World and Nation

Madoff trustee says ruling
not as bad as first thought

The trustee for Bernard L. Madoff’s fraud victims said Thursday that he had overestimated how much his recovery efforts would be affected by a court ruling this week in his case against the owners of the New York Mets.

The practical effect of the ruling, released Tuesday by Judge Jed S. Rakoff of U.S. District Court in Manhattan, will be to reduce the amount of money the trustee, Irving H. Picard, can seek in court by $6.2 billion — not by $11 billion, as the trustee’s lawyers reported Wednesday.

In his ruling in the Mets case, Rakoff allowed the trustee to seek only the return of fictional profits paid out to the Mets owners, Fred Wilpon and Saul Katz, during the two years before the Madoff fraud collapsed in December 2008.

The trustee had sought to recover fictional profits paid out in the six years before the collapse, citing provisions of New York state law that allow for a six-year recovery window. The judge also threw out the trustee’s bid to recover preference claims, the cash paid out to the team’s owners in the final 90 days of the fraud.

By reducing the time window and eliminating preference claims — actions that lawyers said would most likely apply to all the lawsuits the trustee has pending in U.S. Bankruptcy Court in Manhattan — the decision still “has significant potential ramifications that could affect recoveries as well as distributions” in the legal efforts to unwind Madoff’s epic Ponzi scheme, Picard said in a written statement released Thursday.

If the ruling had come at the onset of the fraud case, the effect would have roughly matched the estimate given Wednesday by Picard’s lawyer, David J. Sheehan. But some cases have been settled out of court and most likely will not be affected by the ruling; once those were sifted out, the effect was reduced to $6.2 billion, made up of at least $2.7 billion in fictional profits and $3.5 billion in preference claims.

It says much about the scale of the case that an adverse effect of $6.2 billion, rather than $11 billion, can be viewed with relief among lawyers trying to recover cash to repay Madoff’s victims, who claimed paper losses of almost $65 billion and cash losses of about $18 billion.

Picard has filed lawsuits seeking a total of about $100 billion from a number of giant global banks and large investors. He has previously said that any money he recovers in excess of the $18 billion in cash principal lost by many Madoff investors could be used to cover general fraud claims that can be asserted by all investors bilked by Madoff, even if they recovered all their principal before the fraud collapsed.