For the Record – June 1, 2012
Attributable to Amanda Remus, Public Relations Liaison for the SIPA Trustee & Counsel
The Madoff Recovery Initiative was the subject of a recent “Dealbook” column by Andrew Ross Sorkin in The New York Times. While we have nothing but the highest regard for both Mr. Sorkin as a financial journalist and The New York Times, we feel that Mr. Sorkin may not have had all of the facts. What is clear from the column – which discusses the success of the SIPA Trustee’s recoveries to date, the legal strategy set forth by his counsel, led by David Sheehan, and professional fees incurred for more than three-and-a-half years of hard work on the part of the SIPA Trustee and his team – is that sufficient information may not have been available to Mr. Sorkin and, as a result, important facts were missed as he prepared his piece.
In fairness to Mr. Sorkin and to the public, we would like to provide here the additional information and context regarding the matters discussed in the NYT “Dealbook” column, to help complete the record.
Distributions and Settlement Agreements
The NYT “Dealbook” column acknowledges that Irving H. Picard, SIPA Trustee for the liquidation of Bernard L. Madoff Investment Securities LLC, has recovered or reached agreements to collect more than $9 billion to date, equivalent to $7 million a day for BLMIS customers since his appointment in December of 2008.
However, the column says that, of the $9 billion recovered, Madoff victims have received “only $330 million.” This statement is only partially true, as it doesn’t include more than $800 million in SIPC advances that Mr. Picard, as SIPA Trustee, has requested and approved for distribution to BLMIS customers with allowed claims. As a result, these customers have received more than $1.1 billion in total.
The column commentary included additional uncertainty about whether or not all of the Customer Fund recoveries would eventually reach the customers. We’d like to re-affirm that every penny of recoveries for the Customer Fund will be distributed to BLMIS customers with allowed claims.
The column implies that one reason Customer Fund monies might not reach customers is that some of the settlement deals reached by the SIPA Trustee might fall through on appeal. While these appeals have unfortunately delayed distributions, none so far have been overturned and there is no reason to believe they will be.
For example, in March 2012, the Honorable John G. Koeltl of the United States District Court for the Southern District of New York entered an order upholding the SIPA Trustee’s $5 billion settlement with the estate of Jeffry Picower. In the Order, Judge Koeltl said: “The Bankruptcy Court was correct in approving the settlement with the Picower defendants that was extraordinarily beneficial to the BLMIS estate, and in enjoining claims against the Picower defendants duplicative of those brought by or which could have been brought by the Trustee.”
In fact, the truth behind the delay in additional distributions from the Customer Fund is simple: the appeals of two claimants, represented by several class-action lawyers (one of whom was quoted by Mr. Sorkin) are responsible for holding up the distribution of more than $5 billion – or more than 55 percent – of the approximately $9.1 billion in recoveries.
We are fighting to resolve these appeals. Once the courts’ rulings become final, the path will be cleared for additional distributions. We’d like to note here that the SIPA Trustee is hopeful that another significant distribution will be possible this year. Please continue to look for updates on this website: www.madofftrustee.com.
Fees and Public Interest Discount
The NYT “Dealbook” column also addresses legal fees associated with the case. As stated in the last fee application filed by the SIPA Trustee on February 17, 2012, the average hourly discounted rate for Baker Hostetler attorneys working on the Recovery Initiative – including the SIPA Trustee – is $432.93 per hour.
In addition, since the inception of this case, the SIPA Trustee and Baker Hostetler have applied a public interest discount across the board, reducing their standard billing rates by 10 percent. Combined with other fee and expense adjustments, the result is a total voluntary reduction of approximately $35 million in compensation since the SIPA Trustee and his Counsel launched their efforts over 40 months ago.
The fees charged by the SIPA Trustee and Baker Hostetler are approximately $273 million; the difference between that and the higher number cited in the NYT “Dealbook” article is the nearly three-and-a-half years of compensation to other consultants – like the claims agents, the forensic accountants and the international special counsel to the SIPA Trustee and vendors – all of whom are critical to helping the SIPA Trustee unwind the decades-long fraud perpetrated by Madoff and those who aided and abetted him.
Uncovering the machinery of the fraud and its players has required the review of millions of BLMIS documents and decades of fraudulent accounting and fabricated customer statements, intricate investigations across the globe, and the preparation of court documents on complex questions of fact and law.
Time and again, the fees requested for the BLMIS liquidation have been determined by the courts to be reasonable and fair based on the customary compensation charged by comparably skilled practitioners in bankruptcy matters as well as non-bankruptcy cases in the competitive national legal market. All of the facts associated with the applications for interim compensation are presented to the Bankruptcy Court and can be read in publicly available transcripts and in the filings themselves.
In addition, the U.S. Government Accountability Office (GAO), which examined the efforts of the SIPA Trustee in the Madoff liquidation this spring and was referenced in Mr. Sorkin’s column, also found the fees to be reasonable. Here’s what the GAO said: “The currently estimated total costs of the Madoff liquidation, as a percentage of current recoveries, are within the range of costs incurred in previous SIPC cases.”
Most important, as the column correctly notes, all of the fees and expenses are reimbursed by SIPC; none of it comes out of the more than $9.1 billion in recoveries achieved through settlements and litigation to date. In short, significant amounts are being recovered for customers at no cost to them.
The NYT “Dealbook” column also states that a number of Mr. Picard’s legal initiatives – against HSBC, JPMorgan Chase, UBS, UniCredit, among others – seeking upwards of $90 billion in additional recoveries and damages for the Madoff Customer Fund – have been rejected by the courts. The information here is, again, not complete. The SIPA Trustee is appealing all of these rulings and many of the SIPA Trustee’s lawsuits seeking billions of dollars have already been returned by the District Court to the Bankruptcy Court for litigation.
When the overall legal strategy of the SIPA Trustee is questioned in the NYT “Dealbook” column, it is important to remember that the legal mandate of the SIPA Trustee is to pursue every viable avenue to ensure a maximum recovery.
The Madoff Recovery Initiative is a global effort, spanning more than 30 international jurisdictions. The Madoff Ponzi fraud lasted decades. Our progress in less than four years has been remarkable, considering the time span and geographical scope of the fraud. The SIPA Trustee and his team have already achieved much success in this effort, both in terms of dollar value and percentage of stolen funds recovered. We will continue to be unrelenting in our efforts to build the BLMIS Customer Fund.