The Volokh Conspiracy - Can Politicians Keep Madoff's Contributions?

Looks like Madoff going to the clink is also going to mean the end of a serious money train for a lot of politicians according to this report by Open Secrets.

As recently as September 2008 he wrote a $25,000 check to the Democratic Senatorial Campaign Committee (see here).

Googling around I haven't been able to find any definitive report on whether recipients of his largesse will return the contribution. This story indicates that Congressman Markey will give away the equivalent to charity, but it seems unclear on many of the others.

An interesting legal question is whether even if the recipients, such as the DSCC, want to keep these funds whether they actually can. These contributions all look like classic fraudulent transfers. Under the Uniform Fraudulent Transfer Act section 5 a transfer is fraudulent if "if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation."

Clearly Madoff was insolvent at the time of these transfers in light of his contingent liabilities. Moreover, I can't see how a political donation could be seen to be anything but a transfer for less than "reasonably equivalent value" as that term traditionally has been defined.

Congress amended the bankruptcy laws a few years ago to protect transfers to charitable organizations but that wouldn't apply to political organizations.

So it seems to me that even if the politicians don't want to return these donations they likely are going to have to anyway, for the benefit of Madoff's creditors.

The statute of limitations for fraudulent transfers varies a lot from state-to-state but may be up to 6 years, in which case creditors (or Madoff's bankruptcy trustee) could reach back pretty far to recapture these donations.

Note also that under the law Markey may still be subject to having to give back the money Madoff contributed, even though he "gave" it away to charity. Although the charity would be protected, as the initial transferee Markey would not be protected.

New York law probably applies here and there may thus be some specific wrinkles that are different from this general discussion. For instance, my research indicates that New York may still be under the Uniform Fraudulent Conveyance Act. It also looks like New York law has a six year statute of limitations. This might change the details but not the general argument here. I would appreciate insights from any readers more familiar with New York fraudulent transfer law than I am.

	[Todd Zywicki, March 13, 2009 at 11:43am] Trackbacks Can Politicians Keep Madoff's Contributions? Looks like Madoff going to the clink is also going to mean the end of a serious money train for a lot of politicians according to this report by Open Secrets. As recently as September 2008 he wrote a $25,000 check to the Democratic Senatorial Campaign Committee (see here). Googling around I haven't been able to find any definitive report on whether recipients of his largesse will return the contribution. This story indicates that Congressman Markey will give away the equivalent to charity, but it seems unclear on many of the others. An interesting legal question is whether even if the recipients, such as the DSCC, want to keep these funds whether they actually can. These contributions all look like classic fraudulent transfers. Under the Uniform Fraudulent Transfer Act section 5 a transfer is fraudulent if "if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation." Clearly Madoff was insolvent at the time of these transfers in light of his contingent liabilities. Moreover, I can't see how a political donation could be seen to be anything but a transfer for less than "reasonably equivalent value" as that term traditionally has been defined. Congress amended the bankruptcy laws a few years ago to protect transfers to charitable organizations but that wouldn't apply to political organizations. So it seems to me that even if the politicians don't want to return these donations they likely are going to have to anyway, for the benefit of Madoff's creditors. The statute of limitations for fraudulent transfers varies a lot from state-to-state but may be up to 6 years, in which case creditors (or Madoff's bankruptcy trustee) could reach back pretty far to recapture these donations. Note also that under the law Markey may still be subject to having to give back the money Madoff contributed, even though he "gave" it away to charity. Although the charity would be protected, as the initial transferee Markey would not be protected. New York law probably applies here and there may thus be some specific wrinkles that are different from this general discussion. For instance, my research indicates that New York may still be under the Uniform Fraudulent Conveyance Act. It also looks like New York law has a six year statute of limitations. This might change the details but not the general argument here. I would appreciate insights from any readers more familiar with New York fraudulent transfer law than I am.