5 ways to recover from a Ponzi scheme
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The tax benefit won't help everyone. Lehman, who is working with about two dozen former Madoff clients, says victims of a Ponzi scheme who used money from their retirement accounts, such as an IRA, are out of luck when it comes to taking tax deductions.

4. Follow the herd
When a Ponzi scheme collapses, a receiver or bankruptcy trustee generally is appointed. Part of that person's job is to collect as much money and other assets as possible to eventually distribute to creditors.

These receivers or trustees establish a claims process requiring victims to file paperwork asserting how much they lost. When a trustee is finished, whatever assets have been accumulated, minus administrative fees, are distributed to creditors, but the recovery is often pennies on the dollar.

With Madoff, some investors are eligible to file claims with the SIPC, the government-created institution that keeps a reserve to pay investors who lose money with failed brokerage firms. But there's a $500,000 cap for each customer, $100,000 of that is for cash; the rest for securities, and SIPC's fund is only about $1.6 billion.

The SIPC and the court-appointed trustee in the Madoff case mailed out more than 8,000 claim forms in January. Cosner says he's advising clients who were Madoff investors to file claims through the SIPC rather than pursue lawsuits on their own.

In other frauds where the SEC has sued scammers, the agency establishes procedures for harmed investors to file claims. Last year, a receiver working with the SEC distributed about $4 million to victims of an $11 million Ponzi scheme called Premium Income Corp., which the government took action against in 2005.

The bottom line: In most cases, it doesn't hurt to submit a claim with the receiver or trustee overseeing the process. It might lead to some recovery.

5. Take the money and run?
Not so fast. If you're thinking you dodged a bullet because you took your investment -- and profits -- out before an investment fraud was exposed, think again. Generally, if records exist, a receiver or trustee will sue to get money back from investors who received profits before things went bad.

In legal circles, it's quaintly called a "clawback provision." The trustee in the Madoff case already has said he'll pursue claims against investors who received substantial profits from the scheme. Geffner says New York law allows a trustee to go back six years.

"If you got more money than what you put in, you are at risk of being the subject of clawback provisions," says Page. "A lot of times, it is smart to consider being a small dog in tall grass."

That means don't file a claim with the trustee or anyone else or a lawsuit, and hope you'll get overlooked, Page says. If account records of the fraud are in disarray, it may be difficult to document which investor received how much money.

Attorneys also say there are defenses investors can use if a trustee comes knocking. "If you took out your own money, chances are you'll be able to keep that," says Cosner.

As is the case with most of these options, it's best to consult with an attorney or tax professional who is knowledgeable about the specific issues.