Irving H Picard, SIPA Trustee for the liquidation of Bernard L Madoff Investment Securities (BLMIS), has filed two motions with the US Bankruptcy Court seeking approval of recovery agreements totalling USD543m for BLMIS customers.
The motions seek court approval to settle the avoidance claims asserted by the SIPA Trustee against JPMorgan for USD325m, as well as common law claims brought separately by the SIPA Trustee and in a class action lawsuit, which mirrored the claims developed by the SIPA Trustee’s legal team, for USD218m. The SIPA Trustee’s original complaint was filed in December 2010.
Of the USD325m that JPMC will pay to the SIPA Trustee, USD50m will be given to the joint liquidators of the Fairfield Sentry Funds for distribution to the indirect investors in the Fairfield Sentry Funds, as part of the cooperative agreement reached in May 2011 to share a percentage of certain future recoveries.
“I am extremely proud of both the legal and investigative work conducted by David Sheehan, the legal team at BakerHostetler and our other advisors in uncovering and documenting the facts about JPMorgan’s relationship with Madoff,” says Picard.
Concurrently, the United States Attorney’s Office for the Southern District of New York announced a deferred prosecution agreement with JPMorgan relating to Madoff, resulting in a USD1.7bn civil forfeiture payment.
“I want to thank the Securities Investor Protection Corporation for providing the financial support that allowed us to perform the extensive investigations and legal work needed to unravel Madoff’s fraud and develop our compelling claims,” says Picard. “Most importantly, today’s settlement is a great step toward making a distribution in 2014.”
The JPMorgan settlement monies for the BLMIS Customer Fund and the Class Settlement Fund will become available once final, unappealable court orders are reached for each of the settlements. Distributions from the respective settlements will be made as soon as practicable.
JPMorgan paid USD325m to settle the SIPA Trustee’s avoidance claims as part of the compromise settlement. JPMorgan approached the SIPA Trustee several months ago seeking a negotiated resolution.
David J Sheehan, chief counsel to the SIPA Trustee, says: “As always, we must weigh the uncertainty, costs and risks of litigation versus the benefits of settlement. This compromise with JPMorgan allows us to sidestep those pitfalls while recovering additional, significant monies for the BLMIS Customer Fund, which will flow as quickly as possible to BLMIS customers with allowed claims.”
This settlement brings the SIPA Trustee’s recoveries to date to approximately USD9.783bn for the BLMIS Customer Fund, or 55.9 per cent of the estimated USD17.5bn in principal that was lost in the Ponzi scheme by BLMIS customers who filed claims.
In addition, JPMorgan has agreed to pay USD218m to settle common law claims brought by the SIPA Trustee and in a related class action lawsuit. These common law claims were developed by the SIPA Trustee and set forth in his complaint against JPMorgan in December 2010. The class action complaint alleged similar claims. The settlement of the common law claims was jointly entered into by the SIPA Trustee and the class action representatives, Paul Shapiro and Stephen and Leyla Hill, who filed two related common law class actions against JPMorgan, which were later consolidated.
If approved by the District Court, the settlement class will consist of BLMIS customers who had capital directly invested with BLMIS and had net losses, regardless of whether they filed a claim in the SIPA proceeding.
Court rulings denying the SIPA Trustee’s standing to bring common law causes of action led to the filing of the class action. The SIPA Trustee appealed to the United States Supreme Court on his right to bring common law claims against major financial institutions on 8 October 2013. As part of the settlement, the SIPA Trustee agreed to withdraw the petition in the JPMorgan case. Regardless of the outcome of that appeal, he says, the SIPA Trustee’s bankruptcy claims of approximately USD3.5bn remain outstanding against HSBC, UBS and Unicredit. Absent additional settlements, those cases will advance through the judicial process.
As part of the agreement, AlixPartners LLP will be appointed claims administrator for the Class Settlement Fund. AlixPartners serves as the SIPA Trustee’s claims agent in the SIPA liquidation of BLMIS and has access to all updated information on allowed claims and prior distributions made by the SIPA Trustee.