The U.S. Supreme Court on Monday said victims of Bernard Madoff’s massive Ponzi scheme cannot ‘clawback’ about $4 billion from other investors who withdrew money before Madoff’s fraud was exposed.
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An earlier ruling by the Second Circuit Court of Appeals in New York blocked Irving Picard, the trustee in charge of recouping money for Madoff’s victims, from targeting clients who withdrew money in some cases years before Madoff’s sons turned him in to the FBI in December 2008.
The appeals court said that allowing the ‘clawbacks’ risked the kind of "significant market disruption" that Congress aimed to avoid by adopting protections for brokerage customers in the bankruptcy code.
Picard and the Securities Investor Protection Corp., which had spearheaded the effort to recoup funds for victims of the fraud, appealed the ruling to the Supreme Court.
Picard has said if the appeal is denied his office would be unable to recoup at least $2 billion and would have difficulty recouping another $2 billion.
The decision does not affect the $10.69 billion that Picard has recouped for former Madoff customers, who lost about $17.5 billion of principal.
Picard still needs to recover another $7 billion to achieve his goal of returning all the losses suffered by customers who filed claims.
Picard has been seeking to recoup money from customers who withdrew more from their accounts than they invested.
Madoff pleaded guilty in 2009 to running perhaps the largest financial fraud in history and is serving 150-year prison term.