In December of 2008, the world learned about Bernard L. Madoff’s unprecedented fraud, a Ponzi scheme that spanned decades and defrauded customers of approximately $20 billion.
On the day the news broke, I received a call from the Securities Investor Protection Corporation (SIPC) and was asked to serve as SIPA Trustee for the liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS). The appointment was made official on December 15, 2008 by the United States District Court for the Southern District of New York.
My mandate as SIPA Trustee is to oversee the BLMIS liquidation as directed by law, to recover assets stolen in this fraud and to assemble the largest Customer Fund and General Estate possible so that all BLMIS customers and creditors, as designated by the statute, can ultimately receive some compensation for their losses as a result of this unprecedented Ponzi scheme.
I am joined in this effort by my court-appointed counsel at BakerHostetler, a team of dedicated and experienced attorneys led by partner David J. Sheehan. Together with special experts, consultants and international counsel, we are engaged in a broad range of activities required to fulfill our mission, including evaluating claims, conducting forensic analysis of years of documents, working through complex negotiations, filing and responding to motions, assembling detailed complaints and litigating them. We have worked diligently since December of 2008, laying the groundwork to ensure a maximum recovery, and as a result have positive news to report.
As of September 15, 2014:
- We have recovered or entered into agreements to recover approximately $9.840 billion; 100 percent of the recoveries will ultimately be allocated to the Customer Fund for distribution to BLMIS customers with allowed claims.
- We have distributed approximately $5.259 billion from the Customer Fund to BLMIS accountholders with allowed claims, unless already fully satisfied. Through the first pro rata interim distribution, which commenced on October 5, 2011, we have distributed approximately $517 million; through the second pro rata interim distribution, which commenced on September 19, 2012, we have distributed approximately $3.752 billion; through the third pro rata interim distribution, which commenced on March 29, 2013, we have distributed approximately $523.9 million; and through the fourth pro rata distribution, which commenced on May 5, 2014, we have distributed $352.1 million.
- As of the fourth pro rata interim distribution, customers with allowed claims will have received at least 46.059 percent of the amount of the allowed claim, unless the claim has been fully satisfied.
- We have worked with SIPC to pay the maximum SIPC advance of up to $500,000 against each allowed BLMIS claim, and to date, SIPC has committed approximately $814.2 million in cash advances to speed some financial relief BLMIS customers with allowed claims. The advances from SIPC, combined with the first three pro rata interim distributions from the BLMIS Customer Fund, have resulted in the return of more than $5.959 billion to BLMIS customers with allowed claims.
- We have also begun fulfilling another of the provisions of SIPA, under which SIPC was created, as we have commenced reimbursing SIPC for cash advanced to BLMIS customers with allowed claims. Reimbursements are only made to SIPC on fully satisfied accounts, and to date we have returned approximately $114.1 million to SIPC, leaving $700.1 million in advances outstanding – a testament to the 1,129 accounts that have been fully satisfied, and a reminder of how many more remain open and in need of additional recoveries.
- We continue working to hold entities, such as feeder funds, sophisticated investors and major banks, that knew or “should have known” a fraud was underway, accountable for their actions.
- We continue to move forward aggressively to resolve any litigation or appeals that are delaying further distributions to BLMIS customers.
- We have initiated and continue to administer a successful Hardship Program, which has to date provided relief to 454 BLMIS accountholders suffering proven hardship.
Given the size and scope of the fraud, this is extraordinary progress. And we are not done yet.
In the BLMIS Ponzi scheme, the investments and balances that appeared month after month and year after year on customer statements were fabricated. This is why the decision was made to evaluate BLMIS customer claims based on original deposits less withdrawals. That methodology was approved on March 1, 2010 by the United States Bankruptcy Court for the Southern District of New York. On August 16, 2011, the United States Court of Appeals for the Second Circuit ruled that this was not only the correct approach, but also the most equitable approach in this liquidation. On June 25, 2012, the United States Supreme Court denied two petitions for writs of certiorari that asked the nation’s highest court to review net equity, thereby upholding the Second Circuit decision on net equity.
Some BLMIS customers never withdrew the full amount of their deposits, while others unwittingly withdrew funds that were, in reality, money stolen by Madoff from other BLMIS customers. Part of my statutory mandate as the SIPA Trustee is to ask customers who withdrew more money than they deposited to return those excess funds.
We understand that some BLMIS customers who withdrew more than they deposited have extenuating financial circumstances and that returning the excess funds they withdrew may create hardship. We have a well-established and successful Hardship Program that allows us to evaluate individual circumstances and to exercise discretion on a case-by-case basis, and we urge anyone who is suffering hardship to reach out to us.
While the distributions and SIPC advances paid to BLMIS customers represent strong progress, we will continue to do all that we can to ensure a maximum recovery in this unprecedented Ponzi scheme. Please check this website from time to time, as we will do our best to keep it updated with news, developments and helpful information.
Irving H. Picard