Picard Makes Deal With Liquidators Of Largest Madoff Feeder Fund

May 10 2011 | 1:16pm ET

Irving Picard, the court-appointed trustee in the Bernie Madoff bankruptcy, has reached a settlement with the liquidators of three offshore funds run by Madoff's biggest feeder fund operator, the Fairfield Greenwich Group.

The agreement will see the two sides drop their multi-billion claims against each other and join forces to pursue the feeder fund’s owners.

Under the terms of the agreement, the Fairfield liquidators—Kenneth Krys and Joanna Lau—have agreed to trim $1 billion from their claims against the Customer Fund (established to distribute recovered monies to BLMIS clients), seeking instead only $230 million. They will also pay $70 million into the Customer Fund—the amount Fairfield had taken out of Madoff’s investment scheme before the whole fraud became public in December 2008.

The Fairfield liquidators have also dropped their objections to the trustee’s claims against the funds—approximately $3 billion against Sentry, $752 million against Sigma, and $53 million against Lambda—and agreed to the entry of judgments for the full amount of these claims, approximately $3.8 billion

The trustee has agreed not to seek collection of the judgments against the Fairfield Funds, which have a “limited ability to pay cash toward any judgment.”

“This agreement establishes critical precedents and creates a pragmatic model to resolve other, equally complex, feeder-fund cases,” said Thomas L. Long, a senior counsel at Baker & Hostetler. “The settlement terms also enhance the trustee’s ongoing efforts against major financial institutions which used the Fairfield Funds as vehicles to create derivative and structured investment products. While some of these financial institutions sidestepped due diligence, others performed due diligence, didn’t like what they saw, and protected their own interests. Ultimately, all of these institutions left their investors fully exposed to the fraud.”

Fairfield Sentry was the single, largest BLMIS feeder fund, with more than 95% of its investors’ cash deposited in BLMIS accounts. Sigma, a Euro-currency fund, and Lambda, a Swiss Franc currency-based fund, were 100% invested in Sentry. The Fairfield Funds were offshore funds based in the British Virgin Islands and were managed by other Fairfield Greenwich Group entities owned primarily by Walter Noel, Jeffrey Tucker and Andres Piedrahita.

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