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Participants Who Turned A “Blind Eye” May Be Chased For Years

The Madoff ponzi scandal is strikingly similar to the largest financial fraud in United Kingdom history, two decades ago in 1988 – yes, the year after the 1987 stock market crash and exactly twenty years prior to one of the worst recessions and market corrections in U.S. history (2008). The criminal activities of both Madoff and Barlow Clowes were exposed as a result of the collapse of financial markets, when their ponzi schemes could no longer be maintained, spiraled down, and then out of control because no means existed to cover their activities with future gains. In 2000, and as part of my (Joe Kempe’s) second post doctorate studies program in tax law, I was able to investigate and chase certain participants of the Barlow Clowes scandal as part of an Offshore Financial Center class I was taking at St. Thomas University. Coincidentally, my chase for Peter Henwood ended in Mauritius, an island in the Indian Ocean off of the coast of South Africa, where he was recently found to have established residency. Mr. Henwood was chased for almost 20 years because of his participation in creating certain offshore structures that facilitated Barlow Clowes’ fraud. The courts found that Mr. Henwood had turned a “blind eye” on, or possessed “Nelsonian knowledge” of, the illegal activities of Peter Clowes. Nevertheless, the courts in 2007 found that an English bankruptcy law judgment could not be enforced against him as a resident of Mauritius, because of that State’s independent bankruptcy protection laws. Mr. Henwood’s £ 10 million was therefore protected from attachment by the United Kingdom bankruptcy court.

Where a participant in fraudulent activities bears a fiduciary relationship with those wronged, statutes of limitation may be extended for many years until their involvement is uncovered. Like in Barlow Clowes, how many tentacles there are and how far they extend have not yet been determined. Once found, normal statutes of limitations may not be sufficient to protect them from claims by those wronged. The chase is on and will likely continue for many years.

In the interim, it is important for Madoff investors to monitor the case, perfect their rights, evaluate SIPC and other recourse, and evaluate tax reporting and refund positions. Prompt and timely evaluation and reporting may be important in given cases. Many Madoff investors have commented to us that their current standards of living and wealth were built off of Madoff and, without Madoff, they wouldn’t be where they are in life today. This position, however, complicates relief where a contrary position by the government could be that no loss was realized for SIPC or tax purposes, since the returns over the years amounted to the return of their original investment. For example, a Madoff investor for seven years will have received back his entire investment and, if longer, an actual return on that investment. This position has not yet been taken by the government for tax or SIPC purposes and investors are encouraged to take contrary reporting positions, at least until differing guidance or direction is issued by the government.

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