew $9.5 million -- and got off with a a loss of $5 million. Another investor put $10 million with Madoff and withdrew $11 million and is forced to send back a significant chunk of the investment, and when Madoff's investors are handed pennies on the dollar in bankruptcy court, he'll end with a much larger loss than someone who was fortunate enough to lose money with Madoff from the get-go.

Complicating this matter are the reportedly incomplete account records kept by Mr. Madoff, making it hard to calculate exactly how much each investor made or lost with the funds. This is also the same problem that's making it so hard to figure out exactly how big the scam was.

Tags: Bernie Madoff, BernieMadoff