Hedge funds charge a flat annual fee for their services and then, on top of that, take up to 20% of your earnings if they make you money. So what happens when they took 20% of what turned out to be nothing? They get sued, that's what. And that is precisely what is happening to those highly skilled professionals who after tons of due diligence gave their client's money to Madoff. Negligence aside, the clients are asserting that the billions in fees they skimmed-off based on false profits should be returned as it was never really earned. Now I have not seen the precise wording of their client contracts, but I think the clients have a good point. It will be interesting to see what the hedge funds have to say in response. It might sound something like "Chapter 7."
http://www.bloomberg.com/apps/news?pid=20601087&sid=amj8XcwuSr0s&refer=home
Disclosures: None
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