The Trustee for the liquidation of Bernard L Madoff Investment Securities (BLMIS), is seeking the release of USD1.249 billion out of a total USD1.499 billion being held in reserve under a September 2012 Bankruptcy Court order.
A hearing has been scheduled for Thursday, 28 May, 2015, when the Trustee, Irving H Picard, Securities Investor Protection Act (SIPA), will apply for an allocation of recoveries to the BLMIS Customer Fund and an authorisation for a sixth pro rata interim distribution from the Customer Fund to BLMIS customers with allowed claims.
The reserve was originally required due to ongoing litigation of the “time-based damages” issue, in which claimants asserted that they were entitled to an inflation or interest adjustment on their claims. On 20 February, 2015, the Second Circuit affirmed that claimants in the SIPA liquidation of BLMIS are not entitled to any interest or inflation adjustments on money deposited at BLMIS.
If the motion is approved, the SIPA Trustee will release USD1.249 billion of the reserved USD1.449 billion, with USD904 million available for immediate distribution to customers with allowed claims and approximately USD345 million held in reserve for claims that are “deemed determined” pending the resolution of litigation and other issues.
“The 20 February, 2015 decision by the Second Circuit was an important milestone in the SIPA liquidation of BLMIS. First, it reaffirmed the decision by the late Honourable Burton . Lifland that claimants in the SIPA liquidation of BLMIS are not entitled to time-based damages or some form of interest on the dollars deposited with BLMIS that were never invested,” says David J Sheehan, Chief Counsel to the SIPA Trustee. “Second, and most important, this decision finally allows the SIPA Trustee to ask the court for permission to release more than USD1 billion that had been held in reserve related to this matter.
“We have fought hard to resolve this issue, and the only obstacle that could stand in the way of the distribution is if defendants petition the Supreme Court to review the decision. The SIPA Trustee is hopeful that no petition will be filed by the appeal deadline in mid-May, which would cause further delay. The final resolution of the time-based damages issue will at long last permit the SIPA Trustee to make this important distribution to BLMIS customers with allowed claims.”
“This is an incredibly important moment in the Madoff Recovery Initiative,” says Picard. “In the more than 20 years this Ponzi scheme was active, some BLMIS customers never withdrew any of the money they originally deposited. Paying time-based damages, or interest, to some would deprive many of these customers of the chance to ever be made whole. My legal teams have worked hard to litigate this pivotal matter, and we hope that we can move ahead with this distribution unimpeded by any further appeals, once we have the approval of the court.”
Stephen P Harbeck, President and CEO of the Securities Investor Protection Corporation (SIPC), says: “This distribution demonstrates how the litigation in this case, with the support of SIPC and SIPC’s legal team, continues to result in real progress for real people. Madoff’s customers will receive significant recoveries of assets lost to Madoff’s theft. The recoveries for the victims, to date, far exceed the expectations that existed at the start of the case. Because SIPC pays the administrative costs, such as legal fees, 100 percent of the recovered assets will go to the victims. We applaud the SIPA Trustee, and his legal and professional teams, and we are confident that there will be additional recoveries in the near future.”
If approved, the sixth pro rata interim distribution will bring the amount distributed to eligible claimants to nearly USD8.224 billion, which includes approximately USD824.3 million in advances committed to the SIPA Trustee for distribution to allowed claimants by SIPC. The sixth pro rata interim distribution will only move forward if approved by the Bankruptcy Court and no appeal is filed.
The sixth pro rata interim distribution will result in the return of 6.883 per cent of the allowed claim amount for each individual account, unless the allowed claim has been fully satisfied. The average payment for an allowed claim issued in the sixth distribution will total approximately USD855,000. The smallest payment totals approximately USD1,082 and the largest payment is approximately USD168.5 million.
Currently, the SIPA Trustee has allowed 2,552 claims related to 2,216 BLMIS accounts. Of these accounts, 1,252 accounts will be fully satisfied following the sixth interim distribution. All allowed claims totalling USD1,126,923.91 or less will be fully satisfied. The sixth interim distribution, when combined with the five prior interim distributions, will satisfy up to 55.685 percent of each customer’s allowed claim amount unless the account is fully satisfied.
As of 14 April, 2015, the SIPA Trustee has recovered or reached agreements to recover approximately USD10.571 billion since his appointment in December 2008. These recoveries exceed similar efforts related to prior Ponzi scheme recoveries, in terms of dollar value and percentage of stolen funds recovered.
Ultimately, 100 per cent of the SIPA Trustee’s recoveries will be allocated to the Customer Fund for distribution to BLMIS customers with allowed claims.
