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New Fund for Madoff Victims May Stave Off Bankruptcy

Posted on in Bankruptcy

When Bernie Madoff was arrested in 2008 and admitted that a significant part of Bernard L. Madoff Investment Securities LLC was an elaborate Ponzi scheme, nearly 5,000 clients were affected and lost more than $50 billion, collectively. This, of course, resulted in a slew of personal bankruptcies for people who likely never dreamed they'd face bankruptcy proceedings, and a tightening of federal regulations on companies like Madoff's. Though he was sentenced to 150 years in federal prison and ordered to pay $17 billion in restitution to his victims, most who were affected in Madoff's Ponzi scheme will never be able to recover the funds they lost.

In November 2013, however, according to The New York Times, it was announced that a $2.35 billion fund collected by the Justice Department will be made available to victims of Madoff's Ponzi scheme. “The indirect investors—at least 10,000 people and possibly many times that—are eligible for compensation from the federal Madoff Victim Fund,” it was announced in November. “Generally,” according to the New York Times, “anyone who withdrew less from their Madoff-related account than they paid in will be eligible to recover form the Madoff Victim Fund.”

Broadening the availability of the fund to include more than direct investors in Madoff's company will allow for more people to avoid the bankruptcy process than would otherwise have been possible. “There are literally widows and orphans who lost everything with Madoff but who will not get one thin dime from the bankruptcy process,” Richard C. Breeden, a former Securities and Exchange Commission chairman told the Times. “Fortunately,” Breeden told the Times, “this fund can define 'victim' more broadly than 'customer.'”

According to the American Bankruptcy Institute (ABI), “if a failed business is a Ponzi scheme,” such as Madoff's, “the likelihood of a successful recovery action in bankruptcy is vastly improved.” That's good news for any investors who hooked their business to Madoff's, but doesn't do much to mitigate the number of personal bankruptcies for Madoff's victims.

If you or someone you know is considering bankruptcy, don't go through it alone. Contact an experienced bankruptcy attorney at Newland & Newland, LLP today.

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