Ten months after the Justice Department hired an expert to distribute $2.3 billion in recovered Bernie Madoff loot, the cash is sitting in a bank account with no clear plan for it to be distributed to victims.
In fact, for burned investors of the convicted Ponzi king, it may be later rather than sooner before they are reunited with their lost investments, according to a recent update posted on the Madoff Victim Fund website.
In the controversial update, Richard Breeden, the former chairman of the Securities and Exchange Commission who was retained last December to distribute the cash, said he has not yet devised a process to determine who gets paid.
Breeden said that process “takes time” and is “more complicated” than simply paying those on the already established bankruptcy-court victims list.
Breeden posted the update, he said, because he was getting a lot of questions about when the payout would start. Instead, the update has only served to anger folks hoping for a speedier payout.
“He [Breeden] wants to start from scratch, clearly,” one investor gripped to The Post. “From a claim holders’ perspective, he’s milking this.”
Breeden — who worked in a similar capacity in the WorldCom and Adelphia bankruptcy cases — said he must first define who qualifies as a victim. That statement has some Madoff investors suffering flashbacks of the ugly clashes between so-called net winners and losers that emerged after Madoff’s arrest.
Judith Welling, 76, said it would be “strange” for Breeden to count the net winners, or those who withdrew more from the scheme than they put in, as victims in his claims process.
The Manhattan resident, who invested with Madoff along with her husband, Dewitt Baker, sold her Madoff claims last year for tax purposes, she said.
Breeden’s cash is separate from that of Irving Picard, the trustee assigned to marshal assets left behind by the bankruptcy of Bernard L. Madoff Securities.
Picard has recovered $9.35 billion of the $20 billion lost by investors in Madoff’s funds as of Aug. 20. Roughly $4.76 billion has been distributed to victims for an average recovery of 42.9 percent.
Picard fought long and hard to carve out recoveries for investors whose initial investment with Madoff was less than they withdrew. A series of court battles ended in June 2012 with the Supreme Court agreeing with Picard’s decisions.
“The apparent thing to do would be to track Picard’s formula for both who’s eligible to receive distributions and how to calculate the damage,” a professional trustee who has worked with the Justice Department told The Post.
Even if there are statutory differences that need to be hammered out over how to define a victim, “you work out the technicality a month after you get the money,” this expert said. “What’s taking so long?”
Breeden didn’t return a call for comment. A spokeswoman for US Attorney Preet Bharara, whose office retained the 63-year-old businessman in December, declined to comment.
The bulk of the money Breeden is to distribute comes from the $7.2 billion settlement with the widow of Jeffry Picower, a large beneficiary of Madoff’s scheme. The 2010 deal, hashed out jointly by Bharara and Picard, resulted in some monies going to the DOJ.
Investors said they were hopeful things would move quickly after Breeden was retained because the complex claims data collated by Picard over the years was shared with Breeden’s office earlier this year.
Also, the DOJ put out its own update earlier this year, saying, “We expect the victims claims process to begin shortly.”
The DOJ also said it didn’t expect victims to have to resubmit claims.
Now hopes for a quick turnaround are dwindling. And some investors are worried they will be cut out entirely.
For example, institutions that bought claims from burned investors, including many hedge funds, have been warned that they may not be counted as victims, sources said.