William & Mary Policy Review

The Madoff trustee was on the right side of the law, according to a decision by the 5^th Circuit Court of Appeals. As I said in an earlier post, the Madoff trustee did not seek clawback claims against investors who had received less from the scheme than the amount they initially invested. Now, the 5^th Circuit has made it clear that the receiver (like a trustee) in the Stanford case cannot seek such claims against investors, unless he claims some wrongdoing against them—which he’ll have a hard time doing. He had tried to go after them as “relief defendants”—meaning that they had received fraudulent funds and had no legitimate claim to them. He failed.

As this article notes, this means that hundreds of investors will now have access to their brokerage accounts…finally. Here is a copy of the 5^th Circuit’s opinion. The law of receivers as applied to “relief defendants” in securities fraud cases is getting clearer, and investors do have rights whenever they had entered into a contract with the entity in receivership, as the Stanford investors did when they bought certificates of deposit (that is, the agreement in a CD constitutes a legitimate claim to the funds that they took out in furtherance of that agreement).