Wall Street Speculators Seek To Profit from Madoff Victims' Losses
Offers of 30 cents on the dollar tempt investors tired of waiting for money.
Dec. 10, 2010 — -- For many of the victims of Bernard Madoff's Ponzi scheme, there is now a quick way to get some return on their lost investment.
More than 2,300 Madoff victims have had their claims to recover lost funds approved by a bankruptcy trustee, and now a handful of Wall Street bottom feeder firms are offering to buy those claims for 30 cents on the dollar. An investor who lost $100,000 would receive a check for $30,000.
The firms are betting that the Madoff investors, many of them old or infirm, are tired of waiting to get their money back – and that the firms could reap huge profits because lawsuits brought by the trustee against banks and others to recover Madoff funds will, in time, actually lead to a much more generous return.
"We have bought up tens of millions of dollars in Madoff claims from dozens of victims," said Adam Moskowitz, president of Woodbury, New York–based ASM Capital.
"Payments are made within one to three business days," reads an ASM Capital offering sent to the victims last week.
Among those considering taking the offer is 61-year old Richard Friedman, a New Jersey accountant, who lost his life savings in the Madoff scam.
"Do I want to wait maybe five years to get some money or get less up front right now to meet my everyday expenses?" Friedman asked. "Very often with bankruptcy cases you only get 10 cents on the dollar."
But in the case of Madoff, a flurry of lawsuits asking for more than $55 billion has raised the possibility that the bankruptcy trustees could return close to 100 cents on the dollar for the currently approved claims, which now total $5.8 billion. The latest suit, filed Friday against Austrian banker Sonja Kohn and others, was for the largest sum yet: $19.6 billion. Picard alleges that the "Medici Enterprise," run by Kohn, who headed Bank Medici, "masterminded a vast illegal scheme" that fed $9.1 billion of investors' money to Mr. Madoff, starting when they met in New York in the mid-1980s.
The total amount of approved claims by victims is expected to grow to about $18 billion dollars, according to a person involved in the process.
The lawyers for the bankruptcy trustee have been instructed not to publicly speculate on how much money they might recover because it could affect the market in Madoff deft.
"I'm reluctant to give you percentages or anything like that because then people start relying on that," said Stephen Harbeck, president of the Securities Investment Protection Corporation (SIPC), an industry insurance fund.
The court-appointed bankruptcy trustee, Irving Picard, declined to comment. He and his law firm, Baker & Hostetler, are billing about $2 million dollars a week for their work in tracking down the missing Madoff money. The legal fees are paid by SIPC.
To date, the trustee has collected over $2 billion from settlements, mostly with big investors who took out more money than they originally put in.
One of Madoff's biggest and wealthiest investors, 97-year old Carl Shapiro, agreed this week, with his family, to return $625 million to the victims' fund.
The trustee is currently in negotiations with the estate of Jeffry Picower, who allegedly took out $7 billion more than he originally invested.
Picower died last year.
About 16,400 claims have been filed by people seeking restitution, but so far the bankruptcy trustee has approved only 2,355. Most claims were rejected, according to Harbeck, because the investors had apparently taken more money out of their Madoff investment account than they originally put in.
According to Harbeck, the trustee has no choice but to ignore the victims' account statements and their supposed profits over the years and pay attention only to how much cash was put in, and how much was taken out.
"We don't let Bernie Madoff decide who wins or who loses in this matter," said Harbeck of SIPC. "He made up these statements out of thin air and the only realistic measure of how to measure the claims is on a net basis of money in versus money out."
Many of the victims are furious with that method of deciding claims, including Richard Friedman of New Jersey whose 85-year old mother, Shirley, has now been sued by the bankruptcy trustee for money she took out over 17 years.
"She's in poor health, she doesn't have a lot of money left, and we're very concerned that with this law suit it could literally put her out on the street," said Friedman.
Friedman said the plight of his mother may affect his decision to take the offer of $.30 on the dollar for his own account, from which he did not withdraw more than he put in.
"Now that my mother could be completely wiped out, it would give me the money to be able to take care of her," Friedman said. "What am I going to do? I'm sort of being forced against the wall."
The bankruptcy trustee and SIPC say investors have the option of applying for "hardship" status in such cases.
"No one is seeking to get blood from a stone," said Harbeck. "There are people out there who took out money to live on over a period of time, they don't have the financial wherewithal to pay it back, even if they did receive unwittingly money stolen from others."
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Nevertheless, Friedman's mother is one of hundreds of Madoff victims who have been sued by Picard in recent weeks for "clawback" money.
The clawback deadline for Picard's suits is Saturday December 11 at midnight.
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