The U.S. Justice Department fund set up to help victims of Bernard Madoff’s Ponzi scheme received 51,700 claims seeking some of the $4 billion forfeited since the swindle collapsed.
In total, the claims received by the April 30 filing deadline represent $40 billion lost to the fraud, said Richard Breeden, who was appointed to handle distributions.
Many of the claims were filed by banks or fund managers who “are not generally eligible” to share in the forfeited money, Breeden said. He hasn’t yet reviewed the claims to throw out the defective ones, he said.
Breeden said the claims filed with him are 20 times larger than those allowed in the bankruptcy of Bernard L. Madoff Investment Securities LLC because the Madoff bankruptcy trustee, Irving Picard, permits only claims by direct investors.
In other words, someone who invested through a feeder fund doesn’t have a bankruptcy claim under the Securities Investor Protection Act, while the feeder fund does. Breeden, on the other hand, is allowing claims by indirect investors.
About 43,500 claims filed with Breeden were submitted by victims who didn’t file claims in the bankruptcy. So far, Picard has recovered about $9.5 billion, or some 54 percent of customers’ investments.
A former chairman of the U.S. Securities and Exchange Commission, Breeden was appointed by the government as special master of the fund in December. He will determine the proper amount of a claim by using the same cash-in, cash-out methodology used by Picard. Breeden has said he will subtract whatever a victim recovers from the trustee.
Picard is limited in making distributions only to creditors who fall within the definition of “customers” under SIPA. The courts have ruled that feeder-fund investors don’t qualify. Forfeiture law gives Breeden more discretion.
The Madoff firm began liquidating in December 2008 with the appointment of Picard as trustee. Madoff individually went into an involuntary Chapter 7 liquidation in April 2009, and his case was later consolidated with the investment firm’s. He’s serving a 150-year prison sentence following a guilty plea.
The Madoff liquidation is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Madoff, 09-cr-00213, U.S. District Court, Southern District of New York (Manhattan).