Madoff Trustee Advances $534 Million to Customers (Update3)

By Erik Larson

Oct. 28 (Bloomberg) -- The liquidator for Bernard Madoff’s firm approved initial repayments of $534.2 million to 1,558 victims who invested directly with the con man’s firm. Another 1,303 victims had their claims denied.

The payments are advances on the group’s allowed claims of $4.43 billion, trustee Irving Picard said today in a conference call. Verified losses from the fraud now exceed $21 billion, he said.

“We have made significant headway in recent months in processing customer claims in challenging circumstances,” said Picard, hired by the Securities Investor Protection Corp. to wind down Bernard L. Madoff Investment Securities LLC. “We are handling these claims as expeditiously as possible.”

About 16,000 have been filed since Madoff’s Dec. 11 arrest for running a $65 billion Ponzi scheme, Picard said. The sum includes more than 11,000 indirect claims from investors whose money went to Madoff through third-party entities, such as hedge funds.

Picard’s team has recovered about $1.4 billion in assets to repay victims, and filed so-called clawback lawsuits seeking the return of about $15 billion in fake profit from Madoff’s biggest investors and beneficiaries. More suits will be filed, he said. Victims with allowed claims will receive a share of the money Picard recovers.

$21.2 Billion Loss

Picard’s method for calculating claims, using cash deposits minus withdrawals, triggered objections in U.S. Bankruptcy Court in New York. Many victims want years’ worth of fake profit included in their claims. A judge will decide if his methodology is correct at a hearing scheduled for Feb. 2.

Madoff’s fraud resulted in an actual loss of $21.2 billion for 2,335 accounts, Picard said. The previous number of about $13 billion came from records in the criminal case in June and applied to fewer accounts, he said. The figure could rise as more data is uncovered.

Over the life of Madoff’s New York-based company, there were about 8,000 accounts, of which about 4,900 were active when the fraud collapsed, Picard said. More than 2,500 customers took more money than they deposited and may be sued, he said.

Review Accounts

“Over the next six to nine months, we’re going to be taking a very close look at those accounts on an individual basis,” Picard said. “We’re not going to be suing people who don’t have money.”

Picard’s team had reviewed claims as far back as 1983, and plans to review accounts from the 1970s by analyzing Madoff records on microfilm and microfiche, he said.

Madoff, 71, pleaded guilty to the fraud and is serving a 150-year sentence.

The bankruptcy case is already bigger than all 321 SIPC liquidations performed since 1970, when Congress passed the law that creating the entity, SIPC President Stephen Harbeck said. SIPC is funded by the brokerage industry.

The case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).