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Maybe some of these investors used the proceeds to invest in other legitimate funds, made a profit and benifited from an "interest free loan".

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Or maybe some of those investors used the money to send their kids to college and now they have to re-mortgage their house to cover the clawbacks.

Sure, that sucks. This is why Madoff is in prison. There's no particular reason you shouldn't get just as fucked as everyone else who was invested, just because you took profits at a certain time though.

Not no reason. You invested in a solvent fund. They invested in an insolvent fund.

You could have a similar thing happen without a scam.

Trying to get everyone back to their original investment is probably the best method overall, but it's a tradeoff.

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