Document Type
Research Memorandum
Publication Date
2017
Abstract
(Excerpt)
Today, most people are aware of, or have at least heard of, the notorious Bernard Madoff Ponzi scheme. Other than the scheme originally perpetrated by Charles Ponzi in the 1920s, the man whom the scheme was named after, the elaborate Madoff Ponzi scheme has become one of the most infamous fraudulent schemes of our time. Bernard Madoff operated this scam using newly deposited customer funds to support the business and make “profit” payments to older customers who then withdrew these “profits,” which were in excess of the principal amounts they invested. Essentially, there were no actual profits being made; rather, initial investments made by new customers were being used to distribute recorded fictitious profits among the company’s older customers. This is the fundamental way in which typical Ponzi schemes are operated.
Although Madoff has since been arrested and convicted in 2008, clawback suits (or avoidance actions) to redress the injuries of his victims remain. There have been numerous avoidance actions in which a trustee has been appointed by the courts to initiate clawback suits against the net winners, seeking to recover the fictitious profits they received and to distribute them in order to restore customers’ net equity claims. However, the Madoff scandal is not the only one of its kind. The courts continue to address these clawback suits with respect to Madoff’s Ponzi scheme as well as other suits to redress the harm caused by other, more recent, and similar Ponzi schemes.