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Madoff Investors To Get Nearly $500M In Feeder Fund Deal

17 November 2014

The trustee for notorious Ponzi schemer Bernard L. Madoff’s investment fund said Monday he has reached a deal worth nearly $500 million with a pair of feeder funds, bringing the total recoveries for defrauded investors to over $10.3 billion.

Irving H. Picard, the liquidating trustee of Bernard L. Madoff Investment Securities LLC, said the settlement with Herald Fund SPC and Primeo Fund will give Herald an allowed claim of $1.6 billion in the Madoff bankruptcy, from which $497 million in catch-up payments from four interim distributions will be paid to Madoff’s customers.

“By any measure, the settlement terms are highly advantageous, not only to BLMIS direct customers with allowed claims, but also potentially to the indirect investors in the Herald Fund,” trustee attorney Oren Warshavsky of BakerHostetler said in a statement.

The settlement payments represent 100 percent of the money paid out to Herald from BLMIS in the six years before the bankruptcy filing and around $29 million from Primeo.

The deal is subject to approval from U.S. Bankruptcy Judge Stuart Bernstein in New York.

Primeo and Herald, both of which are in liquidation in the Cayman Islands, invested heavily with Madoff and deposited more with his fund than they ultimately withdrew before BLMIS went into bankruptcy in late 2008.

The settlement will make Herald an allowed claimant that will receive further distributions alongside other Madoff investors with approved and as-yet-unsatisfied claims, according to Picard. Primeo has forfeited all claims.

Picard has so far allowed 2,528 claims related to 2,198 BLMIS accounts, of which 1,131 accounts with allowed claims of $925,000 have been fully satisfied.

After Madoff's Ponzi scheme collapsed, Picard put together a litigation program that focused on solvent entities and individuals and began extracting big-dollar settlements, especially in the first two years of the liquidation. Under rigid settlement protocols, any settling defendant had to satisfy a high percentage of the trustee's claim, and those thresholds climbed higher as he racked up more and more deals.

However, Picard has recently suffered a string of court decisions against him beginning in May, when U.S. District Judge Jed S. Rakoff handed down a defendant-friendly ruling on good faith. In June, the U.S. Supreme Court slammed the door on common-law claims against several global banks, and a week later, Judge Rakoff held that transfers between foreign BLMIS feeder funds and their institutional backers overseas could not be clawed back, a significant hindrance to any recovery from European institutional investors.

In August, the Second Circuit refused Picard's attempt to derail two investor settlements totaling $490 million with BLMIS feeder fund manager J. Ezra Merkin, who has been a primary target throughout the liquidation. A day later, Judge Bernstein gutted the trustee's $564 million adversary suit against Merkin.

Picard is represented by David J. Sheehan, Oren J. Warshavsky, Geoffrey A. North, Tatiana Markel and Dominic Gentile of BakerHostetler.

Primeo is represented by Gary S. Lee and John A. Pintarelli of Morrison & Foerster LLP. Herald is represented by Joseph Serino Jr. and David S. Flugman of Kirkland & Ellis LLP.

The case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, case number 08-01789, in the U.S. Bankruptcy Court for the Southern District of New York.