Madoff Trustee to Grant $100 Million in Loss Claim

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Madoff Trustee to Grant $100 Million in Loss Claims

By Erik Larson

May 14 (Bloomberg) -- The trustee liquidating Bernard L. Madoff Investment Securities LLC said he expects to approve at least $100 million of investor claims by May 25 and achieve “significant” clawback-suit settlements in the next few weeks.

Irving Picard said he has $61 million committed to pay 125 claimants, and that 8,848 claims tied to 3,565 customer accounts at the defunct New York money management firm have been filed. Picard said he has recovered as much as $1 billion of Madoff- related assets for the Securities Investor Protection Corp. and that he has filed lawsuits to recover another $10.1 billion.

Every customer statement issued by Madoff’s firm was a “fiction,” Picard said today on a conference call. “Persons who are subject to these recovery efforts actually received money stolen from others. Congress specifically requires that these funds must be returned so that all customers share equally.”

Bernard Madoff, 71, pleaded guilty March 12 to running the biggest Ponzi scheme in U.S. history and faces as much as 150 years in prison when he is sentenced June 29 in Manhattan federal court. Madoff, who Picard said hasn’t cooperated in the recovery of assets, is jailed in a federal prison in Manhattan.

‘Always a Chance’

Picard said “there’s always a chance” he may sue Madoff’s family members in so-called clawback lawsuits that seek money to repay victims. “It’s a matter that’s being worked on,” he said.

Picard is also seeking about $735 million from Madoff customers outside of court, he said.

“We believe in taking an aggressive position with anyone who’s received money that should go back to the customers,” SIPC President Stephen Harbeck said on the call.

Earlier this week, Picard sued lawyer and philanthropist Jeffry Picower and hedge fund Harley International (Cayman) Ltd. seeking the return of more than $7 billion.

Picard sued Picower, individually and as trustee for the Picower Foundation, and several other related defendants seeking the return of $6.7 billion. The trustee said in the complaint filed May 12 in U.S. Bankruptcy Court in Manhattan that the Florida-based foundation got money from a $65 billion Ponzi scheme fraud at Madoff’s firm.

$5 Billion

“At least $5 billion of this amount was fictitious profit from the Ponzi scheme,” according to the complaint. “In other words, defendants have received, at a minimum, more than five billion dollars of other people’s money.”

A total of about $12 billion was withdrawn from Madoff’s firm in 2008, including about $6 billion in the 90 days before the Madoff bankruptcy, said David Sheehan, a lawyer representing Picard. That money is a potential source for Madoff victims to recover some of their investments.

Picard said that the Picower Foundation, which said in December it would close because of its Madoff-related losses, benefited from the Ponzi scheme for more than 20 years.

“In several cases, defendants’ purported annual rates of return were more than 100 percent, with some annual returns as high as 500 percent or even 950 percent per year,” according to the complaint.

The trustee also filed court papers demanding the return of $1.07 billion from Harley International for 14 transfers in the six years before the bankruptcy of Madoff’s firm. Six of the transfers were made within 90 days of the bankruptcy filing and total $425 million, Picard said.

Hedge Fund

Harley International, a hedge fund run by Cayman Island- based Euro-Dutch Management Ltd., withdrew the $425 million from “which it knew or should have known was non-existent principal and other investors’ money,” according to the bankruptcy court filing. Harley should have known “that Madoff was engaged in fraud,” according to the complaint.

At least 148 “purported trades” were listed on Harley International account statements from 1998 to 2008, according to the complaint.

The case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net

Last Updated: May 14, 2009 13:41 EDT