Investors victimized by the fraud perpetrated by Bernard Madoff and his company, Bernard L. Madoff Investment Securities, LLC (collectively Madoff), should be aware of their legal options and risks. Some of these options have very short deadlines. Likewise, investors who successfully withdrew their investments before Madoff`s fraud came to light could face potential claims. In either circumstance, the prospects of litigation are high.

Potential ``Claw-Back`` Liability. A bankruptcy proceeding was commenced against Madoff on Dec. 11, 2008. A Trustee (Irvin H. Picard) was appointed to liquidate the remaining assets of Madoff`s business and ultimately make distributions to creditors. It is likely that the bankruptcy court will determine that Madoff`s business was a Ponzi scheme, whereby some investors were repaid from monies invested by later investors. If such a determination is made, Madoff will be treated as if insolvent at all relevant times. Any distribution made by Madoff to an investor during the past few years may then be considered a ``fraudulent transfer,`` and that investor may be obligated to repay the distribution to the Trustee. The rationale for returning these payments to the bankruptcy estate is that investors who received distributions from Madoff received a windfall, and repaying the distributions will put them in the same position as those investors who received no distributions.

It remains an open question as to how far back the Trustee can seek to recover a distribution from Madoff. At a minimum, under Section 548 of the Bankruptcy Code, the Trustee can recover any distributions made during the two years prior to the bankruptcy filing. However, under New York state law, the statute of limitations for certain fraudulent transfers can be as long as six years. If you received any distributions from Madoff since December 2002, the Trustee may assert a claim against you. In that circumstance, an investor may be required to repay the ``net`` amount distributed, after deducting amounts re-invested with Madoff. For example, if an investor received a $100,000 distribution from Madoff in 2006, but then reinvested $80,000 with Madoff in 2007, the Trustee should only be allowed to recover the $20,000 ``net`` amount. However, it will be the obligation of each investor to establish the investments paid to (and distributions received from) Madoff. Nearly all of the employees who worked for Madoff have been terminated, and the records available to the Trustee are likely to be incomplete or incorrect. Investors should preserve all of their records, especially emails and other electronically-stored data, in order to prove their losses to the Trustee.

Securities Investor Protection Corporation (SIPC). Investors defrauded by Madoff may be able to obtain reimbursement for all or part of their loss from the SIPC. In the bankruptcy proceeding against Madoff, the following Notice was issued:

``Customers of [Madoff] who wish to avail themselves of the protection afforded to them under [the Securities Investor Protection Act of 1970] are required to file their claims with the Trustee within sixty (60) days after the date of this Notice.``

This Notice was issued on Jan. 2, 2009; therefore, the 60-day deadline for filing claims with the Trustee is March 4, 2009. Claims must be mailed to the Trustee at the following address:

Irvin H. Picard, Trustee for

Bernard L. Madoff Investment Securities LLC

Claims Processing Center

2100 McKinney Avenue, Suite 800

Dallas, Texas 75201

Claim forms and additional information can be found on the SIPC`s website at www.sipc.org and on the Trustee`s website at www.madofftrustee.com.  

Tax Relief. Some tax relief may be afforded to investors in the form of losses, amended returns and even statutory protection.

Losses will generally be deductible and may be characterized as a theft loss. Theft losses are treated as ordinary losses that can be generally deducted in excess of 10 percent of adjusted gross income without limitation. Eligible losses from theft can be carried back for three years. Theft loss must be reported in the year that the loss is sustained and ``discovered,`` which is likely to be 2008. Accordingly, this deduction must be addressed by April 15, 2009 or an extended filing date. An investor may not be able to deduct the loss if there is a chance that the investor could ultimately receive back some of the loss. Thus, joining in a lawsuit or class action suit could delay a tax deduction. Each investor should analyze whether participation in a recovery action merits the delay in deduction of a tax loss in 2008.

Due to illusory gains and income reflected in statements issued by Madoff, many investors have reported taxable income on prior years` federal income tax returns. As Madoff was allegedly operating a ``Ponzi scheme,`` no such income should have been reported. Under the Internal Revenue Code, investors who were defrauded may amend their prior years` tax returns, in order to reduce the ``income`` reported, and request a resulting tax refund. However, it is important for investors to amend their prior years` returns as soon as possible: the deadline for amending a federal tax return is generally three years after the returns have been filed. If the losses are based upon worthless securities, additional years may be amended. The Internal Revenue Service has not commented on a position with regard to worthless securities in the Madoff transactions.

Congress is also considering changes that could further benefit investors who lost money in connection with this scandal, including clarification of some of the rules and additional carrybacks.

Whatever your circumstance, you should consult with an attorney or your tax advisor immediately with regard to the tax aspects and litigation issues arising from a Madoff loss.

FBI. The FBI has asked that investors who were defrauded by Madoff report their claims. Information about Madoff claims may be sent to fbi@service.govdelivery.com or to:

FBI New York

Attn: Victim Assistance Office

26 Federal Plaza,

23rd Floor

New York, NY 10278

In the information sent to the FBI, you should include (i) your name, mailing address and telephone number, (ii) a brief summary of the circumstances surrounding the investment and the dollar amounts involved, and (iii) copies of documents that substantiate your loss (do not send any original documents).