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The Securities Investor Protection Corporation and Madoff Fraud Litigation: Implications for Financial Institutions  


Author:  Ali Salameh.


Source: Volume 27, Number 06, July/August 2014 , pp.45-52(8)




Journal of Taxation and Regulation of Financial Institutions

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Abstract: 

Civil litigation on behalf of investors in the Madoff Ponzi scheme is being advanced by the trustee appointed by the Securities Investor Protection Corporation (SIPC). This article examines the extent to which banks and investment funds may be implicated in SIPC litigation on behalf of customers of a failed brokerage. The aftermath of the Madoff litigation indicates that banks and other operators of feeder funds are largely insulated from liability for directing client funds to failed brokerages. However, there are several outstanding issues before the Second Circuit Court of Appeals that may significantly determine the allocation of losses among investors in Ponzi schemes.

Keywords: SIPC; BLMIS; SIPA proceedings; net winners; clawbacks; court appointed trustee powers; feeder fund liability

Affiliations:  1: New York Law School.

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