Because of a legal concept called “fraudulent conveyance”, investors who got out early might still suffer losses as a result of the  Bernard Madoff investment fraud.

Fraudulent conveyance is the illegal transfer of property to another party in order to defer, hinder or defraud creditors. According to Reuters, because of fraudulent conveyance, investors who took their money out of Madoff’s funds before the fraud was discovered might have to return their profits to help offset losses incurred by others who stayed in.   Basically, those “profits” were just an illusion, because Madoff was simply using funds from new investors to pay off old ones.

Last week, a federal judge ordered that Madoff’s business be liquidated under the jurisdiction of a bankruptcy court and assigned a  trustee to oversee that process.  According to Reuters, a bankruptcy allows the estate’s trustee to go back six years to recover moneys from fraudulent conveyance.  One expert told Reuters that for investors who got out during that time, “anything past your principal” is  “fair game to be brought back in.”  However, a judge could decide to limit how many years back the estate can demand investors return their money, Reuters said.

Madoff – once a chairman of the Nasdaq stock exchange – is the founder and primary owner of Bernard L. Madoff Investment Securities LLC. The firm is primarily known for its business in market-making, or serving as the middleman between buyers and sellers of shares. However, Madoff also oversaw an investment-advisory business that managed money for high-net-worth individuals, hedge funds and other institutions.

The 70-year-old Madoff was arrested on one count of securities fraud late last week.  According to the FBI complaint against Madoff,  his investment advisory business was largely a Ponzi scheme.   Employees of Madoff’s firm told the FBI that Madoff himself estimated the scheme could cost investors as much as $50 million.