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.

Sincerely,
RCB Fund Services, LLC Help Desk

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.

Sincerely,
RCB Fund Services, LLC Help Desk

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.

Sincerely,
RCB Fund Services, LLC Help Desk

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.

A4B. No purchaser after 12/11/2008 is an eligible “victim”.

A4C. 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.

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.

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.

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.

Sincerely,
RCB Fund Services, LLC Help Desk

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.

Sincerely,
RCB Fund Services, LLC Help Desk

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.

Sincerely,
RCB Fund Services, LLC Help Desk

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.

Sincerely,
RCB Fund Services, LLC Help Desk

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.

Sincerely,
RCB Fund Services, LLC Help Desk

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.

Sincerely,
RCB Fund Services, LLC Help Desk

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.

Sincerely,
RCB Fund Services, LLC Help Desk

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.

Sincerely,
RCB Fund Services, LLC Help Desk

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.

Sincerely,
RCB Fund Services, LLC Help Desk

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.

Sincerely,
RCB Fund Services, LLC Help Desk