Just in time for Valentine's Day, the court-appointed bankruptcy trustee overseeing the aftermath of Bernard Madoff's $65 billion Ponzi scheme has sought court approval to make a third distribution to victims. Irving Picard, the bankruptcy trustee, indicated his intention in today's court filing to make payments totaling over $500 million on 1,103 claims, representing an average distribution of $457,800. If approved, the distribution would represent approximately 5% of each customer's net equity claim. Many will be happy to know that the proposed distribution comes ahead of the schedule seen in the previous two distributions, which each came in the latter half of 2011 and 2012, respectively.
Under the scenario envisioned by Picard, a total of 1,103 accounts will each receive 4.703% of their total net equity claim. Due to each eligible account already having received up to $500,000 as provided by the Securities Investor Protection Act ("SIPA"), each subsequent distribution made by Picard fully satisfies a number of claims. According to Picard, if the proposed distribution is approved, 31 customer accounts stand to receive 100% of their approved net equity claims, which would bring the total number of fully satisfied account holders to 1,106. Thus, 1,072 accounts would remain partially satisfied and eligible to participate in future distributions.
According to Picard, the total amount available for the third distribution is significantly higher than the proposed payout. Specifically, over $2.6 billion is currently available in the customer account. However, over $1.6 billion of that amount remains tied up in required reserves due to pending litigation and appeals. Of this amount, the majority is attributable to the current objection by over 1,000 investors concerning Picard's decision not to adjust the value of losses based on the amount of time each investor's funds were invested with Madoff's brokerage ("Time-Based Damages"). As ordered in the previous distribution, Picard is required to maintain 3% reserves of the potential Time-Based Damages until a final ruling is obtained.
If approved, the distribution will bring the total payouts to victims to date to $5.44 billion - nearly half of the $11.05 billion in claims allowed thus far by Picard. This statistic does not take into account the $500,000 SIPA distribution, which as mentioned has satisfied over 1,000 investor claims.
Picard also references the separate Department of Justice ("DOJ") remission proceeding, which was established to deal with the billions of dollars in forfeited assets seized by the DOJ. A remission proceeding is very similar to a claims process, and it is expected that many, if not all, of the victims currently participating in the claims process overseen by Picard will also be eligible for remission payments. Indeed, the DOJ received over $2.2 billion alone as part of Picard's $7.2 billion settlement with Jeffrey Picower, who was Madoff's largest investor. In connection with the remission proceeding, the DOJ has retained Richard C. Breeden to serve as special master. However, investors should not expect to 'profit' from both distribution processes by receiving more than their initial investment - Picard alludes that no claimant will receive more than his or her net equity claim:
Any determination as to the amounts owed to a claimant—whether a “customer” under SIPA or a “victim” under the forfeiture regulations—will take into account monies received from either fund such that no claimant receives in this SIPA proceeding more than his or her net equity claim under SIPA.
A copy of the Distribution Motion is here.
Previous Ponzitracker coverage of the Madoff scheme is here.
A transcript of a recent CNBC exclusive interview with Picard is here.