Judge: Feeder Clients Can't Get Madoff Payouts

Jun 29 2011 | 4:07am ET

The federal judge overseeing the bankruptcy of Bernard L. Madoff Investment Securities has ruled that investors in the many feeder funds that funneled billions into Madoff's Ponzi scheme were not clients of the fraudster.

The ruling by U.S. Bankruptcy Judge Burton Lifland means that feeder fund investors aren't eligible for payments of up to $500,000 from the Securities Investor Protection Corp. Feeder fund investors account for some two-thirds of the more than 16,000 claims filed with court-appointed receiver Irving Picard, who has been denying those claims, a stance backed by both the SIPC and Securities and Exchange Commission.

Lifland ruled that only individuals with accounts in their names with Madoff's firm are eligible for the payout.

"The objecting claimants lack any of the typical traits of a customer relationship with BLMIS since they made no purchases, transacted no business, and had no dealings whatsoever with the broker-dealer," Lifland wrote. "Bestowing customer status on the objecting claimants would stretch that term wholly beyond its limits."

"It is only appropriate," Lifland added, "that the feeder funds, and not the trustee, determine the specific amounts they owe to their own customers."

Also yesterday, Lifland approved a $212 million settlement between the largest of the feeder funds, Fairfield Greenwich Group, and Picard. Under the terms of the deal, Picard dropped $212 million in claims against Fairfield Greenwich funds, which in turn have cut their claims against the Madoff estate by more than $100 million. Picard had agreed last month to a similar deal with the firm's offshore funds.


In Depth

Hedge Fund Selection: Sussex Partners’ Patrick Ghali Bullish On The Best Of The Best

Oct 2 2014 | 5:56am ET

Ten years ago, Patrick Ghali and Robin Nydes co-founded Sussex Partners with the...

Lifestyle

Griffin Donates $1M To Rauner's Illinois Gov. Campaign

Sep 22 2014 | 9:29am ET

Hedge fund billionaire Kenneth Griffin definitely has a dog in this fight. The Citadel...

Guest Contributor

Appraisal Ratio Key To Evaluating Hedge Funds And Other New Investments

Sep 29 2014 | 3:07pm ET

As a former finance professor Peter Hecht experiences heartburn every time he hears...

 

Videos

Editor's Note

    Must Attend Hedge Fund Charity Events For October

    Sep 30 2014 | 9:29am ET

    The crisp Autumnal days of October are upon us, and so are a few of the hedge fund industry’s favorite charitable events. If you have never been to Rocktoberfest, well, you are missing out. And for a quieter evening of sipping and socializing, stop by HFC’s Wine Soiree. Read more…

 

Futures Magazine

September 2014 Cover

High frequency market making

High frequency trading is not evil, it is not a conspiracy and it really is not new; it is the natural evolution of the professional trading community making markets, providing liquidity and hopefully...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.