It is bad enough that most of the people who invested with Madoff will lose a significant amount of their wealth. It is also possible, in fact, likely, that many of the investors who received distributions from Madoff or pulled their money out in time may have to return the money.
When the inevitable bankruptcy engulfs Bernard L. Madoff Investment Securities, the bankruptcy trustee will have the ability to require a return of previously paid distributions to share them with other victims of the Ponzi scheme.
The bankruptcy trustee?s ability to seize distributions from what turned out to be a Ponzi scheme is based on the theory of a ?fraudulent conveyance,? and may nab even those investors who were innocent victims of Madoff?s scheme. This may impact even those investors who received distributions years ago.
The ability of the trustee to get at a person?s assets will depend on a number of factors, including the state in which the investor lives, and whether the investor is married or single.
A lot of Madoff investors live in Florida and their residences may be fully protected by Florida law. However, a lot of Madoff investors may be New York "snowbirds" who cannot claim Florida as their state of residence. For these investors and all others, the long reach of the bankruptcy trustee should be a call for immediate action.
Even in a high-profile case like this one, assets may be shielded with proper asset protection planning.