Madoff Trustee Allots $2.6 Billion for Ponzi Scheme Payouts

The trustee liquidating Bernard L. Madoff’s firm said he would allocate $2.6 billion to a fund for investors who lost money in the Ponzi scheme and pay an initial $272 million to those with approved claims.

“We can now begin to return stolen funds to their rightful owners,” the trustee’s lawyer, David Sheehan, said in a statement today. A judge must first approve the plan.

Trustee Irving Picard, who has filed more than 1,000 suits seeking money for Madoff investors, said in the statement that he had recovered $7.6 billion, or about 44 percent of the estimated principal of $17.3 billion lost in the Ponzi scheme. He and his law firm, Baker & Hostetler LLP, have requested $175.5 million in fees for their efforts.

Because of court challenges, most of the money isn’t available to put in the customer fund or distribute, Picard said. Two appeals have been filed against Picard’s $5 billion share of a settlement with the estate of Jeffry Picower, he said.

Picard’s lawsuits have targeted banks as well as individuals who invested large sums with Madoff, such as Picower and Norman Levy. JPMorgan Chase & Co. (JPM), sued for $6.4 billion for allegedly assisting the fraud, and HSBC Holdings Plc (HSBA), sued together with so-called feeder funds for $9 billion, have challenged the trustee’s right to make such fraud claims, or sue on behalf of customers.

A Manhattan judge is looking into whether Picard does or doesn’t have the right to pursue such lawsuits.

The main case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-ap-1789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.

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