Written by Teresa Zink for HB Litigation Conferences LLC

Finally, Paccione turned to the big question, can the losses be recovered?  There are two categories of investors seeking to recover, direct investors who put money directly into the Madoff funds and indirect investors who put money into a feeder fund, hedge fund or some other entity that invested in Madoff.

He noted that direct investors will have better access to SIPC insurance because there will be accounts in their names, but they can’t sue Madoff because of the bankruptcy proceeding.  Indirect investors may have claims against third parties through class actions or direct claims with the potential for deep pockets, but the claims will be “expensive and fraught with legal defense as an obstacle.”  The third parties may include hedge funds, investment managers, custodians, limited partnerships, accounting firms, pension trustees and private and charitable foundation trustees.  A claim has even been made against the SEC for alleged malfeasance, said Paccione.

“Fundamentally, I think what we’ll hear mostly about throughout these Madoff litigations is the issue of red flags.  Were investors, hedge funds, and advisors on knowledge?  Did they have knowledge or notice of the wrongdoing that was going on at Madoff?  Red flags will implicate a whole host of claims, including clawbacks and others,” said Paccione.

(Final post of six.)

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