As a BLMIS customer with an allowed claim, the governing SIPA statute provides you with preferred status in the hierarchy under which creditors are paid from the estate.
There are two primary reasons why significant funds are not available for distribution at this time: required reserves and ongoing appeals.
Required Customer Fund Reserves for Deemed Determined Claims
First, while the number of allowed claims is – to date – 2,495 and the dollar amount of allowed claims to date is approximately $8.0 billion, both the number of allowed claims and the dollar amount will increase. There remain 177 claims have been "deemed determined" by the SIPA Trustee; however, the final status of each claim remains contingent on the outcome of its respective litigation. If a “deemed determined” claim becomes allowed, it would become eligible for all pro rata distributions to date, currently totaling 38.158 percent of the amount of the allowed claim. For this potential scenario, the SIPA Trustee has, to date, reserved approximately $3.30 billion. The ultimate amount of additional allowed claims depends on the outcome of the litigation, and could add more than $10 billion to the total amount of allowed claims.
Court-Ordered Reserves for Time-Based Damages Issue
The United States Supreme Court announced on June 25, 2012 that it had denied two writs for certiorari that asked the Supreme Court to review the net equity methodology, thereby making the “cash-in, cash-out” formula for determining eligibility for pro rata distributions from the BLMIS customer fund a final, unappealable decision.
On July 26, 2012, the SIPA Trustee for the liquidation of Bernard L. Madoff Investment Securities LLC (“BLMIS”) filed a motion in the United States Bankruptcy Court for the Southern District of New York seeking approval for an allocation to the Customer Fund and a second pro rata interim distribution to BLMIS customers with allowed claims.
The motion requested approval from the Bankruptcy Court to allocate approximately $5.5 billion to the Customer Fund from which the distribution will be made. However, a large portion of the allocated funds would need to be held in reserve pending the resolution of objections seeking “time-based damages.”
On August 22, 2012, the Honorable Burton R. Lifland approved the motion for the allocation and distribution and ordered the SIPA Trustee to reserve 3 percent for the time-based damages issue, which allowed for the distribution of approximately 33.5 percent of the allowed claim amount of each individual account, unless the claim is fully satisfied. The second pro rata interim distribution, which totals approximately $2.594 billion to date, commenced on September 19, 2012, with a record date of September 12, 2012.
More than 1,240 objections have been filed relating to the time-based damages issue. On January 23, 2013, the United States Bankruptcy Court issued an amended time-based damages scheduling order setting forth the briefing schedule for the time-based damages issue. Briefing will extend through the spring of 2013, with a hearing before the Bankruptcy Court to be determined by the Court after April 26, 2013.
Until a final, unappealable order is reached on the issue of time-based damages, the SIPA Trustee must hold a 3 percent court-ordered reserve of approximately $1.3 billion.
Other Customer Fund Required Reserves
As of January 23, 2013, approximately $240 million must be reserved in the Customer Fund for certain deferred payments, unallocated funds and other matters related to the liquidation.
Amount Unavailable to the Customer Fund Due to Required Reserves and Appeals
Portions of recoveries and settlement agreements have not yet been collected, due to appeals, the timing of payments of certain settlement monies and other issues. Therefore, these funds cannot be either allocated to the Customer Fund or distributed to BLMIS customers with allowed claims until these issues are resolved. Required reserves include the $1.025 billion Tremont settlement and the $220 million settlement with the Norman F. Levy family, which has been appealed. Also, approximately $218.2 million relating to settlement reserves and other matters must be held in reserve.