Feb. 20 (Bloomberg) -- Bernard Madoff, who sent his clients thousands of receipts purporting to document their trades, has left no trace of buying any securities for customers for as much as 13 years, the trustee liquidating his securities firm said.

“We have found no evidence to indicate that securities were purchased for customers’ accounts” for “perhaps as much as 13 years,” said Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC. It was “cash in and cash out,” he said.

Picard also said he found no separation between the company’s broker-dealer division and its investment advisory unit, which prosecutors have said was at the center of an alleged $50 billion Ponzi scheme at Madoff’s New York-based firm.

“We have found nothing to suggest there was any difference, any separateness,” Picard said at a meeting today with Madoff clients in U.S. Bankruptcy Court in Manhattan. “It was all one.”

Madoff’s securities firm went into liquidation on Dec. 15, four days after Madoff was arrested for allegedly running the scheme. Picard was appointed by the Securities Investor Protection Corp., the government-sponsored group that oversees broker liquidations. He is responsible for finding assets of the brokerage and recovering them for customers.

‘Matter of Weeks’

The trustee told customers today that he wants to sell the firm’s market-making unit in “a matter of weeks.”

“That appears to have some value,” he said, adding that he has retained 45 employees to sell the unit. “We’re in the process of getting some bids.”

The unit may fetch no more than $10 million, according to Larry Tabb, founder of TABB Group, a financial-market research and advisory firm.

Picard sat at a desk before a crowd of hundreds of people in a packed auditorium at the federal courthouse, located near the southern tip of Manhattan. Customers waited 25 minutes to get past a single-file security line where they removed their belts and coats and went through a metal detector.

Creditors may file claims until July 2, though they are advised to submit forms by March 4 to be paid out of “customer property,” Picard’s Web site said. Today, he said that the July deadline is the more important one because it appears there are no securities to distribute.

Crime Scene

Madoff, 70, has been charged by federal prosecutors with one count of securities fraud. He faces as much as 20 years in prison and a $5 million fine if convicted. He hasn’t formally responded to the charges.

“We are operating out of a crime scene,” Picard said at the meeting. He added that his office has received 2,350 customer claims as of noon yesterday. Those claims exceeded about $1 billion, Picard told reporters after the meeting.

“That’s my recollection, plus or minus,” Picard said, adding, “I can’t tell you today how many of the 2,400 claims will be allowed.”

Investors will start receiving letters telling them if their claims are permitted soon, Picard said. “I do not mean months,” he said.

“Anybody who thinks he, she or it has a claim against BLMIS is urged to file that claim,” Picard said. “What we urge you to do is file a claim. We cannot make a determination in a vacuum.”

Customer claims will be capped at $500,000 for securities under the Securities Investor Protection Act, the trustee said. SIPC has about $1.6 billion in assets, $1 billion in credit available from the U.S. Treasury and another credit line from a consortium of banks. Picard doesn’t expect the claims to exhaust those funds, Picard told reporters after the meeting.

At the Warehouse

“Based on current homework, we don’t believe that will happen.”

Picard told the assembled investors that his office has located Madoff firm books and records at its Manhattan offices, the basement of its Third Avenue building, at a warehouse and at a “backup site.”

“At the warehouse, we recently inventoried approximately 7,000 boxes and that’s in addition to the file cabinets worth of materials we found at the premises and that we’ve been able to review under the watchful eye of the FBI,” Picard said. “We’re getting a feel for how this operation worked.”

Picard said he reduced overhead for the Madoff firm by about $300,000 a week. When he came in, it had about 175 or 180 employees, he told the clients. Now he has only 60, including 45 at the market-making operation, which he said are necessary.

Clawbacks

David J. Sheehan, a partner at Picard’s law firm, Baker Hostetler in New York, spoke to the audience about what he called the “dreaded clawbacks.”

He said the trustee would seek to recover money that investors withdrew over the amount they put in. “We will be seeking to recover false profits from people who received them in substantial amounts over the years,” Sheehan said. “You have to think of it this way: It’s your money.”

Picard said he would not pay out a SIPC claim if he has a potential clawback claim against the investor.

Dozens of investors asked Picard questions about the possibility of clawbacks.

“These clawbacks are making criminals out of innocent people,” a woman from the audience said.

Sheehan later said clawbacks would be determined on a case- by-case basis, taking into account such factors as the size of the investment, the time period over which any money was invested, the investor’s relationship with Madoff or other insiders and a review of account statements.

Frustration Vented

Some audience members thanked Picard, others vented their frustration on him.

“Where is our recourse?” one woman asked. “Where is our help here?”

Another investor said the Internal Revenue Service has reaped money as investors paid taxes on what turned out to be false profits.

“They are the winners; they are big winners in this,” she said.

Picard emphasized that his administrative expenses, including his salary, come from the SIPC fund, not the money and assets he recovers.

“I would hope in the recovery you look not just for artwork but I would get the furniture, his clothes, the curtains on the windows,” said Beverly Fettman.

Picard explained that Madoff’s personal effects are handled by prosecutors in the criminal case. Once they may become available, “I assure you, we are not going to waste any time,” he said.

Tax Issues

The trustee said he won’t offer advice on tax issues concerning Madoff investments. Tax treatment is up to Congress and the U.S. Internal Revenue Service, he said.

One investor at the meeting, Ron Weinstein, 61, said in an interview that he lost a “ton of money” and is in the process of selling his Manhattan apartment. He said he knew Madoff.

He was “unassuming, a very nice guy,” Weinstein said. “I feel like that was a very poor judge of character.”

Weinstein said he has “moved past what I would call the mourning period, and the acceptance of what is, and life goes on. I go forward.”

Another investor, Sharon Lissauer, a former model for Leggs pantyhose, said she put her entire inheritance from her mother in a Madoff account on Nov. 4. Less than two weeks later, she decided the money wasn’t diversified and sent a fax to retrieve a portion of the investment. She received no response.

“No matter how good it is you don’t put your eggs in one basket,” Lissauer said after the hearing. “If he would just return as much of the money as possible, I wouldn’t care if he didn’t spend a day in jail. That way investors can have a life again.”

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 reporters on this story: Carlyn Kolker in U.S. Bankruptcy Court in New York at ckolker@bloomberg.net; Thom Weidlich in New York federal court at tweidlich@bloomberg.net. To contact the reporter on this story: Oshrat Carmiel in New York ocarmiel1@bloomberg.net.

Last Updated: February 20, 2009 17:09 EST