This is a Job for Wolverine: Clawing Back Profits

By Laurel Sutton

March 9, 2009

The phrase “claw back” has been popping up in the news lately, specifically in reference to Bernie Madoff’s Ponzi scheme mega-super-ripoff. I had never encountered this phrase before, but I immediately got what it meant in a phrase like “clawing back profits”. It’s a great visual metaphor, although rather violent, don’t you think?

Our colleague in naming, Nancy Friedman, has written a nice account of the use of “claw back” in financial circles.

Clawback: Previously given monies or benefits that are taken back because of specially arising circumstances. Also: a retraction of stock prices or of the market in general.

“Claw back” (the verb form) with this financial definition first appeared in print around 1953, and has been used chiefly in Great Britain and Commonwealth countries. (“Clawback” had an earlier meaning of “sycophant” or “flatterer.”) It was picked up by investment bankers and venture capitalists in North America but was rarely used in general parlance until the recent global economic crisis. It’s now seen with some frequency in reference to the retraction of large management bonuses. The violence of the image suggests that the effort will be a bloody one.

Some of Madoff’s investors did make money, and they are the ones who will likely have to give some of it up:

“In a Ponzi scheme, not all investors lose,” said Tamar Frankel, a law professor at Boston University who has written on Ponzi schemes. “Those who manage to get out in time retain their investments and some of their gains”…

But previous court rulings regarding financial frauds suggest the winners could be forced to give up some of their gains to losers.New York State law may allow the receiver or bankruptcy trustee to demand that Mr. Madoff’s investors return money they received from the scheme any time in the last six years, Mr. Gould said.

Such so-called clawbacks may occur even if the client had no idea that the gains were fraudulent, he said.

Horribly racist comic book characterPoor people, they’re sitting at home watching American Idol and then Hugh Jackman shows up and slices their wallets out of their clothes, then rips open the wall safe and makes off with stacks of hundreds.

What’s really disturbing about claw back is the implication that none of the investors would willingly give back any of the money – you wouldn’t need to use claws if they just handed it over, would you? Claw back means a desperate struggle, with an intent to injure; the claws are unsheathed, and the bearer of claws will use them without remorse, like a wild animal, or perhaps a sexist stereotype of a woman. Or maybe it’s just a horribly racist comic book character (see illustration). Is this really what we’ve come to?

Oh well, at least it’s better than the other horribly racist phrase suited to this situation: indian giver.

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