Investors who were defrauded by Bernard L Madoff Investment Securities LLC (BLMIS) are a step closer to receiving additional funds to help offset the monies stolen from them.
Earlier this week, federal bankruptcy Judge Burton Lifland ruled that victims of the Madoff fraud were not entitled to receive money for interest or inflation adjustments to bring the amount of their lost investments into present value dollars.
Judge Lifland noted that payment of monies that included time-based factors such as interest or inflation adjustments would unfairly favor certain investors who lost their investments longer ago at the expense of reducing the amount of principle payments available to be given back to other investors. In addition, Judge Lifland noted it was not reasonable for investors to expect that their investments would be protected from inflation.
Irving Picard, the trustee who is responsible for distributing available funds to victims, has to date withheld the distribution of over $1.35 billion in available funds as a reserve for interest and inflation. Picard withheld these funds until Judge Lifland’s ruling on the interest and inflation topics, as the ruling would have affected which investors received payments and the amounts of those payments.
“[We await] a final, unappealable order from the court. When that occurs, we will seek to distribute, at the earliest possible opportunity, the funds then available to defrauded BLMIS customers with allowed claims,” noted Amanda Remus, a spokesperson for Picard.
Picard had chosen to base distributions on invested amounts rather than balances shown on account statements without the payment of interest or inflation, as account statements produced by BLMIS were largely made up.
“In this zero sum game where funds are limited, hard choices must be made,” Lifland noted. “The plain language, purpose, framework and distribution scheme of [Picard], as well as legal precedent, all support the method chosen by the trustee.”
Picard had in total roughly $9.3 billion available to distribute to victims, whose claims against Madoff currently stand at over $11 billion. The monies available for distribution are from liquidation of Madoff’s and BLMIS’s assets, as well as recoveries from payouts to investors made before Madoff’s arrest.
It was not immediately clear if those who objected to Picard’s omission of interest and inflation from payout calculations would appeal Judge Lifland’s decision, as such an appeal would likely only further delay release of remaining funds.
To date Picard has distributed approximately $5.5 billion to investors.
Bernie Madoff was arrested in December 2008 on security fraud, wire fraud, and numerous other charges. For approximately 20 years, Madoff’s investment firm operated largely using a Ponzi scheme. In the Ponzi scheme, funds given to Madoff by investors were deposited in a bank account where those funds earned a nominal rate of interest. Madoff paid profits to those early investors out of the principle investment monies given to Madoff by other investors rather than from returns through actual investment of funds.
So long as Madoff had sufficient new investors with his firm, he could continue to maintain the illusion that his firm was getting investors significant rates of return. But ultimately the “profits” he needed to pay out to investors were more than the new investment money coming in, at which time the scheme collapsed and Madoff was forced to confess the scheme to his family and investigators with the SEC.
It is unclear exactly how much money Madoff defrauded from investors, but estimates range as high as $60 billion. While early investors received back their principle investments as well as profits, many investors paid funds within six years of Madoff’s arrest were subject to lawsuits requiring that they return those funds to the trustee for equitable distribution to defrauded investors.
For his crimes, Madoff was sentenced in 2009 to 150 years in prison. Madoff was 71 years old at the time of his sentence and would be up for parole in 2139, when he would be 201 years old.
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