Madoff Scandal and Unjust Enrichment

Suppose you have been investing money in what turns out to be a ponzi scheme. Over time you withdrew money from the investment account; after all, it was making you good returns and you should be entitled to enjoy some of the profits. Now you find out that there was never really any investments and the whole thing was a fraud. Do you owe the money you took out? 

Comments

[Gareth Morley]

Owe to whom?

Owe "the money you took out" or owe your profits?

To the extent the investors who got out of time profited, they were (at best) innocent beneficiaries of a fraud, and I don't see why they should keep that benefit.

[David Cheifetz]

C'mon Gareth. Moin's language isn't precise but you know where he was going.

You know that "innocent benefiiaries of a fraud" isn't the definitive answer in any way. Money is fungible so that confuses things (somewhat) but if we'd been dealing with objects - let's say valuable paintings - you'd not have responded that way. Something about 'dat Nemo, I think.

Apart from that? Putting aside local laws and speaking generally, there's (a) those who gave their funds to some other money manager and didn't know (for some reason) that their funds ended up with Madoff and (b) those who invested directly with Madoff. Maybe there are different due diligence concerns.

I've not read the Bayou case. At some point I will, I suppose. Bankruptcy law in the US may answer the questions, of course. Aside from that, this problem is going to be 'fun' for US jurisprudence, where (as I understand things) UE was dormant for a long period and has only, recently, started to receive intensive academic consideration.

And then there's the complication should Madoff's trustee starts going up the line against non-US based investors or funds trying to recover money and the action is not in the US.

According to the local papers, the advising fraternity (lawyers, accountants, what not) have billed about $200 million to date on the Canadian ABCP mess. (That's 200 million that I assume is coming out of the pot, but the investors haven't got a cent yet. Nice.) How much more will the advising fraternity make out of the Madoff mess? And out of whose pot?

Interesting times.

David

[Gareth Morley]

Yes, I took Moin to be asking what we would do as pure dispensers of equity. Lord knows what the American courts will make of it, but I imagine a few of our US colleagues will be able to feed their families trying to find out.

[David Cheifetz]

"pure dispensers of equity" Nicely put.

DC

[BKN]

"pure dispensers of equity"

I have taken out a patent on just such a device. We go to market later this year. Comes in black, stainless steel, and avocado finishes. 120 or 240 VAC. $1299 + shipping & handling. But it's on the refill cartridges that I'll make my real money.