Federal Ruling Against Investors in Feeder Funds That Lost Money to Bernie Madoff

by Mike Mintz on January 9, 2012 · 0 comments

in Securities Law

A federal district court judge dealt another blow to investors who lost money to Ponzi schemer Bernie Madoff late last week.

The judge ruled that investors in feeder funds, i.e. “third-party investors”, could not recover their money from Bernard L. Madoff Investment Securities (“Madoff”).  The investors were not protected because instead of investing their money directly with Madoff, they invested their money with the feeder funds who then took their money and placed it with Madoff.  The third party investors do have a claim against the feeder funds, and the feeder funds, as direct investors with Madoff, have a claim against Madoff.  Approximately 11,000 third-party investors are affected by this ruling.   The district court judge upheld the previous ruling of the U. S. Southern District of New York Bankruptcy Court.

So far, the bankruptcy trustee, Irving Picard, has determined that over 2,400 claims are legitimate, for a value totalling $7.3 billion.  Hundreds of claims are still pending and Madoff is believed to have stolen approximately $20 billion through his decades long Ponzi scheme. Picard has determined that at least half that amount has been recovered so far. Picard has in fact pursued some of the large feeder funds that placed investments with Madoff. One of Picard’s biggest successes came when the feeder fund Tremont Partners (which was sold to Oppenheimer, which was in turn sold to Mass. Mutual) agreed to pay the bankruptcy estate $1.0 billion in claw backs.

Picard has not fared as well in his claims against the banks who held some of Madoff’s assets like JPMorgan Chase and UBS. The court found that the Madoff estate was not the injured party. The account holders were the aggrieved party.  Picard has also pursued claims against large investors, like the owner of the New York Mets baseball team. That case is scheduled to go to trial in March 2012.In a strange twist, Major League Baseball has been lending money to the Mets’ owners to meet players’ payroll.  With Madoff litigation lurking in the shadows, the upcoming baseball season just got a lot more interesting!

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