Just about a decade after Bernard Madoff was exposed as running the biggest Ponzi scheme in history – and at a time where it feels like his successor could possibly be lingering right around the corner – the flight to recoup lost principal from his fund is carrying on and making significant headway.
Irving Picard, a New York lawyer who has been working on the liquidation of Madoff’s firm in bankruptcy court, has recovered about 70% of approved claims totaling about $13.3 billion. According to a report, he is recovering principle for investors by suing those who profited from Madoff, whether they knew about his scheme or not. He’s targeting billions more and is defying the norm: ponzi scheme recoveries generally only average 5% to 30% – and most investors are left with nothing.
Kathy Bazoian Phelps, a bankruptcy lawyer at Diamond McCarthy LLP in Los Angeles told Bloomberg: “That kind of recovery is extraordinary and atypical.”
The Madoff fraud wiped out about $19 billion that investors had “invested” with him since the 1970s. From there, it posted $45 billion in fake profits until his scheme blew up as a result of the global financial crisis in 2008. About 4800 client accounts were affected when Madoff was exposed and, as a result, he is currently serving a 150 year prison sentence. His wife was allowed to keep $2.5 million after his plea deal.
Matthew L. Schwartz, a former federal prosecutor said: “This was the biggest, longest-running and one of the more complex frauds of all times, so it’s not surprising that it’s taking a very long time to be dealt with. [Picard] has really returned unexpected amounts of money to victims.”
Picard has distributed about $11.3 billion of the $13.3 billion he’s recovered with the rest being held in reserve while the case continues to play out in courts. Eventually, the entire fund will be paid to victims. He distributes the money in chunks of several hundred million dollars at a time.
Picard’s lawyers continue to try to revive up to 80 lawsuits where he’s seeking an additional $4 billion. The suits had been thrown out two years ago, after a court found that the money was outside the trustee’s jurisdiction.
“It’s the biggest missing piece of the puzzle,” Stephen Harbeck, the chief executive officer of Securities Investor Protection Corp, told Bloomberg.
The trustee’s firm and the third-parties associated with it have been paid $1.67 billion over the last 10 years by the SIPC, not from customer funds. They have also extended a half a million dollar line of credit to victims who have been waiting for claims to be paid.
If Picard wins the cases he’s currently trying to revive, he will have brought the total recovery for victims to 91% of all lost principle – a result that is nothing short of astounding and a result that Picard called “aspirational”.
Those who have received money back, like former Food Network personality Daphne Brogdon, owe him a debt of gratitude and have been extremely thankful for his efforts.
She said: “We’re very, very grateful and thankful. I know it’s been 10 years, but it’s still so fresh for me. Sometimes I get a compliment on an outfit and I say, ‘Yeah, I bought that when I was rich.’ Now I shop at Marshalls.”
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