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Madoff Investors at Risk

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BEWARE!! Madoff Fallout Not Yet Over!

If you were a Madoff Investor who got out early,  don’t celebrate just yet. You may still be liable to return the money under an obscure legal doctrine called 'fraudulent conveyance'

As the days and weeks go by, the list of Bernie Madoff’s victims just keeps growing.  Everyone from Kevin Bacon and Eliot Spitzer to the Palm Beach Sheriff’s Department pension fund, the scam is proving to have a wide impact on the business world and American society as a whole. That’s reasonable. After all we’re talking about US$50 billion of the hopes and futures of a great many people. Recourse is certainly the way for these poor investors. But what about the lucky ones?

What about those who kept some money with Madoff and then lost confidence & withdrew their funds? Surely they’re breathing a sigh of relief at having saved their nest egg from this catastrophe.  Not so fast, says The Wealth Society’s Consultant Mark Nestmann. “If you invested with Madoff, decided that the returns were too good to be true, and subsequently withdrew your money before his Ponzi scheme was exposed, you might not be able to keep your money.  Madoff's creditors might claw your profits – and even your original investment – back from you under an obscure legal doctrine called 'fraudulent conveyance.'”

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“Fraudulent conveyance laws exist to prevent debtors from giving away their assets to others to avoid paying their creditors,” Mark continued, “Let's say that a member of your family operates a Ponzi Scheme. He then gives you US$100,000 without disclosing the fact that the funds are the proceeds of a fraud. Under fraudulent conveyance laws in effect in all 50 US states, that US$100,000 isn't rightfully yours, even though you knew nothing about the Ponzi Scheme. The victims of the fraud can thus sue you to reclaim the assets for an extended period—four to six years in most states.”

“Using fraudulent conveyance laws, the clients Madoff defrauded – or more likely, the bankruptcy trustees appointed by the court to pursue Madoff's assets – can sue clients "lucky" enough to cash out before the scam was discovered.  Indeed, bankruptcy trustees are legally required to pursue every possible source of funding to recover assets on behalf of the fraud victims they represent.”

“In any event, the lawsuits in the Madoff affair have already begun. Many more will be filed in the weeks and months ahead. Investors who cashed out before the collapse that can't pay what a bankruptcy trustee claims is their ‘fair share’ will be forced into bankruptcy. Let's hope they have a good asset protection plan in place – an offshore trust, offshore annuity, or other vehicle resistant to legal claims from a future unknown creditor.”

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Dr A S Johan is a financial and business adviser to sovereigns, corporations and family officees in Asia and the Middle East.

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