The Madoff Saga: Perils of Fraudulent Conveyance

We were talking about F.C. just this morning. From Information Arbitrage:

Say you were an investor in Madoff's funds. A few years back you decided to diversify. You asked Madoff for your money back and you got it. You then invested the proceeds in an array of other assets. Madoff then goes bust in a massive fraud. One day you get a letter from a bankruptcy trustee. The letter says that you need to repay a large chunk of your original investment in order to satisfy the claims of other investors who were less fortunate (or smart) than you. Is this fair? Is this right?

The concept being applied by the Court and the bankruptcy trustee is called Fraudulent Conveyance:

The basic structure and approach of the Uniform Fraudulent Conveyance Act are preserved in the Uniform Fraudulent Transfer Act. There are two sections in the new Act delineating what transfers and obligations are fraudulent. Section 4(a) is an adaptation of three sections of the U.F.C.A.; § 5(a) is an adaptation of another section of the U.F.C.A.; and § 5(b) is new. One section of the U.F.C.A. (§ 8) is not carried forward into the new Act because deemed to be redundant in part and in part susceptible of inequitable application....MORE

HT: naked capitalism