‘Winners’ in Madoff case face hard choices

Applying for the aid could give the trustee evidence he needs to initiate a clawback claim. On the other hand, investors who ignore the letter would most likely forfeit any chance of recovering lost funds.

No matter how they respond, it may only be a matter of time before investors wiped out in the scandal turn on those who unknowingly enjoyed the fruits of the fraud.

"The sharks are all circling," Caruso said.

Some hedge funds that had billions of dollars invested with Madoff are already going through years worth of records, trying to figure out which of their investors withdrew more than they put in.

That data could be used by the fund managers to defend themselves against lawsuits, or go after clients deemed to have profited from the scheme and get them to return the cash.

The future is equally cloudy for investors who cashed out entirely before Madoff's arrest.

Their lucky ranks include the Fort Worth Employees Retirement Fund, which invested $7.5 million in a Madoff-related hedge fund years ago, then cashed out last summer after a consultant raised concerns about the investment.

The consultant, due diligence firm Albourne Partners, of London, had long been skeptical of Madoff's reported investment returns.

Fort Worth walked away with $10 million — a sum that included $2.5 million in what now appears to be fraudulent profit.

A lawyer for the public pension fund, Robert Klausner, said he couldn't discuss whether that money might have to be returned, but said the decision to divest was not made because of "special or inside knowledge of what was later reported to be misconduct."

"There just aren't any winners in this deal," Klausner said.

Stephen Harbeck, chief executive of the Securities Investor Protection Corp., told The Associated Press neither he nor the trustee handling Madoff's business, Irving Picard, have decided what to do about Madoff investors who made money. He predicted the process would be "a legal and accounting nightmare."

"Between money in and money out, versus statements received, it is a real difficult pile of issues," Harbeck said. "There are some customers who would want us to use clawback procedures against other customers, and there are other customers who would resist that."

Asked if SIPC would rule out paying claims to investors who appear to have net profits, Harbeck said it was "too early" to say. He encouraged people to file claims, even if they think it might ultimately be denied, but said investors had no legal duty to do so.

Picard will oversee the liquidation of assets from Madoff's investment firm as the SIPC attempts to help investors recoup their money. The SIPC was created by Congress in 1970 to protect investors when a brokerage firm fails and cash and securities are missing from accounts.

More on corporate scandals |  Bernard Madoff

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