A hearing has been scheduled for July 12th to determine whether Irving Picard, the court-appointed trustee liquidating Bernard Madoff's massive Ponzi scheme, may make his first distribution of money back to Madoff's defrauded investors. The motion filed by Picard and his attorneys reveals many details about the efforts thus far to recover money for the benefit of defrauded investors, and suggests that the possibility of Madoff victims receiving 100% of their allowed losses may be much greater than previously thought.
In the filing, Picard proposes making a first interim distribution of approximately 4.1% of each customer's allowed claim, along with money advanced by the Securities Investor Protection Corporation ("SIPC"). SIPC authorizes reimbursement of up to $500,000 per investor claim in a failed member broker-dealer. Thus, under the trustee's proposed plan, an investor with a $550,000 claim will receive a total of $522,500: (1) $500,000 in SIPC funds, and (2) $22,500 - 4.1% of the allowed $550,000 claim. Such a customer would thus receive approximately 90% of their allowed claim, with additional distributions exceeding the amount of the allowed claim being returned to the SIPC. As Picard's filing notes, 868 investor claims will be fully satisfied by the funds advanced to Picard by SIPC.
The calculation of the first interim distribution appears quite complex in Picard's filing. While Picard states that he would prefer to distribute $7.6 billion, which is the amount recovered to date, various appeals relating to a large amount of funds recovered mean that "instead of a 44% distribution, the Trustee is only able to make a 4% distribution at this time." The various appeals, one of which is the $5 billion settlement reached in early 2011 with the estate of Jeffrey Picower, reduce the available funds for distribution to $2.3 billion.
Additionally, the proposed interim distribution of 4.1% of allowable claims is calculated assuming that customer claims could be asserted for the balances on customer statements on November 30, 2008 - a position already rejected by the court and which Picard opposes. However, this decision has been appealed to the Second Circuit Court of Appeals, and thus Picard is not able to instead use the amount of allowed claims to date - $17.2 billion. As Picard notes, the distribution of the full amount of funds recovered to date - $7.6 billion - based on the total amount of allowed losses - $17.2 billion - would result in a 44% distribution rather than a 4% distribution, a point that Picard ensures is not lost on the Court.
Picard also reveals several other interesting tidbits in the filing. As of March 31, 2011, 16,518 customer claims had been submitted. Nearly all have been determined, with 2,409 of those claims being accepted. Over 13,000 claims were denied. Picard has also received nearly 450 claims totalling $1.7 billion on behalf of unsecured and secured creditors. None of these creditors will receive any money as part of the first interim distribution - all distributions will go to customers. Finally, it is also revealed that customers may also be eligible to receive "billions of dollars of assets relating to the fraud" that were forfeited to the Department of Justice. Picard has been appointed as the special master to determine customer eligibility to these funds.
A copy of the motion is available here.