Who Should File MadoffStanford Claims

1
Who Should File Madoff/Stanford Claims?

• Assessing the Risks of Clawback
• and Loss of Anonymity

Patrick J. OConnor July 2, 2009
2
Checklist for Defrauded Investors

• Culprit in jail and penniless v
• Consider suits against intermediaries v
• Discuss losses with accountant v
• File claims in liquidation ???

3
The Potential Problems Are Two-Fold

• Clawback provisions of the U.S. Bankruptcy Code,
  and
• Loss of anonymity for offshore and international
  investors.

4
Section 548 of the Bankruptcy Code

• The Trustee has broad authority to void direct
  transfers that have been made with the intent to
  defraud creditors.
• There is an argument to be made that any transfer
  out of a Ponzi scheme intends to defraud
  creditors.
• Avoidance actions have been undertaken by both
  the Madoff Trustee and Stanford Receiver.

5
Points of Special Concern

• Substantial positive returns,
• Proximity to the failed entity, its principals,
  and advisors,
• Knowledge or suspicion of fraud, and/or
• Acts tending to show knowledge of impending
  collapse.

6
Section 550 of the Bankruptcy Code

• The Trustees authority to seek avoidance of
  transfers extends to any immediate or mediate
  transferee (i.e., indirect investor).
• Several strong defenses exist to avoidance of
  transfers to indirect investors under Section 550.

7
Defenses to Avoidance (Section 550)

• The transferee takes for value, in good faith,
  and without knowledge of the potential
  voidability of the transfer or
• The transferee takes from a prior transferee that
  is not the direct investor in good faith.
• Good faith requires that the transferee take
  without knowledge of (1) the potential
  voidability of the transfer, or (2) the
  underlying fraud.

8
Implications for the Indirect Investor

• Filing of claims raises ones profile with the
  Trustee, raising the possibility of avoidance
  actions.
• Prior analysis of the relationship between the
  investor and the failed entity is essential.
• Any doubt as to knowledge or suspicious
  circumstances should be thoroughly analyzed prior
  to the filing of claims.

9
Loss of Anonymity

• Many clients throughout the Americas have
  legitimate concerns as to the disclosure of their
  identities and holdings.
• For the most part, claims in bankruptcy are
  freely accessible to the public.
• Where clients are concerned about their
  anonymity, alternative claims arrangements should
  be considered.

10
Nominating Agreements

• Nominating agreements may be used to protect the
  identity of a claimant from public disclosure.
• All underlying documentation is available to the
  Trustee.

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In Summary

• Conduct a thorough review of a clients potential
  claims prior to filing
• Keep in mind the possibility of clawback under
  the Bankruptcy Code and the consequences of a
  loss of anonymity
• Use nominating agreements where applicable

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Patrick J. OConnor HARPER MEYER PEREZ HAGEN
OCONNOR ALBERT LLP 701 Brickell
Avenue, Suite 1400 Miami, Florida
33131 Telephone [phone] Facsimile
1 [phone] Electronic mail
pjoconnor_at_harpermeyer.com