Lagging repayments deal another blow to Madoff victims
Fund paid millions to Breeden firm, zero to Ponzi targets
A firm hired by the U.S. to distribute US$4 billion to victims of Bernard Madoff’s Ponzi scheme has racked up US$38.8 million in billings over four years. The investors are still waiting for their first cheques, though.
The Justice Department disclosed its payments to Richard Breeden, the Madoff Victim Fund administrator, in response to a Freedom of Information Act request from Bloomberg News. Breeden’s fees, which are being paid from cash in the fund, cover his work through 2016.
The delay highlights how 8½ years after Madoff’s arrest investors are still scrambling to recover money from a U.S. fund that was announced with great fanfare. Victims have recovered billions of dollars from another fund, but they have yet to be made whole.
“It’s very frustrating that people are making money off us like this, using money that was recovered for victims,” said Daphne Brogdon, a Food Network personality, whose family lost about US$5 million in the Madoff scam. “They’re eating away at whatever percentage we could possibly get.”
Messages left with a representative of Breeden’s firm, RCB Fund Services LLC, weren’t returned. Justice Department spokeswoman Dawn Dearden declined to comment on the fees or claims process but pointed to information on the fund’s website.
“We now expect that the initial distribution will take place sometime in 2017 and will be larger than we originally had anticipated,” Breeden, a former chairman of the U.S. Securities and Exchange Commission, wrote on the website.
The compensation fund was created in December 2012 to repay thousands of Madoff’s victims after the U.S. seized US$2.4 billion from the estate of one of his biggest investors, the late Jeffry Picower. The fund grew by US$1.7 billion following a 2014 forfeiture deal with Madoff ’s bank, JPMorgan Chase & Co., which was accused of turning a blind eye to the scam.
Breeden, 67, estimated in February 2016 that as many as 40,000 victims would get initial payments by the end of that year. They didn’t. An update on the website in January cited the time-consuming claims process and issues with inadequate paperwork from some victims.
The Justice Department is “notoriously slow” making decisions on forfeited assets, said Jon Barooshian, a white-collar defence lawyer at Bowditch & Dewey in Boston who has dealt with forfeiture issues.
“I’m surprised it’s taking so long, but I don’t know if the fault will fall at Richard Breeden’s feet. It might be more of an internal DOJ issue,” said Barooshian, who isn’t involved in the Madoff case.
By comparison, Irving Picard, who is overseeing the liquidation of Madoff’s firm, has paid out more than US$9 billion since 2009. Picard, a lawyer at Baker & Hostetler LLP, brought a host of lawsuits to recover assets, and his fund is administered separately from Breeden’s under different U.S. laws.
Breeden will eventually make recommendations to the Justice Department’s Money Laundering and Asset Recovery Section on which claims to pay and which to deny. His firm has already been paid the US$38.8 million in fees, the Justice Department said.
Madoff, 79, pleaded guilty to fraud in 2009 and is serving a 150-year sentence. His victims lost a combined US$17.5 billion in principal, though their final account statements totalled about US$64 billion including profit from bogus trades.
Picard accepted claims only from Madoff’s direct account holders. That meant customers of so-called feeder funds, which directed cash to Madoff’s firm for years, weren’t eligible. Feeder funds could, however, file claims with Picard and repay their investors if they received payments from the trustee.
Breeden accepted claims from all Madoff investors, including feeder funds. That increased the amount of work, because Madoff ’s records don’t have any information about feeder-fund customers that could be used to verify claims.