Irving Picard, the court-appointed trustee tasked with dismantling Bernard Madoff's massive $65 billion Ponzi scheme, submitted a filing seeking over $46 million in compensation for legal fees and expenses. The request is the seventh such filing by Picard and his firm, Baker & Hostetler ("B&H"), who have collectively billed $224 million in the ongoing liquidation of Madoff's firm, Bernard L. Madoff Investment Services ("BLMIS"). This upcoming December marks the three-year anniversary of the unraveling of Madoff's scheme.
The ninety-seven page motion covers the four-month period from February 1, 2011 to May 31, 2011, during which Picard billed 783.4 hours at an average hourly discounted rate of $765 and B&H attorneys expended 117,501.8 hours at an average discounted hourly rate of $453.80. Including expenses, the motion seeks over $46 million for fees and services. As outlined by B&H, this amount includes numerous deductions and discounts totaling millions of dollars, including over $1 million of fees and expenses voluntarily written off by B&H. Additionally, the fee request also includes a 10% public interest discount, resulting in a $5 million deduction of total fees and expenses. The Court has also ordered that 10% of each fee request be held back and remain subject to later approval by the Court.
The motion, through attached itemized summaries of time devoted to each matter, also provides a glimpse into the financial aspects of several high-profile matters that have become contentious. Examples include litigation against HSBC, the Wilpons, and ongoing 'clawback' litigation seeking the return of amounts received by investors over their principal investment. The legal fees incurred during the four-month period for each were $5,316,931, $4,109,799.50, and $9,515,373.50, respectively; this combined total of nearly $19 million accounted for nearly half of Picard's requested fees. Both HSBC and the Wilpons have sought dismissal of all or part of Picard's claims, and Picard has faced strenuous opposition to his method of determining investor claim amounts that was recently affirmed by the Second Circuit Court of Appeals. Picard has also recently filed a wave of clawback lawsuits related to his settlement with feeder fund Fairfield Sentry.
Unique to the legal services provided by Picard as compared to similar Ponzi scheme receiverships is the fact that Madoff victims will not pay one cent of any legal fees or expenses. Instead, these fees are paid by the Securities Investor Protection Corporation ("SIPC") by virtue of the fact that BLMIS, Madoff's brokerage firm, was a SIPC member. This situation is usually not the case in a typical Ponzi scheme receivership, where memberships or certifications with regulatory authorities are rare and likely perceived as risky given the underlying fraudulent nature of the scheme.
In addition to SIPC's payment of Picard's legal fees, which by comparison are roughly the same amount as the first interim distribution scheduled to be sent to investors by the end of September, SIPC has also covered investor losses of up to $500,000 as a result of its guaranty of member's customer accounts. This alone has cost SIPC nearly $700 million. Including Picard's fees to date, Madoff's scheme has now cost SIPC close to $1 billion, which some have speculated could lead to an increase in membership fees for associating brokerages and institutions. Further, the agency also faces the possibility of opening its coffers again should it reverse its previous stance that investors in Allen Stanford's alleged Ponzi scheme are not entitled to SIPC protection. The SEC has publicly voiced its opposition to SIPC's current stance, and a decision is expected by the end of September.
A copy of the Fee Motion is here.