by Brian Mahany
The term “clawback” is relatively new. In fact, you won’t find it in most dictionaries and even the on-line Wiktionary is quite vague in its definition; “Any recovery of a performance related payment based on discovery that the performance was not genuine.” But ask the victim or former investor of Bernie Madoff or almost any other Ponzi scheme and the term will be well known.
Until a few years ago, the last victims to invest in a Ponzi schemes frequently had little hope of recovering any money. (For an excellent article on Ponzi schemes, see www.fraudsandscams.com) The earliest investors in Ponzi schemes frequently get paid while the newer investors get nothing. Ponzi schemes rely on an ever broadening pyramid of new money coming in to pay off old investors. The base soon becomes so large that the pyramid collapses. The newest investors lose everything.
U.S. courts are becoming increasingly sympathetic to efforts to “claw back” profits (and in rare cases, principal) from the earlier “winners.” Is this fair? It depends on who you are.
For the losers in a Ponzi scheme, their only chance of recovery is getting some money from the earlier winners. The theory is that since the entire scheme was a fraud, allowing the earlier investors to receive profits is fundamentally unfair to the newest investors. That sounds good BUT, many earlier investors, having no idea that the investment was a scam, long ago spent the profits they received.
The issue is likely to be litigated intensely for the next several years but clawbacks are being accepted with increasing frequency by the courts.
MahanyLaw assists fraud victims throughout the United States recover monies taken by fraud. Asset recovery and fraud recovery is a unique area of law requiring a great deal of skill – skill in finding hidden assets and skill in collecting those assets for victims.
If you are a victim of a fraud or Ponzi scheme, give us a call. Our asset recovery lawyers assist victims throughout the United States. And when necessary, we will pursue assets anywhere in the world. To date our team has handled fraud cases in the Caribbean, Middle East, Europe, Central America and New Zealand.