Madoff Trustee Wins Interest Dispute With Claim Holders

Victims of Bernard L. Madoff’s fraud can’t use the length of time they invested in his company to add interest to their claims seeking a share of about $1.4 billion in cash reserves, a judge ruled.

Using “time-based” calculations might be unfair to creditors who are at the end of the line to receive payouts and could give a windfall to claims traders who weren’t victims of Madoff’s Ponzi scheme, U.S. Bankruptcy Judge Burton R. Lifland said today in Manhattan.

Such interest would “likely have significant unintended consequences, including favoring certain investors who have already recovered their principal investments at the expense of other investors who have yet to recoup their principal,” Lifland said.

The ruling is the latest victory for Irving Picard, the trustee liquidating Madoff’s firm and repaying victims. He previously won an appeals court ruling in 2011 affirming his method of calculating losses based on the cash invested minus cash taken out, instead of the amount on customers’ final account statements, which included fake profits.

In the interest dispute, some claimants argued the time-based damages took into consideration “the economic reality of inflation” and didn’t punish earlier customers “in an arbitrary fashion,” according to the ruling.

Picard has gathered about $9.3 billion to compensate Madoff’s customers since his 2008 arrest for running the $17 billion scheme.

Madoff, 75, is serving a 150-year sentence in a federal prison in North Carolina. His fraud collapsed in 2008 when he could no longer lure new money to fund withdrawals.

The bankruptcy case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-ap-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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