* Traders court Madoff customers for right to recoveries
* Some Madoff victims sell claims for immediate cash
* Prices bounce around amid thin trading
* Traders watch court rulings for impact on claims prices
By Caroline Humer and Sue Zeidler
May 30 (Reuters) – After Bernard Madoff’s fraud unraveled in
late 2008, Yale Fishman was courted by Wall Street traders
seeking to buy his claim to assets that could be recovered from
the mess. After three years of ignoring their calls, he finally
said yes.
Fishman, an estate planner in Woodmere, New York, and a
former Madoff investor, cut a deal with a trading firm to sell
part of his bankruptcy claim in the long-running case. He said
he sold his $1.1 million claim for $800,000, or about 73 cents
on the dollar, in late December.
“I held it for a while, but they keep calling you up and
soliciting you,” he said. “And I figured I should sell it
because I was planning for my kids,” said Fishman, whose sale
could not be independently verified.
As in many bankruptcies, the collapse of Madoff’s financial
empire spawned a mini-market of trading in the rights to any
potential recoveries. Bankruptcy claims trading in the Madoff
case has moved in fits and starts since Madoff was arrested,
with claims currently trading in the range of 60 cents on the
dollar, according to levels quoted by traders.
Recent setbacks by the court-appointed trustee trying to
recoup assets on Madoff victims’ behalf – combined with
frustration over the trustee’s legal and other fees, which to
date total more than $550 million and counting – are encouraging
some former Madoff customers to unload their claims. Most
original Madoff claims sellers are ordinary investors, not the
lenders, debt holders or vendors who are the typical sellers in
other claims-trading situations.
A bankruptcy claim is essentially an IOU that gives the
holder the right to a portion of any assets later recovered. The
seller gets cash upfront rather than potentially waiting years
for a payback, while the buyer – typically a hedge fund or bank
– pays a discount to the face value of the claim in hopes of
ultimately recouping more.
Claims trading has long been a Wall Street niche. Past
examples of significant claims-tradings markets include those
stemming from the collapse of Enron Corp. and Lehman Brothers
Holdings Inc. More recently, buyers have been snatching up MF
Global Holdings Ltd customer claims.
While claims trading is always a bet on the value of the
bankrupt estate, trading in Madoff claims has become almost a
pure bet on what the trustee, lawyer Irving Picard, can recover
through his myriad court battles.
So far, Picard has won settlements of $9.1 billion through
lawsuits against groups and individuals he has accused of
turning a blind eye to Madoff’s crimes and profiting from his
scheme. Much of that money is tied up in litigation over payout
calculations, however, and cannot be distributed. So far, Madoff
investors have only received payments of $330 million.
Picard’s office has said Madoff customers ultimately could
get a full recovery of the more than $17 billion in approved
claims. Picard spokeswoman Amanda Remus declined to comment on
claims-trading activity or prices.
Remus said the trustee and his legal team have gotten “an
extraordinary result” through their work “in reconstructing from
nothing the facts and scope of the Madoff fraud and achieving
record recoveries.” She also said the trustee’s fees are paid
through funds from the Securities Investor Protection Corp., a
nonprofit group that charges fees to broker-dealers, not from
recoveries intended for Madoff victims.
It’s unclear how many Madoff investors have sold their
claims, or at what prices. Because Madoff’s firm, Bernard L.
Madoff Investment Securities LLC, was unwound under the auspices
of SIPC instead of through a Chapter 11 bankruptcy, there is no
legal requirement for claims trades to be made public.
Bankruptcy claims trade in an over-the-counter market made
up of small brokers who specialize in finding claims and traders
from broker-dealers such as the Seaport Group, CRT Special
Investments LLC and Macquarie Group. They call and send emails
to potential buyers about the price and size of claims being
bought and sold, meaning there are no official price quotes.
Buyers of Madoff claims have included Deutsche Bank and
hedge funds Fortress Group, Monarch Capital and Silver Point
Capital, according to traders involved in the transactions.
Fortress did not respond for comment, while Deutsche, Monarch
and Silver Point declined to comment.
PICARD’S EFFORTS
Picard’s efforts to recover funds have included lawsuits
against an array of banks, wealthy individuals and Madoff family
members.
The defendants, who include Madoff’s brother, Peter, and son
Andrew, have countered that they, too, were betrayed by Madoff
and that the trustee waited too long to bring some of his
claims. Picard expanded his lawsuit, filed in U.S. Bankruptcy
Court in Manhattan, against the family members earlier this
month to $255 million, from $226 million.
In one of his earliest and biggest successes, Picard won
approval in January 2011 of a $7.2 billion settlement with
Madoff investor Jeffry Picower. Optimism among traders grew that
the payback for claims holders would be large, and Madoff claims
at that point traded above 70 cents on the dollar, according to
traders who have tracked the prices.
“People thought he was going to roll through this,” Joseph
Sarachek, managing director at CRT, said of Picard.
Then, in September 2011, the trustee sustained some big
setbacks, triggering a drop in claims prices to the
mid-50-cents-on-the-dollar range, according to traders. U.S.
District Court Judge Jed Rakoff in New York ruled that Picard
could only reach back to the last two years of the fraud in
pursuing his “clawback” lawsuits against Madoff customers who
withdrew more money from their accounts than they had deposited.
The judge was considering whether Picard could seek funds
from New York Mets owners Fred Wilpon and Saul Katz, who were
investors with Madoff, and the ruling limited the trustee’s
potential recoveries. The Mets owners later settled litigation
brought by the trustee.
In November, another federal judge in Manhattan threw out
most of the trustee’s nearly $20 billion lawsuit against
JPMorgan Chase & Co and a $2 billion case against UBS AG
.
Trading in Madoff claims can be thin, and prices have
bounced around sharply, according to market participants.
Fishman, the Madoff victim who sold a claim in December, said he
executed his trade when prices climbed from earlier levels.
Since then, prices have settled to around 60 cents on the
dollar, said Robert Gallivan, a senior managing director at
Macquarie.
But none of these price movements or legal developments
matter much anymore to Madoff investors who have shed their
claims. Selling the claims has given some victims, who had
entrusted their life savings to the man they thought was a
financial genius, a measure of closure.
“I think people understand as time goes on that this is not
a fast process,” said Burt Ross, a Madoff victim in Malibu,
California, who said he sold his claims some time ago.
