The Essay then discusses ways to streamline clawbacks and other Madoff-related litigation so that investors who have already been defrauded are not further damaged by the measures taken to compensate them.It closes with an invitation for additional proposals. CLAWBACKS IN THE MADOFF LIQUIDATION PROCEEDING: AN OVERVIEW While the liquidation proceeding of Bernard L. 2008, the investment companies went into voluntary liquidation.If the funds’ assets are distributed to investors in the usual way, then some investors might profit from the Madoff scam while others become victims and receive nothing, court documents state.“It has been said that, so far as possible, parity between investors should be achieved, not only as a matter of fairness to them, but also in order to avoid the offence to justice which will occur from sanction being given to the enjoyment of profits of fraud,” the Court of Appeal stated in its judgment, adding, “The court has been asked to recognise the degree to which a lack of parity will create injustice for Herald’s investors, and to approach a solution by giving full effect to the concept that fraud can unravel all.”The Court of Appeal acknowledged that this argument presents “powerful and challenging considerations” that has “some measure of factual support.”Nevertheless, the funds have to be liquidated in accordance with the law, the court stated.The Cayman Islands Court of Appeal handed down a judgment last week that rules how leftover funds connected to Bernie Madoff’s multibillion-dollar Ponzi scheme should be distributed. The liquidators for Primeo argued that the assets should be distributed to members by reference to their shareholdings as they exist at the beginning of the liquidation, which is generally how liquidations are conducted in Cayman.The case stems from two Cayman-registered investment companies – the Primeo Fund and the Herald Fund – that invested their assets in Bernard L. But the additional liquidator for Herald, Michael Pearson of FFP, argued that the distribution of assets should be “rectified” so that some shareholders won’t be unfairly paid at the expense of others, due to the fact that the funds were invested in a Ponzi scheme, according to court documents.Since November, I have gotten 95 hardship applications and have dismissed some of them.” “The hardship program is working well, but I can only help if the people come forward and provide me with information,” Picard added.
More straightforward, although also likely to be controversial in highstakes preference litigation, is the "new value" defense.
According to the Court of Appeal, the Companies Law allows liquidators to rectify how assets are distributed to shareholders under certain situations, such as when net asset values of a fund were fraudulently miscalculated.
But while the net asset values of Primeo and Herald were miscalculated because of the Madoff scam, there is no evidence that the directors of the funds themselves knowingly participated in wrongdoing, the court stated.“The [Herald] liquidator’s argument that the [law] renders any [net asset values] affected by fraud or default not binding is not sustainable,” the Court of Appeal stated.
Madoff Investment Securities, LLC, announced the advent of "clawback" suits seeking to recover sums paid out to defrauded investors.
l This Essay explains the legal framework for the clawback suits and anticipates that many investors in the Ponzi scheme2 will not have submitted claims by the July 2, 2009 deadline, which may result in clawback litigation before multiple courts.