View Full Version : University scholarship funding legal question

08-26-2016, 06:51 PM
Okay, hypothetically, let's say that before his crimes were revealed, University X offered a Bernie Madoff scholarship to a lucky graduate student. This scholarship was endowed by a one-time, really large donation by Bernie. The donation sits in an account and generates interest, thus funding the yearly scholarship.

When the Feds busted Bernie, it was proven that the scholarship donation was in fact made with stolen money. Does the Federal Government have any claims on the donation?

If not, what does University X do with the money? Give it back to Bernie?

08-26-2016, 07:48 PM
There are procedures for the victims of a fraud to receive payment from the recoverable assets of the fraudster. That might potentially include the value of a charitable donation if it can be shown that the recipients failed to do their due diligence and should have known the money was derived from a crime. This Wikipedia article has some relevant links. (https://en.wikipedia.org/wiki/Recovery_of_funds_from_the_Madoff_investment_scand al)

If the money given to University X can't be clawed back legally but University X feels ethically compromised by holding onto it, it can voluntarily surrender the money to the recovery fund or some other appropriate group.

King Neptune
08-26-2016, 09:57 PM
The feds clawed back everything they could from Bernie, and such an endowment would have been taken, if it existed. But the feds didn't take the money for itself; they took it to return it those robbed by Bernie. If the feds didn't grab it, and the university felt bad, then they could have handed it over to the receiver appointed to redistribute Bernie's money.

08-26-2016, 10:14 PM
If it's specifically Madoff, he made a deal that the prosecutors accepted and only things that were currently in his name could be taken and so since most of the billions were already in his family's name they got to keep it, and so would a scholarship. Had he not made such a deal then conceivably the government could have gone after all of it.

08-26-2016, 10:48 PM
It happens with somewhat depressing frequency. Not only can stolen money be recovered, but money earned from illegal activities. It can also be recovered in the case of bankruptcy.

As far as I know, and this is why it isn't hitting the news, is that the university quietly closes the scholarship, while funding the students that have received the scholarship are covered by the university until the end of their scholarship. I don't believe the students are informed of the change of status (it's a bit embarrassing to all concerned). This works well for a university in that an additional student is not much of an actual cost to the university.

The longer this goes on, the less likely that any money will be recovered.

In Bernie Madoff's case, most of the money was not recovered by the Feds, but was recovered in bankruptcy court. Out of the $17.5 billion investors invested in Madoff's firm, over $11 billion has been recovered. The "profits" that the investors supposedly earned is not recoverable. For more details, see https://en.wikipedia.org/wiki/Recovery_of_funds_from_the_Madoff_investment_scand al

Jim Clark-Dawe

08-27-2016, 12:12 AM
Wow! Thank you all so much for the responses. Super helpful!