NEW YORK (Reuters) ? Bernard Madoff's victims could get everything back that they lost, even after several legal setbacks for the trustee pursuing money on their behalf, a lawyer for the trustee said.
Irving Picard, the trustee, has approved $17.3 billion in claims for Madoff investors, and so far has recovered $8.7 billion, the majority from a single settlement.
Although it could take years, his legal team still expects investors who lost all or much of their life savings through Madoff to see big recoveries from banks and other investors that may have aided or benefited improperly from the Ponzi scheme.
"Notwithstanding certain recent court decisions, the trustee remains confident that ultimately he can pursue his causes of action against defendants who acted in bad faith, resulting in recoveries that will hopefully fully satisfy the investors with valid claims," David Sheehan, lead counsel for Picard, said in a telephone interview on Thursday.
Still, the bulk of the settlement money is tied up in litigation, and the trustee has paid out just $325 million so far. Many former Madoff customers, moreover, are older, and may not have years to wait for the trustee to recover their money.
Madoff, 73, is serving a 150-year prison term.
Prosecutors estimated his Ponzi scheme at $64.8 billion, reflecting amounts that customers supposedly held at his investment firm on November 30, 2008, eleven days before his arrest. That amount does not reflect actual customer losses, which the trustee estimates at $17.3 billion.
HARD TIMES
Picard's biggest legal setback came this week when U.S. District Judge Colleen McMahon in Manhattan dismissed some $20 billion in claims against JPMorgan Chase & Co and UBS AG, more than 90 percent of what he had sought.
McMahon ruled that Picard lacked power to pursue most of his claims against JPMorgan, once Madoff's main bank, and UBS, which provided services to funds that fed money to Madoff. She said those claims belonged to former Madoff former customers.
Employing similar reasoning, McMahon's colleague Jed Rakoff in July struck $8.6 billion of claims against HSBC Holdings Plc and others.
Picard is appealing the decisions.
The trustee was appointed by the U.S. Bankruptcy Court in Manhattan to liquidate Madoff's money management firm, Bernard L. Madoff Investment Securities LLC.
He has brought about 1,050 lawsuits seeking more than $103 billion, primarily from banks and other financial firms and funds. Roughly one-third of that sum has been thrown out in various court decisions.
"You have to go in with guns blazing to recover the maximum you can for your constituents, and perhaps hope that seeking big numbers would result in large settlements," said Stephen Lubben, a bankruptcy law professor at Seton Hall University.
So far, the biggest settlement has been a $7.2 billion agreement with the estate of former Madoff investor Jeffry Picower. Of this sum, $5 billion would be distributed by Picard to Madoff victims, and count toward the overall $8.7 billion figure. The government would distribute the remainder.
But that money is tied up in court. Other former customers call the amount too low, or fear Picard will not distribute the money fairly. Some are suing Picower's estate themselves.
"I'm very confident that the $8.7 billion will remain intact," said Sheehan, who like Picard is a partner at Baker & Hostetler. "By mid- to late next year, we should be in position to make a substantial distribution (the $5 billion)."
GREAT EXPECTATIONS
Picard is also trying to appeal a September decision by Rakoff involving owners of the New York Mets baseball team, who were also Madoff customers, that could eliminate $6.2 billion of recoveries in other cases.
And the trustee's power to bring his biggest case, a $58.8 billion lawsuit against Bank Medici AG founder Sonja Kohn and some European banks, remains up in the air, after Rakoff last month questioned Picard's authority to sue.
Helen Chaitman, who represents hundreds of former Madoff customers being sued by Picard, faulted the trustee for unrealistically building up the hopes of victims.
"By asserting claims which he clearly had no standing to sue, he engendered unrealistic expectations in a lot of fragile, elderly people," she said.
Still, lawyers said Picard has plenty of opportunity for additional recoveries.
"The trustee is still being very aggressive," said Dan Glosband, a partner at Goodwin Procter in Boston, who also represents former Madoff investors sued by Picard. "Even with these impediments, at minimum he'll probably still recover another couple of billion dollars."
(Editing by Steve Orlofsky)
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