A decade has passed since the discovery of the Madoff Ponzi scheme, the largest financial fraud in history. Understandably, the collapse was met with heartbreak, shock, and disbelief. But just as the realizations of financial loss were taking hold, a professional recovery process was born.
The failure of the Madoff brokerage meant that, simultaneous with the FBI investigations, a special law, the Securities Investor Protection Act, was triggered. This Act gave the Securities Investor Protection Corporation (SIPC) oversight of the case, full responsibility to pay for the recovery effort, and cleared the way for a Trustee, who would have the mandate to search for and use the legal system to recover funds. The Madoff matter became the largest case in the history of SIPC and we were asked to serve as its stewards.
In the early days of the Madoff Recovery Initiative, we relied on our experience, having worked on Ponzi scheme cases in the past. Even though this was the biggest fraud of its kind ever, our goal was still the same: to recover as much as possible for investors who had not recovered their principal. But given the typical recoveries reached in past Ponzi scheme cases, we expected the recovery to be just a few cents on the dollar as we began our work.
With a team of lawyers, experts, and forensic accountants, and the support of SIPC, we began to follow the money. Reconstructing a more than 30-year fraud was a massive undertaking. But the thorough work of our team of professionals allowed us to file more than 1,000 lawsuits within two years, as mandated by law, seeking the return of those monies.
As we were assembling the cases, we also moved quickly on the claims front. Investors were hurt, families were crippled financially, and charities had been destroyed by Madoff’s deceit. Together with SIPC, in the spring of 2009 we began to speedily distribute up to the maximum $500,000 advance to all who qualified. Even if the claimant disputed what was owed, we did not hold up the initial relief. We also established early on a Hardship Program, which moved those most desperately in need to the front of the line to receive a SIPC advance. Later, the Hardship Program would allow us to consider the special circumstances of hundreds of victims and spare them litigation and the need to repay ill-gotten Madoff profits.
And one by one, as a result of settled lawsuits and negotiations, the recoveries started to come in. We reached deep into our toolkits to engineer agreements with financial institutions, feeder funds, and other sophisticated investors.
By late January 2009, the Trustee had recovered more than $865 million from several banks and other financial institutions holding BLMIS assets. By late 2010, we had recovered more than $7.3 billion. And 10 years from the discovery of the Ponzi scheme, the Madoff Recovery Initiative has reached $13.3 billion in recovered funds. The Madoff recovery team has set new records for the recovery and return of stolen funds, both in terms of percentage and dollar amounts. Every single penny that we collect goes back into the hands of BLMIS customers. The Madoff Recovery Initiative is the most successful Ponzi recovery in history.
Distributions from our Customer Fund began in 2011, following important court victories. To date, in addition to SIPC advances, we’ve made nine distributions – at least one each year -- putting more than $11.9 billion back in the pockets of swindled customers of BLMIS.
In connection with the 10 year anniversary of the revelation of the Madoff fraud, we announced that we have moved the court to allow us to make our 10th distribution. If approved, with this distribution, all allowed customer claims up to approximately $1.480 million will be paid in full, and the remaining investors will have received more than 66 percent of each allowed claim amount. This level of success was unthinkable during the first months of the recovery initiative.
Over the past 10 years, we have also changed the face of liquidation legal practice and set new precedents that will benefit victims of future financial frauds. The most significant of these legal victories is supporting the use of net equity to fairly determine the claim amounts of all investors. We believe that using the net equity method is the only way to ensure that the net losers – those who had not withdrawn more than they deposited – were treated equitably. Our methodology survived numerous legal challenges, all the way to the Supreme Court.
A related issue was whether customers are entitled to time-based damages, which would benefit customers who were invested the longest at the expense of newer customers. We maintained that any time-based damages could not come into play until all customers with approved claims have recovered 100 percent of their principal. Again, we prevailed on this important question.
Transparency has been another hallmark of our efforts. By creating the Madoff Recovery Initiative website, madofftrustee.com, we established a home for an unprecedented amount of information, including news about the case, questions, answers, and a database of more than 8,900 legal filings.
Unravelling the Madoff Ponzi scheme and seeking recoveries around the globe has been the challenge of a lifetime, and we are proud to serve as the stewards of this process. It has been a long road, and we are not done yet. Our approach has always been to leave no stone unturned. Every day, we remain mindful of why we are here, who we are working for, and what our goals are. Our partnership with SIPC on the Madoff Recovery Initiative is meant to help restore faith in the markets, and we hope that on that point we have succeeded. As always, we invite you to check back here often, as we will continue to provide the most up-to-date information possible.