Hedge Funds, Banks Drive Up Prices In Madoff Claims Market

Feb 14 2011 | 12:49pm ET

Competition in the secondary market for claims against fraudster Bernard Madoff is driving up prices, says one of the UK’s biggest hedge fund market makers.

"We've had these positions on our books for two years, and two years ago you couldn't get a price,” Neil Campbell, head of alternative investments at brokerage Tullett Prebon told Reuters. “Up to six months ago it's been one or two cents in the dollar, as optionality, but now it's become more serious because there's more competition.”

In the past six months, the price of holdings in Madoff feeder funds like Fairfield Sentry and Kingate has risen to 7 or 8 cents on the dollar from 1 or 2 cents, says the news agency. Buying bankruptcy claims from a direct investor with Madoff can cost 30 or 40 cents.

The market has been encouraged by the successor of Irving Picard, trustee for the Madoff bankruptcy, who has recovered about $10 billion for victims of Madoff's Ponzi scheme.

According to Campbell, distressed hedge funds, distressed desks at banks and funds of funds specializing in the secondary market are all entering the sector. And on the other side, many funds of funds are trying to dump Madoff holdings to limit damage to their reputations.

"There are a lot of vehicles globally looking at this opportunity," said Campbell. "A variety of buyers are coming in, due to the success of the trustee, who has been fairly ferocious in getting results, and the (small) amount of claims made, especially in Europe, which has created a very interesting window of opportunity."
 


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