Frequently Asked Questions
Updated April 1, 2013
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► What is the Madoff Victim Fund?
So far, the U.S. Attorney's Office for the Southern District of New York (the "Office") has collected approximately $2.35 billion in forfeitures as part of the criminal proceedings in United States v. Bernard L. Madoff and related cases. The Madoff Victim Fund has been created to handle the distribution of those funds to the victims of fraud perpetrated through Bernard L. Madoff Investment Securities LLC and related companies ("BLMIS"). The Madoff Victim Fund is overseen by the U.S. Department of Justice ("DOJ") and is independent of the ongoing SIPC and bankruptcy proceedings involving BLMIS. DOJ has appointed Richard C. Breeden to serve as its Special Master for purposes of administering the distribution of forfeited funds to victims through the Madoff Victim Fund.
► What is a "forfeiture" proceeding?
Over a period of decades, Congress has enacted numerous statutes authorizing the DOJ to seek the forfeiture of assets generally representing either the proceeds of crime, or property used in the commission of crimes, to the United States. If a building, vehicle, boat, airplane or other property is used to commit eligible crimes, then (subject to certain limitations) the government can seize the asset and have it forfeited. Similarly, the cash proceeds of racketeering, narcotics trafficking, Ponzi schemes, and other criminality may also be forfeited to the United States.
In some types of cases, the proceeds of forfeitures may be used to fund law enforcement efforts. In this case, the forfeiture proceeds will be paid to the victims of the Madoff fraud.
► How do SIPC proceedings and DOJ forfeiture proceedings differ?
SIPC proceedings for failed brokerage firms
The Securities Investor Protection Corporation ("SIPC") handles the liquidation of failed securities brokerage firms like BLMIS under the federal Bankruptcy Code and specialized provisions of the Securities Investor Protection Act ("SIPA"). SIPC is an industry-funded program chartered by Congress that, when a brokerage firm is closed due to bankruptcy or other financial difficulties, works to return customers' cash, stock and other securities, and other customer property. SIPC proceedings generally utilize a trustee, who has powers under the Bankruptcy Code and SIPA to recover assets and wind up a firm.
Forfeiture proceedings through the Department of Justice
While SIPC's focus is winding up a failed brokerage, the U.S. Department of Justice and the U.S. Attorney's Office are responsible for enforcing federal criminal laws. Beginning more than 40 years ago, various federal statutes have been enacted providing for the forfeiture to the government of the proceeds of criminal activity, or of property that is used to commit crimes.
Forfeited assets (either money or specific property) become the property of the United States. Indeed, "proceeds" from criminal activities are generally deemed forfeited to the government as of the time the crime was committed, even if they are not actually recovered until later. Approximately $2.35 billion in forfeiture proceeds have already been recovered in the Madoff cases through the intense and highly successful efforts of the United States Attorney's Office for the Southern District of New York.
The Attorney General, acting through the Asset Forfeiture and Money Laundering Section of the DOJ's Criminal Division ("AFMLS"), has the authority to distribute forfeited assets to identifiable victims of the crime that produced the forfeitures. This process is known as granting "remission" of forfeiture, and it is defined in the DOJ regulations set forth in Part 9 of Title 28 of the Code of Federal Regulations, a copy of which is available on this website. However, unlike the highly structured rights of creditors under the Bankruptcy Code, the Attorney General of the United States has wide-ranging discretion on the granting of remission. Thus, decisions made to date in the BLMIS bankruptcy proceedings do not govern the handling of forfeited funds.
The Department will decide what standards it will use for eligibility to make claims on the forfeiture fund, which we are calling the Madoff Victim Fund. In addition, the Department will decide how the amount of loss of each claimant will be measured.
The bottom line is that there are two separate paths for victims of the fraud at BLMIS to recover. Every effort will be made to move the forfeiture process along as quickly as possible to add to the distributions that have already occurred in the bankruptcy proceedings.
► What is the function of the "Special Master" for DOJ in the forfeiture proceeding?
The final decision on every claim submitted to the Madoff Victim Fund will be made by a Ruling Official, who works for the Asset Forfeiture and Money Laundering Section of the DOJ's Criminal Division. However, the Special Master and his firm, RCB Fund Services ("RFS"), will carry out the day-to-day work of preparing and reviewing claims, and making recommendations to the Ruling Official. While final approvals on all aspects of the claims and distribution process will be made by DOJ, the Special Master manages the processing of claims to enable distribution of funds as rapidly as possible.
Mr. Breeden is a former Chairman of the U.S. Securities and Exchange Commission (1989-1993). Last year, he and his firm distributed approximately $728 million to over 8,500 victims of the securities fraud at Adelphia Communications Corp. The Adelphia case, which was investigated and prosecuted by the U.S. Attorney's Office for the Southern District of New York, is the largest single distribution of forfeited assets to victims in Department of Justice history, to date. Mr. Breeden and his colleagues have also handled asset distributions relating to securities frauds in the WorldCom, Enron, Bennett Funding, and other cases.
► What will the Madoff Victim Fund claims process be like? Do I have to file another claim?
The Trustee and his team in the BLMIS bankruptcy proceedings have already spent several years assembling information regarding the accounts at BLMIS. That has included extensive work to verify the cash deposits, withdrawals, and transfers in each BLMIS investment advisory account. To the maximum extent feasible, the Special Master and the DOJ intend to avoid repeating work that already has been done, so that distributions from the Madoff Victim Fund can be made as quickly as possible.
The Special Master and his team are currently working with the Trustee's team to obtain data that has been collected and analyzed, so that the Madoff Victim Fund will hopefully be in a position to utilize so-called "pre-populated" claims forms. If this approach proves feasible, we will send accountholders and other likely claimants forms that already contain account and claims information, in order to minimize the burden on Madoff victims. We will then work with claimants to correct, supplement, or confirm this claims-related information.
At present, the Special Master cannot determine what additional information, if any, we will require from each claimant or account holder. That will depend, in part, on a review of the data received from the Trustee. We will update this website promptly with information on the claims process as decisions are made. However, the team at RFS has handled distributions in many of the largest securities fraud cases over the past 20 years. Therefore, we are familiar with the process and challenges of collecting account statements and other data covering long periods of time. At the same time, if we find inconsistencies, gaps or other issues, we may need to ask for the data necessary to be certain claim amounts are measured accurately.
Some of the legal requirements for payments of remission under the laws applicable to forfeitures are different than the rules under SIPA that govern the customer fund and payments by the Trustee. For example, the forfeiture laws require that recoveries from all other sources (including payouts by the Trustee or advances from SIPC) must be deducted from claims for remission, so that no one recovers more than their fair share of the Madoff Victim Fund. The law governing forfeitures and remissions also requires that the facts underlying the claim must be certified under oath by the petitioner. Thus, there may be some additional information and certifications that will be required as the process unfolds.
► How is the Madoff Victim Fund different from the BLMIS bankruptcy proceedings? Will the Madoff Victim Fund use the "net equity" method of calculating claims?
There are a variety of legal differences between what the government can seek in a forfeiture proceeding, what a bankruptcy trustee can seek through civil litigation, or what an administrative agency like the SEC can seek as a disgorgement or penalty, even though these different types of proceedings may arise out of the same underlying conduct. Similarly, each of these different types of proceedings may define differently who is entitled to receive the assets that are recovered, and in what priorities. For example, SIPA and the Bankruptcy Code focus on payments to "customers" and "creditors" of a bankrupt entity, and establish a system for prioritizing the claims of different types of creditors. In contrast, the federal forfeiture statutes and implementing DOJ regulations focus on making payments to the "victims" of crime.
Here, the important thing for victims and other creditors to understand is that the Madoff Victim Fund will handle the independent distribution of the Madoff forfeitures only to the victims of criminal wrongdoing. In identifying eligible victims and evaluating their claims, the Madoff Victim Fund may make decisions that - although always under the forfeiture laws and regulations, and without regard to SIPA at all - arrive at the same result as the Trustee in the BLMIS bankruptcy proceedings. Or, for some victims, the result may be different.
Ultimately, the Chief of the Asset Forfeiture and Money Laundering Section ("AFMLS") of the DOJ's Criminal Division will make final decisions concerning the payouts from the Madoff Victim Fund. The criteria that will govern eligibility to make a claim, and the methodology for computing each claim, must be approved by the Office and by AFMLS. Once these decisions are approved in final written form, the Special Master will be able to communicate to each claimant how the amount of each claim will be determined. Although no decisions have yet been made, and although SIPA and its "net equity" standard are irrelevant to the forfeiture laws, it is likely that the Madoff Victim Fund will use a similar "cash-in, cash-out" approach to determining victim loss. Notwithstanding the fact that the two funds are being administered separately and under different sets of laws, both of these funds have complementary objectives. Ultimately eligible Madoff victims can benefit from both funds.
► Will the Madoff Victim Fund also bring lawsuits against BLMIS accountholders as the bankruptcy Trustee has done?
No. It is part of the powers of a bankruptcy trustee to bring actions to "avoid" certain payments or transfers that took place prior to a bankruptcy. Those legal provisions, contained in the Bankruptcy Code, are fundamental to the process of recovering "customer property" from a failed brokerage so it can be equitably distributed among the former customers of the fund. The bankruptcy Trustee has used those powers extensively in seeking to recover assets for eventual distribution in the SIPA proceedings.
As Special Master of the Madoff Victim Fund, Mr. Breeden does not have either the power of a SIPA/bankruptcy trustee, or the obligation, to bring avoidance actions. The U.S. Attorney's Office for the Southern District of New York already has recovered forfeited funds that will be distributed through the Madoff Victim Fund, and it is pursuing additional recoveries, as well, which will augment the Madoff Victim Fund. The Special Master's role is simply to recommend to the Ruling Official within DOJ which claims to accept and which to reject, in whole or in part, based on the applicable law and the DOJ's decisions in this proceeding. Our expectation is that this will allow the Madoff Victim Fund to be administered reasonably promptly and efficiently.
► If I reached a settlement with the bankruptcy Trustee, will that govern my potential recovery from the Madoff Victim Fund?
Not necessarily. Because the Madoff Victim Fund is completely separate from the SIPA process, settlement agreements previously reached by the Trustee with any party do not bind the Madoff Victim Fund. Therefore, it will be up to the Special Master in the first instance, and ultimately to the DOJ, to review any such agreements independently and decide what effect, if any, they should have on the forfeiture distribution process.
► If I was not a victim of Madoff but purchased a claim in the Madoff bankruptcy proceeding using the procedures approved by the Bankruptcy Court, will I also be able to recover from the Madoff Victim Fund?
Not necessarily. Federal law provides for the payment of forfeited funds to victims of the criminal activity, through the process of remission. With certain exceptions, applicable federal law expressly prohibits payment of remission to assignees or others who purchased claims, but were not themselves victims. Thus, not every person entitled to receive payments from the Trustee will be entitled to receive payments from the Madoff Victim Fund.
► Will there be a second "hardship program" under the Madoff Victim Fund that might make accelerated payments to me?
Probably not. We will attempt to distribute the entire Madoff Victim Fund as quickly as possible. The bankruptcy Trustee's hardship program was in part a function of the availability of SIPC advances prior to completion of the asset recovery effort. SIPC is not providing any funding to the Madoff Victim Fund, and there will most likely not be a special hardship program. Every effort will go into delivering all the funds as quickly as possible, given the facts of the case.
► Can I file a claim with the Special Master if I did not file a claim with the bankruptcy Trustee?
Yes. As noted above, these are separate funds operating under different statutes that establish eligibility. Any person or entity may file a claim with the Special Master once the claims process begins.
► If the bankruptcy Trustee denied my claim or approved it at a lesser amount than I sought, will that automatically be the same result for the Madoff Victim Fund?
Not necessarily. As noted above, the Madoff Victim Fund will operate under its own applicable laws and procedures, which have absolutely nothing to do with SIPA or the Bankruptcy Code. That being said, in general, the objectives of the bankruptcy proceeding and the forfeiture statutes are compatible, and decisions on eligibility may turn out to be the same. However, every accountholder of BLMIS will have their claim reviewed by the Special Master, and ultimately disposition of claims will be finally decided by the DOJ Ruling Official.
► Will payments I received from the bankruptcy Trustee in the past reduce my claim in the Madoff Victim Fund? How about future distributions from the Trustee?
Yes, as required by the forfeiture laws, all payments already received from the bankruptcy Trustee, SIPC, or any other source in the past will reduce the amount of any victim's claim. Similarly, future recoveries will reduce the amount of any claim on the Madoff Victim Fund.
The converse is also true. Payments you receive from the Madoff Victim Fund will be deducted from your total claim in the bankruptcy proceedings. Recoveries from either fund will reduce the remaining claim of a recipient to avoid double payment, so that no one recovers more than their fair share.
We will have more information regarding the remission process after further discussions with the USAO and SIPA Trustee. Please continue to monitor this website as we will update it regularly.
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