Selected Emails and Answers
Updated: March 20, 2014
The emails set forth below are redacted to remove information about the sender, but are otherwise actual email inquiries MVF has received along with our redacted responses. In some cases the incoming or the response may also have been shortened. We hope that they may provide guidance to counsel and others on questions that may apply to many individuals.
In submitting emails to MVF, please be aware that we may publish your inquiry and our response in redacted form in this section to assist others. In all cases, the incoming is shown in italics, and our response is shown in normal type.
E1. We are an Insurance Company based in the Isle of Man and we acknowledge we have no direct claim on the above fund but instead for the one fund we know we held that had Madoff exposure we have written to our policyholders to inform them of the fund.
This then brings a separate quandary for us in so much as we have holdings in approximately 5,000 funds and the question I have is how would we know (bearing in mind the timescales for our policyholder submitting a claim) which of those funds might have had an exposure. The way we thought of dealing with this is to see who made claims against the main liquidation scheme?
Do you know if that information is a matter of public record that we could review and cross reference to our holdings and ultimately allow us to target any correspondence to just those policyholders that held those funds?
A1. We are responding to your email to Richard Breeden, who is administering the Madoff Victim Fund on behalf of the U.S. Department of Justice. The Help Desk at RCB Fund Services LLC endeavors to assist claimants complete the process of documenting their claims, although we are unfortunately not able to answer every inquiry.
We do not have a list of all the securities, investment funds or other financial products that may have involved an investment in whole or in part in Madoff Securities. The web of investment products used to funnel cash into Madoff Securities was extensive, and to our knowledge no one knows of every such Madoff conduit product. We rely on investors or the firms through which they invested to know which of their investments became worthless due to the Madoff scheme, and to give us that information as part of a claim filing. We wish we could help you but we do not have information that would facilitate your analysis.
E2. First of all I want to thank you for the small "light spot" that you provide with the Madoff Victim Fund to private investors who lost their money in Madoff.
I have a question concerning my claim that I already sent to you last week. I invested into Madoff through the "Herald Lux fund". I already sent my claim as my former investment consultant and also my bank did not give any advices so far. In the meantime, however, they came up with an advice that customers should not hand in any claims to the "Madoff Victim Fund" as it might block the opportunity to claim other legal requirements in court proceedings that take place in Luxemburg. Unfortunately I have no more information about what kind of court proceeding take place in Luxemburg and who can claim in these. The only thing they also mentioned is that there will take place a liquidators conference in Luxemburg on the 31st of January.
Therefore I want to ask you, if you know anything about these activities in Luxemburg and if there is the thread if I claim in the Madoff Victim Fund I will not be able to claim in the bankruptcy proceeding or any other?
A2. Thank you for your kind words regarding MVF and our efforts to help the victims of the Madoff fraud recover a portion of their financial losses. We are very pleased you have already submitted a claim.
We are not experts in the laws of Germany or of Luxembourg, and we cannot advise you concerning your rights under such laws. However, we are not aware of any laws in Luxembourg, Germany or any other major nation that would disqualify you from asserting a legal claim in an insolvency proceeding solely because you received cash distributions from the United States Government.
As you know (but your investment advisor or bank may not know), the MVF is a legal entity established by the United States Department of Justice ("DOJ"). It is administered on behalf of the DOJ by Special Master Richard C. Breeden, who reports solely to DOJ. MVF has approximately $4 billion in funds that belong to the United States Government and which will be distributed under U.S. laws providing for payments to victims of certain crimes.
Most bankruptcy or other insolvency laws of which we are aware have provisions designed to prevent any person from recovering more than 100% of any debt owed to them. Thus, Luxembourg law could well have a provision requiring you to disclose any compensation you receive from any source relating to your Herald Lux investment. That would enable a liquidator to deduct payments you have already received from any monies you would otherwise be paid. Indeed, MVF has a similar requirement that reduces the claims of persons who have actually received compensation through bankruptcy proceedings or other sources for their Madoff losses by the amount of the payments. Because the funds available for compensating victims are limited, no person should recover more than what they lost.
You have submitted a claim to MVF, but the claim has not been approved, and you have not received any payment. Therefore, we do not believe that you will be prejudiced by filing a claim with MVF.
If you can recover through the Luxembourg proceedings, that is wonderful news. If you can also recover from MVF, we will be delighted to help you recover a portion of your losses.
We hope this is helpful background information.
E3. There is a section in the FAQs that says "If you are a partnership, family trust or other small investment group, your individual investors should file separately on Form IND."
Some of our clients are foundations or trusts and LLCs. While it is (in our view) quite clear that the LLC has to file itself as it is a totally separate legal entity - mostly where investing money is not the focus or the usual field of business, but those corporations do have to do something with their liquidity and often relied on their bankers' ideas.
But it is a little different with trusts: in Austria, Switzerland and as far as I know Liechtenstein (but there it is not that clear) trusts are normally incorporated as separate legal entity from a sponsor - often with the idea to support beneficiaries which are normally not themselves. These trusts usually have to be managed or administered by third party board of directors.
So - if it is the case that the sponsor bought the shares and moved the shares into the trust, it is clear that the sponsor has to file a claim. But if the trust as an entity simply was provided with money and decided itself to buy the shares it could get problematic as we have one (or maybe even more) sponsors, a trust and beneficiaries. It is possible to provide the identities of all of the above (but it would take some time).
The important question - apart from who should file the claim - if the trust files the claim itself (the board of course) offering to identify the sponsors and beneficiaries if necessary, but in due process of reviewing the claims you come to the conclusion, it would be rather the sponsor who would have to file the claim:
Will this claim be invalid and the chance for the sponsor to file its own claim over? Will there be a possibility, if deemed necessary according to the above, to change the primary claimants name during the process?
A3. MVF has a clearly stated objective to pay the "ultimate investors", not middlemen. For some trusts that may be the sponsor (for example, if the trust corpus is revocable); for other trusts it may be the beneficiaries (for example, if beneficiaries can direct their share of the trust's portfolio), and for still others it may be the trust itself (for example, if it is the multibillion dollar endowment of the Ford Foundation and the sponsor died 100 years ago).
We regret that we cannot develop detailed scenarios in advance that address how every conceivable form of trust will be treated. This will depend on the facts and the circumstances of each entity. However, in general we believe that most often the proper claimant will be the beneficiaries of the trust, not the trust itself.
There may be situations where a claim is submitted in good faith and the Special Master concludes that the wrong individual filed the claim. In these cases, the Special Master will allow a reasonable opportunity for the correct claimant to amend and re-submit the existing claim or file a substitute claim.
We hope this is useful guidance to you.
E4. Memo to Madoff Victim Fund from (ABC Fund of Funds):
Background. (ABC) operates funds of hedge funds. Some of our funds are closed-ended, meaning they do not permit redemptions by investors, while others are open-ended, meaning that they do permit periodic withdrawals by investors. Investors in our closed-ended funds all invested at the same effective date, whereas investors in open-ended funds generally invested at different times and each investor could have made multiple investments on different dates. Both types of funds aggregate investor money and invest in a broad array of underlying hedge funds and private equity funds. Certain of our funds invested, directly and/or indirectly, in (the Funds), both of which are pooled investment vehicles. Our funds' exposure to (the Funds) ranged from zero to 10% of each fund's net assets. These funds revealed in December 2008 that they had invested a portion of their assets (approximately 30%) with Madoff. Despite our due diligence efforts, we were not aware that (these Funds) were invested in Madoff. (Owner), the principal of these funds, actively concealed from investors the fact that he was investing their assets with Madoff.
We have carefully reviewed the materials on your website, including all FAQs and the instructions to the various forms. We understand that because our funds are pooled vehicles, our investors, not our funds, will be treated as potential victims for purposes of the Madoff Victim Fund (unless those investors are themselves pooled vehicles). Our goal is to help our investors to achieve any recovery to which they may be entitled, consistent with the Special Master's goal of compensating ultimate investors who were victims of the Madoff fraud.
We intend to make a filing on Form PV on behalf of those of our investors who give us permission to do so. In connection with this filing, we will provide the Special Master with copies of our statements showing the dates and amounts of each investor's subscriptions into and, where relevant, withdrawals from our funds. We will also provide documents showing the amount of each (ABC) fund's exposure to (Funds) as of December 11, 2008. We have obtained from the (Fund's) receiver documents showing the portion of (Fund) assets that were invested in Madoff.
E4A. Percentage allocations. We note that in the template for electronic filers of Form PV, column AC requires us to list the percentage of the relevant entity's assets that were allocated to the next intermediary (none of our investments were placed directly with Madoff). In the General Information tab, the rightmost column heading indicates that the percentage allocations are to be given as of 12/11/08. There is no date requirement for column AC in the Template tab. Should we assume that the percentage allocations in column AC should be as of 12/11/08 so that when combined with the flow through information on the General Information tab you are able to accurately calculate an investors exposure to Madoff as of 12/11/08? Note that because of our funds' capital and investment activities varied over time, the percentage allocation to each next intermediary entity (and ultimately to Madoff) is different on each date when an investor made new subscriptions to or withdrawals from our funds.
A4A. Our initial focus is on 12/11/2008, although there may be situations where we request information as of other dates. Data as of 12/11/2008 will be sufficient for the initial filing, but if you have data series over time we would like to see examples of that as well.
E4B. Effect of subsequent transfers. Suppose an investor in a (ABC) fund owned a limited partnership interest in our fund as of 12/11/08 but transferred that interest to an unrelated investor on 6/30/09. The original investor suffered the loss on 12/11/08 and presumably received a lower price for his interest on 6/30/09 as a result of the Madoff fraud. Is the transferor properly treated as the victim? Should we include both transferors and transferees on our Form PV and allow MVF to determine who the proper victim is?
A4B. No purchaser after 12/11/2008 is an eligible "victim".
E4C. Who can be a victim? We note the various statements in the FAQs and letter that suggest that a victim can only be the ultimate investor, not an intermediary that has pooled and invested assets from various people. We note that you have made a limited exception for pension plans that are subject to ERISA. We have many investors that are endowments, charitable foundations, and the like. May these entities make claims as victims? We do not believe it would make sense to make either the beneficiaries or donors (or other funders) of these organizations make claims. What about pension plans or other retirement schemes that are not subject to ERISA (Taft-Hartley plans, government plans, church plans, etc.)?
E4C. The definitions of who is an eligible claimant are set forth in our FAQs. Unless changed by publication in the website, these definitions apply to all claims. The exception for ERISA plans is deliberately narrow, and apart from that exception the general rules concerning who is an eligible claimant apply. If you have a special problem, send us a supplemental memo along with the claim you file and we will attempt to resolve any unique problems.
E4D. Effect of (Owner) Settlement on MVF claims. The MVF requires claimants to report the amount of recoveries from other sources that claimants have received or expect to receive. It is not clear whether potential recoveries from the settlement between the New York Attorney General and (Owner) are to be included. While the settlement is related to the Madoff fraud, the money will not come from Madoff or the Madoff estate but rather from (Owner). (Owner) is paying to settle separate securities law violations brought against him by the New York Attorney General. Should victims report the settlement? Assuming investors have to report expected settlement amounts, how much should they report? The settlement is the subject of litigation by the Madoff trustee and the outcome is unsure. There may be no recovery.
A4D. Recoveries from any source whatsoever relating to a Madoff-investment are required to be disclosed. Certainly the (Owner) settlement is a collateral recovery for purposes of MVF irrespective of the source of funds. Investors must report their maximum possible recovery from the settlement, assuming that all challenges are defeated and the settlement is implemented as it exists at present. We will update this information prior to the date of any payout from MVF. Failure to make full and complete disclosure to MVF of such recoveries will be treated as an extremely serious matter that could result in disqualification of all claims at a minimum. The completeness and accuracy of all submissions to MVF are sworn under penalty of perjury.
E4E. Opportunity to cure deficiencies. If you determine that we have not submitted sufficient documentation or have made errors in our Form PV submission, will we have an opportunity to correct such errors, assuming we have completed and submitted the form in good faith and to the best of our ability?
A4E. Yes, assuming good faith we will give filers reasonable opportunities to cure deficiencies and complete a file. Indeed, a high percentage of claims that are ultimately paid tend to contain initial deficiencies in our experience with WorldCom, Enron, Adelphia and other large fraud cases. Mr. Breeden's goal is to help real victims recover for their losses, not to exclude anyone on technicalities. However, MVF cannot pay anyone until 100% of claims have been finalized, so beyond some point further time to cure deficient filings will hold up payouts to everyone. So, the opportunity to cure deficiencies cannot be unlimited in duration.
E4F. Documentation and Investor filings on Form IND. We anticipate that many of our investors who are included on our Form PV may make their own filings on Form IND. Will these investors need to submit to MVF their own copies of the documentation that we are submitting in support of our Form PV, or may they instead rely on the documents that we have filed?
A4F. We are happy to have efficiencies wherever possible. All Form PVs and Form INDs covering the same victim will be integrated, so data does not have to be filed twice.
On behalf of Special Master Richard C. Breeden, we sincerely appreciate your efforts to help him reach as many victims as possible of the fraud at Madoff Securities. Though complex investments generate complex claims, our goal is to provide meaningful recoveries to investors who were victims of the fraud. After five years and untold hundreds of millions in legal fees around the world, approximately 75% of the claims we have received to date are from persons who still have not recovered a single dollar for their losses due to the Madoff fraud. MVF hopes to change that dynamic and help every victim of this tragedy.
E5. I am writing to request additional information regarding the documentation that investors will be required to submit in support of a claim. One of my firm's clients is a bank with customers that invested in feeder-funds to BLMIS. The bank anticipates requests from its customers for documentation regarding their investments in those funds. The actual shares of the funds were held in the name of the bank as a nominee. Per Q1.8 of the Supplemental FAQs, it appears that the bank may be considered a "pool" for purposes of the claim process. The bank anticipates providing customers that request documentation regarding investments with a letter detailing the customer's purchases and sales, and in that letter explaining that although the shares were held in the name of the bank as nominee, the customer was the beneficial owner. The letter would also set forth the information for the omnibus account through which the customers invested in the feeder funds. Would the Madoff Victim Fund consider that adequate documentation to (a) provide the necessary information for the account through which the customers invested in Fairfield and (b) verify that the customers were the beneficial owners of investments in the feeder-funds?
A5. It is difficult for us to say in the abstract whether the information you propose will be sufficient. After we review a claim and the documentation, we will be able to say if anything more needs to be provided. But the letters you describe may or may not be sufficient, depending on such factors as precision, clarity and authenticity. Obviously regulated banks and broker dealers regularly provide clients with account statements which are deemed authoritative for most purposes. The closer your client's documentation comes to a "statement" rendered by a credible institution, the more likely it will be to satisfy our needs.
As an overall matter, we do not ever rule something prospectively acceptable when we haven't seen it, and don't have the context of a specific completed claim. We would suggest that your client prepare and file the information you propose, and if we need more we will ask. Otherwise, you can send us samples of these documents using real client data and we will give you any comments we might have at that time (though we always reserve the right to request more information to validate a claim). We hope this is helpful to you.
E6. To Whom It May Concern,
We manage a pooled investment vehicle that was an indirect investor with Madoff Securities. Our pooled vehicle will submit multiple claims on behalf of its underlying investors (Form PV) utilizing MVF's electronic filing template. Supplemental Claim Filing FAQ Q1.8 seems to indicate that, where a pooled vehicle files a form PV on behalf of its investors, the actual investor must ultimately sign the claim on his/her own behalf in order to obtain a recovery.
If our pooled investment vehicle's underlying investors do not complete their own Form IND, how will MVF obtain the signatures of the underlying investors? Will our pooled investment vehicle be responsible for obtaining their signatures? Any clarification you can provide would be greatly appreciated.
A6. The pooled vehicle is not responsible for obtaining the signatures of the underlying investors. After we process the Form PV, we will send a Form IND, with the information provided in the Form PV included, to each underlying investor covered by the PV filing. The underlying investor will be required to verify the accuracy of the information or make corrections as necessary, and sign the Form in order to receive a payment.
E7. I have a question regarding the Claim Filing for Indirect Investors. If there are investors, which are foundations or companies - may they fill in the claim form on behalf of the foundation / company or does it have to be the ultimate beneficial owner? Many thanks for your reply.
A7. In general, the "ultimate investor" should file a claim on Form IND. In the case of a foundation, that may be the foundation itself if there are no "shareholders" or beneficiaries. In the case of a closely held company, it should be the shareholders themselves, unless the company invested its own capital. If it is a publicly traded company that invested corporate money, the company itself could file. We would need to know more about the entities involved to give you a more precise answer.
E8. Dear Mr. Breeden:
I am writing as the general partner of (ABC) Partners LP, a pooled investment vehicle that was invested indirectly in Madoff Securities via a levered swap contract with (Bank1) and an option contract with (Bank2). In reading your FAQ regarding eligibility, I see the footnote stating that losses on swap contracts are ineligible if the swap "did not involve an investor's cash being invested 'in' Madoff Securities". I am writing to ask you to confirm general eligibility for our individual investors, since the swap that we held with (Bank1) and the option with (Bank2) did, in fact, result in the full amount of investor cash being invested in a Madoff feeder fund and subsequently in Madoff Securities.
In our situation, the Reference Fund for the swap and option was [Fund A], a dedicated Madoff feeder, and both (Bank1) and (Bank2) invested the full amount of investor cash in [Fund A]. This position was maintained throughout the life of the swap and option contracts and was fully invested (and lost) when Madoff surrendered himself in December 2008. Therefore, the loss that our clients incurred was not merely the result of the decrease in the NAV of the reference fund. It was a result of the loss of their actual assets place by (Bank1) and (Bank2) in [Fund A] (and therefore Madoff Securities) - an investment that was made strictly as a result of our client's underlying investment in (ABC) Partners (our pooled vehicle).
I would appreciate an opportunity to discuss our eligibility with someone from your team. This was a very small fund made up of small individual investors who suffered a substantial personal loss as a result of Madoff's fraud. I believe that they meet the criteria of your overall efforts to provide a "broad and inclusive" program for asset recovery to individual victims of this fraud, and I am hopeful that we can tell them that their investments are likely eligible and that they should promptly file claims.
A8. Your email describes several swap and option contracts that investors in (ABC) Partners entered into with (Bank1) and (Bank2). You ask us to "confirm general eligibility" for the (ABC) investors.
As our Frequently Asked Questions point out, all final decisions regarding eligibility are made by the Department of Justice after reviewing Mr. Breeden's recommendations. However, the final decision is theirs alone. Thus, we cannot ever give a potential claimant any assurance regarding how a case of questionable eligibility will be resolved. Further, Mr. Breeden never even considers formulating a recommendation until we have reviewed a completed claim and all related documentation.
You have already noted the footnote in the FAQs that speaks to lack of eligibility for swap, option and other derivative instruments. While we do look to the economic substance of an investment as well as its legal form, the footnote in question is not an accident. However deserving individuals may be (and as a former SEC Chairman, Mr. Breeden cares deeply about individual investors), every program (including this one) must have definitions of which types of instruments are covered, and which types are not. Most swap contracts and other derivatives are expressly excluded from eligibility under the DOJ guidelines which govern MVF. We appreciate that some investors had more aggressive return appetites and sought to lever their investments, but most such structures fall outside of MVF's eligibility standards.
The only assurance we can give at this stage is that if the (ABC) investors do not file a claim, they cannot possibly participate in MVF. While we appreciate that preparing a claim involves a certain level of work, unless a claim is filed we cannot evaluate eligibility. Therefore, we would suggest that ABC's investors should consider filing, even though they may not ultimately be eligible. Obviously that is a decision each investor must make on their own.
E9. This is a question on behalf of an actual claimant. The FAQs do not address this question (or more generally the situation of a leveraged feeder fund, in which some of the money the feeder fund lost did not come from the fund's shareholders but rather from a lender). We believe there are many such feeder funds where some of their lost money came from lenders, not from shareholders.
We represent (a Bank), which loaned $125 million to a feeder fund called (Fund). (The Fund) took our $125 million, supplemented it with contributions from (the Fund's) shareholders, and used our money and the shareholders' money to purchase shares in another feeder called (Fund 2), which then invested all of that money in BLMIS. The money that was invested and lost in BLMIS thus consisted of $125 million from my client (Bank), plus other funds from (the Fund's) shareholders. The question we have, which is not answered in the FAQs but we believe would be useful to have added to the FAQs, is whether the victim for our $125 million is our client (the Bank) or (the Fund). The victim for the $125 million is presumably not (the Fund's) shareholders, since the $125 million did not come from the shareholders; instead the shareholders have their own claims for their own money that (the Fund) invested in (Fund 2) and thus BLMIS.
A9. As you can appreciate, the facts of each investment structure are quite important in formulating views on eligibility of a particular claimant. While we want to be as helpful as possible to victims seeking compensation from MVF, we are not in a position to give legal advice to counsel for potential applicants. Also, as you know we only make recommendations to DOJ, which makes all final decisions.
We have not seen the documents evidencing the transactions you describe, and don't know whether this transaction is part of swap or other transactions related to the commercial activities of (the Bank). As is always true, we would not formulate a recommendation on a specific claim until we have reviewed a completed filing setting forth all the facts -- including the relevant agreements in a case such as this and/or memoranda from counsel.
With that caveat, we would refer you to A17 in our FAQs, which states that "a person who lost money because a Madoff investor could not complete a ... contractual obligation is not a 'victim', as any loss they suffered came about indirectly rather than directly." Your email certainly suggests that the bank lost funds due to the inability of its borrower to satisfy the terms of its loan agreement and note. If so, the bank would be unlikely to meet the definition of a "victim" of the Madoff criminality due to the indirect nature of its loss.
We also note that A3 of our FAQs states that "You qualify as a victim if you lost your own money as a direct result of investments that were rendered worthless by the Madoff fraud." Footnote 1 to A3 explains that losses on swap contracts and other derivative contracts referencing Madoff investments are not eligible for recoveries from MVF as they were not investments "in" Madoff Securities. The text of footnote 1 explains that "if there was no investment in Madoff Securities such losses were not the direct result of the Madoff criminality." We do not see facts suggesting that your bank client made any investment in Madoff Securities, and that is a fundamental element of the eligibility standards.
A17 states "...a general creditor is also not a victim", reflecting an explicit provision in DOJ regulations. A bank that made an unsecured loan directly to Madoff Securities might be a general creditor of Madoff Securities when the loan defaulted, but as a general creditor the bank would not be eligible under DOJ regulations for a payment of remission, and it would also be excluded from a claim on the Customer Fund for Madoff Securities under SIPA. Here your client made a loan to an entity two levels removed from Madoff Securities. Thus there will be an issue of whether such an indirect lender could be any more eligible than a direct lender. However, we reiterate that we have not reviewed either a claim or the actual backup documents, and until that time we do not have any specific views.
If your client submits a claim, you are certainly free to provide us with any materials you wish analyzing the relevant issues of eligibility. We formulate recommendations only after reviewing all relevant information.
E10. I am an attorney representing a handful of Madoff victims. I want to be sure I file the correct forms on their behalf.
My client is an investment limited partnership. It did not invest its own proprietary funds. Rather, it collected investment money from various individuals which it then invested, under the name of the partnership, with a Tremont "feeder fund". Tremont of course, ultimately invested with BLMIS and was the account holder. Thus, Tremont was the only entity who "directly" invested my client's money and Tremont was the only entity with a claim in the SIPA bankruptcy estate.
When the new Madoff Victim Fund was announced I downloaded the claims forms from the website. My initial thought was that I should use the Form PV to file a claim under the name of my limited partnership client. It could then disburse any recovered funds to the individual limited partners who contributed money to the partnership. This approach seemed to fit the definition of a pooled vehicle given on the front page of Form PV, as an "entity that aggregated funds of more than one person or entity and invested those funds, in whole or in part, in Madoff Securities." However, I called the toll free number just to be sure, and the person actually told me that the Form PV is intended to cover feeder funds which took other peoples' money and invested it directly with Madoff as the customer. I was told that, in fact, the individual partners who make up my limited partnership client should file Form IND.
So, my question is straightforward: which is the correct form to file, and does it matter who is doing the filing? It makes sense to me that if each individual limited partner who makes up my client, the limited partnership, were to file a form, it should probably be the Form IND. But my client is the partnership, not the individuals, and I was hoping that the partnership could file claims on behalf of its individual partners. Is that allowed, and if so, would we then file just one Form, signed by the partnership and attaching documents showing the contributions to the partnership made by each individual partner, or does each individual partner need to file its own Form IND, signed by each one of them individually?
A10. We are sorry for any confusion that you experienced. We have tried to make the explanatory materials in our FAQs as clear as possible. Indeed, we hoped that they were inescapably clear for attorneys and other professionals. Apparently that is not the case.
Your client is not a "victim" of the Madoff crimes as the DOJ defines the term, and as required by MVF. As an investment fund, your client was investing money on behalf of its investors. As noted multiple times on our website, ONLY the "ultimate investor" (aka beneficial owner) of an indirect investment is eligible to recover from MVF. Thus, your client's investors would be potentially eligible claimants, assuming they satisfied all other requirements (including proving the amount of their loss). However, if one of your client's investors was itself another investment partnership, then the ultimate investors of the sub-partnership would be eligible. In every case the eligible claimants are the actual individuals whose money was lost, NOT any form of middleman, manager or investment intermediary.
Your client does fit the definition of a pooled vehicle. As a result, it is eligible to file a claim on Form PV on behalf of each of its underlying investors. If we receive a Form PV from your client covering each individual client, the MVF will take that information and generate a draft Form IND which we will send to the client. Each client must then review, verify and sign the claim under penalty of perjury. So, the "group" filing is translated into individual claims, some of which may be eligible, and some of which may not be eligible (for example, some of your client's investors may have been "net winners", and not eligible, while others may be "net losers", who are eligible). If your client files a Form PV, all payments will go directly to the ultimate investor. MVF will not pay any intermediaries.
Instead of the investors waiting for your client to file a Form PV, we encourage a more direct process. If your client wishes, it could simply give each of its investors the relevant data and encourage them to file their own individual Form IND (which they will ultimately have to do anyway). That way each investor knows they have a claim on file before the bar date whether or not your client actually completes a Form PV. If an individual Form IND AND a Form PV are both filed it isn't any problem, we will integrate the claim of each individual in a single file.
We hope this is helpful to you.
E11. I am the President of the General Partner of a widely diversified investment partnership that purchased its Madoff participation through a feeder fund called Greenwich Sentry, LP, which, in turn, was part of the Fairfield Greenwich fund group. The limited partnership did not have an account in its own name at Madoff Securities. Owing to the confusing layers of pooled investments, I sought the advice of our attorneys for this matter, who in turn sought your advice, and it was determined that the limited partnership should file with the Madoff Victim Fund as one investor, a pooled vehicle.
As the president of the limited partnership's General Partner, responsibility for filing the LP's claim for its losses fell to me, and I was instructed (by counsel and others) that filing for that partnership for the Madoff Victim Fund need not include each and every one of partnership's 14 Limited Partners, but only in the name of the Partnership, which has participated under its own name in every investment, including the Madoff investment and in the subsequent claim participations. Had you required the names of Limited Partners, all of whom are qualified investors under US securities laws, we would have provided them.
Having informed you of the reasoning behind the filing, we will return to familiar territory. The enclosed pages of exhibits comprise the proof of claim and include the 4 transactions of purchase and sale.
In addition to the subscription form from the original investment document, included are supporting documents and confirmation copies of the investments and withdrawals.
A11. Thank you for your letter and the pooled vehicle claim you submitted for your limited partnership. We appreciate that you received advice about the preparation of this claim from external counsel and others. Unfortunately, their advice was incorrect. We have previously given similiar advice to your counsel.
As our published materials available on this website describe, in order to recover from MVF a claimant must be a "victim" of the Madoff fraud. For purposes of MVF, the Department of Justice has decided that this includes only those persons who were the "ultimate investors". No investment intermediary fund like your limited partnership satisfies the eligiblity standard. However, your underlying 14 limited partners almost certainly are eligible. If one of your LPs was itself a fund of funds, or another investment fund, then the victims would be the underlying investors of any such fund. No entity that managed money on behalf of others is eligible under this program, and it doesn't matter whether the "ultimate investor's" money went directly into Madoff Securities, or through 6 different entities before reaching Madoff Securities.
As you know, the MVF's claims deadline has been extended until April 30, 2014. We would suggest each of your underlying investors should file a separate claim as to their investment loss. However, if your limited partnership wishes, you can also give us a list of each investor and their investment losses to convert your Form PV into a claim on behalf of each separate individual investor.
It is worth noting that the claim of each investor must show that individual's cash-in, cash-out loss attributable to Madoff. Simply showing an investor's percentage interest in the partnership and the partnership's aggregate cash-in, cash-out balance will not be sufficient. Each investor's individual loss must be documented in order to recover from MVF. We hope this is helpful to you.
E12. I represent an international financial institution and investment advisor, who I am assisting with the filing of its customer claims. To date, the advisor has submitted hundreds of claims on behalf of its customers and expects to file several hundred more claims before the April 30, 2014 deadline. I am writing to you in the hope of obtaining additional guidance on the appropriate method for supplementing the claims that the advisor has already submitted to the Special Master and to obtain other guidance.
As set forth in my previous correspondence to your help desk and agreed to by the Special Master, at this point the advisor is filing "protective" claims on its clients' behalf that it will later have to supplement with original client signatures. To do this, the advisor must individually contact its numerous customers throughout Europe which is very time consuming and expensive. Because of this, the advisor would like to obtain all information required by the Special Master from its customers at one time so that it does not have to incur the time and expense of contacting its clients multiple times. To that end, we have the following questions that we seek your guidance on:
1. Can the advisor supplement only the "signature pages" containing original customer signatures, or will the Special Master require our clients to resubmit all pages of the claim form with original signatures?
2. Are the advisor's customers required to submit a T-1 and/or T-2 form based on the terms of the settlement and transfer agreements previously provided to the Special Master? We do not think one is required because no sale or transfer of the underlying claim took place, but one can be filed if you deem it appropriate; and
3. Does the Special Master require any other information in order to determine the allowability of our client's claims?
Again, it is the advisor's intent to fully cooperate with the Special Master in all regards, and any assistance that the Special Master can provide us in streamlining the process would be immensely appreciated.
A12. We refer to your email regarding your representation of an international financial institution and investment advisory firm. We also note that the firm has to date filed several hundred claims with the Madoff Victim Fund, based in part on advice from MVF's Help Desk in our prior email to you. We appreciate all efforts to assist victims of the Madoff fraud.
After briefly reviewing the claims filed to date by the advisor, we are concerned that there seems to be a disconnect between the MVF claims process and the claims the advisor is filing. In part we are concerned that you may be interpreting the discussion of "protective" filings in our earlier email more broadly than we intended.
We wish to emphasize several points with regard to the claims that have been filed, and that may be underway.
First, given our multiple communications and published information, we assume that you appreciate that the advisor itself is not an eligible claimant. Similarly, it is not eligible to recover even if it purchases claims of its customers. Eligibility under the MVF program is limited to the actual persons whose money was lost in the fraud, and these "ultimate investors" must be able to document the loss of their own funds. We refer you to the FAQs on our website for a more definitive description of MVF's eligibility standards.
Second, many of the claims submitted by the advisor appear to be claims on behalf of investment entities that are not eligible for a claim on MVF any more than the advisor is eligible. For example, a recent claim was submitted showing the primary claimant as an entity, "ABC", with an address at the advisor. No background information is provided on ABC, though it is likely a fund rather than an individual victim.
Third, we require the name and address of each individual claimant. It is not acceptable to have a claim filed by the advisor, listing only the advisor's address, and then later to receive a signature page. While we agreed to accept "protective" claims for clients who could not be located before the claim deadline, that deadline has now been extended. We believe the extension should eliminate the need for "protective" filings. However, in any case where the advisor knows the client's identity and contact information that should be provided as part of the claim.
Fourth, your correspondence has referred to customers who do not speak English and who do not have American bank accounts. RCB Fund Services, which assists the Special Master, has processed claims from over 120 countries, and has paid hundreds of thousands of European and other non-U.S. investors through ACH and other processes. Thus, while we are sure your client is trying to help, in fact by standing between MVF and the actual investors who were victims it will ultimately slow the process. We fear some victims will be prejudiced if they rely on claims filed by the advisor, which are then rejected. We suppose you would not wish to see this either.
Fifth, a claim must include documentation of all cash investments or securities purchases by the individual victim, and all cash withdrawals, redemptions or securities sales by the same individual victim. In the ABC claim, the transaction table lists ABC as "holding" approximately 4.1% of Fund A. Fund A is listed as having purchased approximately Eur. 50,000 in shares of the Madoff feeder fund Luxalpha American Selection B on behalf of ABC. Since ABC is not an eligible claimant, knowing what its net share of Fund A's assets invested in Madoff was will not enable us to calculate the actual loss of each of ABC's underlying investors.
Finally, we note that payments from MVF will only be made directly to the actual victim, not to an entity such as the advisory firm you represent.
Our prior correspondence tried to clarify these points. We thank you again for your efforts.
E13. Thank you for your email. Please allow us to provide further clarification on the various Petition Forms IND that we have submitted.
These underlying investors have, through their respective investment holding companies (the "Claimants"), invested their own monies in investments in Fairfield Sentry Ltd, which was substantially invested in Bernard L. Madoff Investment Services LLC and was placed into liquidation after the revelation of the Madoff fraud. These claims are now being filed by the Claimants on behalf of these underlying investors (victims).
We trust the above provides further background and clarity on the basis of these claims. As you will see from the above, neither the personal investment companies nor ABC are pooled vehicles. Given the above, we would appreciate your confirmation that the Petition Form IND that we have submitted on behalf of the underlying investors are acceptable for purposes of the claims.
A13. We are sorry that thousands of inquiries from around the world have made it difficult for us to reiterate the same guidance to the same person or firm. We had thought that our response to your prior email should have made clear that the process you are following on behalf of ABC Trust Company and its subsidiary is not acceptable to MVF. As we previously advised you:
"under MVF's standards the underlying investors who lost their own money from investments that ended up at Madoff Securities are the victims and it is they and they alone who are the eligible claimants."
Our published guidance refers to the concept of the "ultimate investor" as being the person who is eligible to recover from MVF. "Intermediate" investors, such as the entities for which you have submitted claims, are simply not eligible to recover from MVF. Personal investment companies, personal holding companies, family trusts, investment partnerships, friends and family investment clubs, insurance companies, banks, trust companies, investment partnerships, mutual funds, feeder funds, UCITS, and any other entities that managed someone else's assets, or served as someone else's nominee, custodian or asset manager, are not eligible. We hope this would clarify that ABC Trust Company, its subsidiary and the personal holding companies that filed claims are not eligible.
The only persons eligible for MVF are the actual individuals whose money was stolen. The claims you filed were submitted on behalf of personal investment companies that have unidentified underlying investors. However, under MVF's standards, those investors must file in their individual capacity in order to be eligible for a recovery. On behalf of the U.S. Government, MVF is charged with making certain that recipients are not ineligible individuals. Thus, claimants must choose whether to identify themselves to MVF, in which case their claims can be considered, or to maintain their anonymity, in which case they will not be eligible to recover.
As we did in our previous email, we reiterate that we would welcome claims from the actual individuals who are the "ultimate investors". However, these individuals must make a claim in order to recover. This fairly simple concept is a core part of MVF's eligibility standards. We are sorry if our published standards and previous email advice was in any way confusing.
For any questions regarding your petitioner status, the eligibility requirements or
the claims process, please email our customer service representatives.