A New York federal bankruptcy judge approved a request by the trustee liquidating Bernard Madoff's now-defunct brokerage to make a second distribution to victims that could be as high as $2.4 billion. The ruling by United States District Judge Burton Lifland clears the way for victims holding approved claims to receive a payment representing approximately 33.5% of their net investment with Madoff. The expected distribution will dwarf the roughly 4% payment made last year that saw Irving Picard, the court-appointed trustee, unable to distribute a majority of recovered funds due to pending legal challenges. If the timetable of the previous distribution serves as any guide, victims can expect to receive a payment sometime in early October.
Picard's request for a second distribution was unusual in that the exact amount of any distribution was contingent on the resolution of a new legal issue involving victims' disagreement with Picard's decision not to include interest on investor losses. These "Time-Based Damages" were not warranted, argued Picard, and certainly not at the 'statutory rate' of 9% as alleged by victims. Picard also observed that allowing Time-Based Damages would essentially reward older investors at the expense of new investors, for those holding long-term claims would recoup their principal amount at a quicker pace. Victims would also see their pro rata distribution reduced to approximately 20% of their allowed claim.
In lieu of reserving over $1 billion to account for the Time-Based Damages, Picard instead proposed a compromise in which he would reserve an amount equivalent to a 3% rate of Time-Based Damages in the event victims succeeded in their argument. This compromise would allow Picard to make a total distribution of $2.4 billion, which would represent a pro rata distribution of 33.541% of each customer's allowed claim. Based on the outstanding 1,229 allowed claims, a $2.4 billion distribution would represent an average payment of $1.975 million and would fully satisfy nearly 90% of outstanding approved claims when accounting for funds previously advanced by Picard and the Securities Investor Protection Corporation ("SIPC").
At a hearing held Wednesday morning, Judge Lifland heard argument and overruled several objections to Picard's motion. It is expected that Picard will provide guidance to victims in the near-future.
A copy of the Order is here.