Madoff scam draws lots of lawsuits

TEXT OF STORY

Tess Vigeland: The investing career of this season’s most notorious grinch, alleged Ponzi schemer Bernard Madoff, may be over, but his career as a court defendant is just beginning. And Madoff will have some company in the courtroom. Marketplace’s Jeremy Hobson has more on the legal unraveling that is yet to come.

Jeremy Hobson: Bernie Madoff’s victims aren’t going to get much money out of him; he’ll be broke before the first few investors are repaid. But funds that invested their clients’ cash with Madoff may be held responsible.

Theodore Eppenstein: We’re investigating whether the fund actually performed adequate due diligence before they invested the funds fund into Madoff’s hands.

That’s attorney Theodore Eppenstein, who’s representing people who didn’t even know they were invested with Madoff. And then there are the people who were invested and took out money at some point — that’s where more lawsuits spring up, says Adam Levitin, who teaches bankruptcy law at Georgetown.

Adam Levitin: This is going to get very messy. No question.

Levitin says any gains collected in the last six years, or even withdrawals of the principal investment could be recovered to pay other Madoff victims. Attorney Carole Neville represents clients in a similar case involving a hedge fund — the Bayou group. She says there is a defense for people who can prove they withdrew cash in good faith — not because they knew something funny was going on.

Carole Neville: Good faith. Having a good faith reason shelters a clawback of your principal. It does not shelter a clawback of fake profits.

But Neville says the whole process can get awfully complicated and expensive.

Neville: What happened in Bayou is that they’ve collected $33 million so far and they’ve spent $20 million on legal fees.

And given the scope of the Madoff swindle, I don’t even want to know what the legal bill will be.

I’m Jeremy Hobson for Marketplace.