It's clawback time.
Investors who cashed out before Bernard Madoff's $65 billion Ponzi scam crumbled in December have been told they may have to hand back what they took out.
In recent weeks, the federal Bankruptcy Court trustee hunting down Madoff assets sent 223 letters to investors seeking back as much as $735 million.
The so-called "clawback" could impact investors who cashed out as long as six years before the collapse.
"These amounts were paid to you at the expense of other customers while [Madoff's firm] was insolvent," read a letter to an investor from Trustee Irving Picard.
"The trustee demands that you immediately return such amounts ... for the benefit of all defrauded creditors."
At an investor meeting in February, Picard's lawyer, David Sheehan, caused a furor when he told cashed-out investors "you've got somebody else's money."
"It's devastating for them," said lawyer Howard Kleinhendler, who represents several Madoff investors, including some who lost millions.
"They withdrew the money in good faith. They had no idea what was going on."
Kleinhendler said some have paid taxes on phantom income they thought they'd earned based on account statements Madoff mailed out.
Those who don't hand back the money could be forced to hire an attorney when they're hauled into court.
"People who do not have the wherewithal are going to have to fight it out," Kleinhendler said.
Picard's letter says investors will have the chance to provide an accounting of money they deposited before he decides whether they'll be forced to give everything back.
Picard has been scouring the globe hunting down Madoff assets. He's recovered $1 billion in assets. And he recently sold off Madoff's Mets season ticket package.
On April 9, Picard sued Banque Jacob Safra in the first clawback suit. Picard claimed Madoff wired $150 million to the Gibraltar banker in the months before his Dec. 11 arrest.
Picard claims the bank invested with Madoff on behalf of a British Virgin Isles company.
"The effect of these letters is to scare the living daylights out of people who have already been victimized once by Bernard Madoff," said lawyer Jonathan Landers, who represents several victims.
With News Wire Services