Victims of Bernie Madoff should brace for yet another battle — this time over the $2.35 billion in funds collected by the Justice Department.
Victims who sold their Madoff claims to an investment firm or bank may be hit with lawsuits over who has the right to that pool of money.
“It just became a lot more complicated,” one claims trader told The Post. “We will definitely see court cases.”
At issue is the plan revealed Monday by Richard Breeden, the DOJ’s “Special Master” for doling out the $2.3 billion from the Madoff Victim Fund.
The cash is separate from the funds marshalled by Irving Picard, the trustee overseeing the bankruptcy of Bernard L. Madoff Securities. As of Nov. 15, Picard had recovered $9.5 billion of the $20 billion lost by Madoff investors.
Breeden’s plan, which is starkly different from Picard’s, has become a major source of uncertainty for Wall Streeters who bought Madoff claims looking to cash in.
Breeden announced he will only honor claims by victims, which he defines as those who invested directly with Madoff or in one of his so-called feeder funds. He will not automatically pay out third-party claims holders.
Victims can request that the Breeden funds go to third-party claims holders — but the decision is up to them, according to Breeden.
While claims holders are expected to argue that their contracts entitle them to the money, winning that argument may require a trip to the court house.
Price quotes on victims’ claims have fallen as much as 5 percent since Breeden announced his distribution plan, according to several traders.
Feeder fund claims have taken an even bigger hit, up to 15 percent, sources said.
That’s because Breeden decided that only investors in the feeder funds can file claims, instead of the funds filing on behalf of their investors. This will add 10,000 new claimants to the pool.
Claim holders contend that Breeden’s less-streamlined approach will take longer and muddle the process.
“It’s absolute chaos,” said Joseph Sarachek, a bankruptcy claims specialist with CRT Special Investments. “Nobody knows how to value claims” based on Breeden’s plan.