News, Madoff Investors Ordered to Return False Profits.

[floridasandy]

if someone in your family steals a television, brings it home, and you are watching it you don't get to keep the television if it was stolen. a lot of these hedge funds are closed to regular investors. cautionary tales still will not deter the greedy from investing in wall street shady operations, although it should be a lesson for any investor.

[revelated]

Originally Posted by sunsprit

It's the proceeds of stolen money.

The same as what Madoff accumulated millions are derived from. As much stolen money as possible ... even if it was received in good faith by Madoff's investors ... needs to be returned to the folks it was stolen from.

This legal farce won't fly. The reason? Ironically...there's a reason it's called a Ponzi scheme, or Pyramid scheme.

Let's say I invest 100k. I expect a return of no less than 150%, which comes to 50k net. So I'm level 1 and the pot is $100k.

Another person comes along, invests the same amount, same return. Technically their return percentage is going to be 200%, because 50k of what they contributed is coming to me for my return, either all at once or over time, depending on how the scheme is leveled. Still 50k net for them, the pot is 150k assuming I got paid right away.

This lawsuit proposes that I should pay the second person back. The problem is actually three-fold.

1: It depends on where in the pyramid they are because, honestly, they might have gotten the return they wanted, meaning they got their money back from a higher level, meaning I don't owe them a dime. It's not stealing if you can't prove a loss.

2: The people in the scheme almost certainly had absolutely no idea what was going on. Hence the term "scheme" and why it's branded a Ponzi scheme. The whole deal is robbing Peter to pay Paul over and over and really it's no different than standard investing if you think about it - the problem is that there is no pre-disclosure of the pyramid. If everyone knew going in that it was going to work that way, we wouldn't be having this discussion today.

3: If a person in a middle level both lost and made money, how do you account for that? If they invested 1 mil, lost 400k but made 300k, do you nail them for the 300k (resulting in a total loss of 1.3 mil net)? Do you pay them 400k (meaning they're still out 600k) or do you pay them 100k and "call it even" (even though they've lost 1.1 mil net)? It's too complex to sort out, again, depending on where they are in the pyramid.

I think the best way to deal with this is to liquidate the man's estate and distribute it evenly amongst all of the investors. It's the only fair option I can see.

[sunsprit]

Originally Posted by revelated

This legal farce won't fly. The reason? Ironically...there's a reason it's called a Ponzi scheme, or Pyramid scheme.

Let's say I invest 100k. I expect a return of no less than 150%, which comes to 50k net. So I'm level 1 and the pot is $100k.

Another person comes along, invests the same amount, same return. Technically their return percentage is going to be 200%, because 50k of what they contributed is coming to me for my return, either all at once or over time, depending on how the scheme is leveled. Still 50k net for them, the pot is 150k assuming I got paid right away.

This lawsuit proposes that I should pay the second person back. The problem is actually three-fold.

1: It depends on where in the pyramid they are because, honestly, they might have gotten the return they wanted, meaning they got their money back from a higher level, meaning I don't owe them a dime. It's not stealing if you can't prove a loss.

2: The people in the scheme almost certainly had absolutely no idea what was going on. Hence the term "scheme" and why it's branded a Ponzi scheme. The whole deal is robbing Peter to pay Paul over and over and really it's no different than standard investing if you think about it - the problem is that there is no pre-disclosure of the pyramid. If everyone knew going in that it was going to work that way, we wouldn't be having this discussion today.

3: If a person in a middle level both lost and made money, how do you account for that? If they invested 1 mil, lost 400k but made 300k, do you nail them for the 300k (resulting in a total loss of 1.3 mil net)? Do you pay them 400k (meaning they're still out 600k) or do you pay them 100k and "call it even" (even though they've lost 1.1 mil net)? It's too complex to sort out, again, depending on where they are in the pyramid.

I think the best way to deal with this is to liquidate the man's estate and distribute it evenly amongst all of the investors. It's the only fair option I can see.

It's still the proceeds of stolen money.

That it may be "difficult" to sort out who invested what and who received ponzi scheme return rates is the stuff of forensic accountants, lawyers, juries, and judges.

The underlying issue here is that Madoff's "investment" program wasn't open to the public, it was a "by invitation only" select group of greedy "investors". That set it well apart from the open market of plausible returns.

Anybody who took the time to do some due diligence would have seen that Madoff's ROI was way out of whack with the markets at the time, and should have been very suspicious instead of "flattered" to join the elite investor pool. Especially in light of Madoff's non-explanations and his very limited accounting staff (what was that, just a handful of people managing a billion dollar fund?) claiming some special secret expertise to get the enormous rate of returns they were paying.

I had a lawyer who described to me an unusual situation ... a 16-year old lad was charged with burglaries in a wealthy enclave in Denver. His Mom brought him in to retain the lawyer and start his criminal defense. The woman, who was on welfare and food stamps and in Section 8 housing ... never married, with 6 children ... had never worked a day in her life, having started having babies when she was 14 and dropped out of school. Yet she came into the lawyer's office proudly wearing her "best" ... a rolex pave diamond face gold watch, diamond earrings, several gold necklaces, a gold tennis bracelet on one wrist, gold charm ankle bracelets, and expensive designer clothes.

My lawyer looked at the woman and asked how she could afford such luxury items and where she'd obtained them, given that she claimed she couldn't afford to pay much for her son's criminal defense. Her response: "my boy gave me these things and you ain't takin' nothin' from me that my boy gave to me". I think you might agree that this woman received these items in good faith from her son, but they were still stolen items .... and she really should have questioned how her 16 year old son could be bringing home such wealth from virtually nothing as a school drop out.

And so it goes with Madoff's clients. However well intentioned they were in making their investments ... they still received the fruits of stolen money that should have aroused suspicion. It's long past time to return it to those from whom it was stolen.

[texdav]

Not thier origianl investment.That is their money stolen by Madoff.Since he did not invest it as stated then they have a right to the return of their money. It could get complicated proving what is whose money.

[loves2read]

the trustee gets paid by the estate (and we know that Madoff had lots of moola left for him and his missus) so he can try to hassle that money out of the people who benefit from the pyramid scheme...it is a lawyer's wet dream--a lengthy sawsuit with ability to charge large fees and have a hugh group to negotiate with---lots of infighing--would make a great book since I saw it on Damages last year I think...
but like another poster said--but unless they are very, very wealthy they probably lost a lot of assets--I don't say smart because they were with him for years...and frankly if they were smart they would have known if something is too good to be true, where there is a reason.