Madoff Victim Fund

JANUARY 2017 UPDATE

from the Special Master

Since our last update, the Madoff Victim Fund (“MVF”) has been busy finalizing thousands of claims and making recommendations to the Department of Justice (“DOJ”). We were unable to initiate our first payout in 2016 as we had hoped because of the volume and complexity of claims. However, critical work has been accomplished that should put MVF in a position to be able to make a large initial distribution to victims this year.

Working on Incomplete Claims

In May of last year, our update advised that “MVF has shifted our main effort to finalizing the ‘incomplete’ claims, and then working with DOJ on actual claim decisions.” This is what we referred to then as the “decision/appeal” phase of the claim process. As of that time, MVF had made an initial review of 63,580 claims covering $67.8 billion in claimed losses. Of those, MVF determined that 30,760 claims (approximately 47% of the total number of claims submitted) were either incomplete or deficient. Another 6,200 claims involving “mixed asset” investment vehicles (“MAIVs”) required further information to calculate the eligible loss amounts. Thus, just under 37,000 of the claims were incomplete or deficient, which represented $27 billion in claimed losses.

Over the ensuing months, MVF has worked diligently and has made significant progress in finalizing the incomplete claims and calculating the appropriate loss amounts for the MAIV claims. As part of that effort, MVF sent out nearly 37,000 formal claims deficiency notices (“CDNs”) covering all of the incomplete claims.

MVF sent CDNs to all claimants who had submitted incomplete claims or had provided insufficient documentation supporting the claims. Some claims had a single deficiency that was easily curable, such as a missing signature or missing documentation for a specific investment deposit. Other claims had multiple deficiencies (including eligibility issues or loss computation issues) that have been more time-consuming to resolve. Each CDN provided notice to the recipient of the problems with the claim, and what would be necessary to cure the defects on a transaction-by-transaction basis. The CDNs generally required claimants to respond and correct the deficiencies within 45 days from the issuance date.

The deadlines for responding to the CDNs have expired for all but approximately 3,200 of the nearly 37,000 CDNs sent out. The deadlines for the remaining CDNs expire within the next 45 days. To date 16,856 (roughly 46%) claimants who received CDNs have provided MVF with supplemental information, and this resulted in more than 9,000 additional claims MVF could recommend for approval. Approximately 5,600 of the responses submitted to MVF were incomplete, and MVF is working with the claimants to resolve issues with those inadequate responses. Additionally, all but 346 of the approximately 6,200 incomplete MAIV claims have now been finalized, and the remainder should be completed shortly.

Nearly 13,000 claimants have not yet responded to the CDNs. MVF cannot assist claimants who fail to respond to the CDNs and correct the deficiencies in their claims. As the outstanding deadlines for responses to the 3,200 CDNs expire, MVF will be making its final recommendations to DOJ on those claims. Unfortunately, MVF will have no alternative but to recommend that DOJ deny incomplete or deficient claims. Therefore, if you have received a CDN and have not yet responded, we urge you to respond immediately so that your inaction does not foreclose your chance of recovering some of your losses.

Finalizing the Claims and Reporting our Recommendations

When MVF issued its last update, we envisioned submitting a single report to DOJ concerning claim recommendations. However, as we worked through the process we determined that it would be more efficient to address groups of claims that shared common characteristics in separate reports. Beginning in September of 2016, MVF began submitting formal recommendations to DOJ. We have now filed 15 reports covering more than 56,000 claims. The reports now cover 86% of all claims filed, and more than 92% ($71.848 billion of the original $77.799 billion) of the total claimed losses.

During the past few months, MVF also has mailed almost 34,000 notices to claimants seeking updated information on any collateral recoveries claimants may have received for their losses. DOJ regulations require claimants to report any monetary recoveries they have received for their losses. These may include any payments received from the Madoff Trustee, recoveries from lawsuits or settlements, proceeds from insurance claims, or reimbursements or financial recoveries from any other sources. Therefore, if you have received any payments regarding your losses after you initially filed your claim with MVF, you must provide the updated collateral recovery information to MVF before we may distribute any payments.

Next Steps

MVF must complete the review of the remaining open claims (approximately 14% of all claims) and submit our recommendations to DOJ. We are optimistic that we will be able to complete and submit our recommendations on substantially every claim by later this year.

DOJ’s “Ruling Official” will review MVF’s analysis and formal recommendations for the submitted claims and ultimately will make a final determination on every claim. Once DOJ makes a final determination on your claim, MVF will communicate with you and provide you a “final determination notice” (“FDN”). The FDN is a formal notice advising you of the outcome of your claim. If DOJ approves your claim, the FDN will also include the approved loss amount. If, for any reason, you disagree with the decision reflected in the FDN, you will have the right to file a request for reconsideration (“RFR”). The FDN notice will advise you of the deadline for filing a RFR and other requirements. Unlike the relatively generous time periods that were allowed for responding to CDNs, the time allowed for filing RFRs under the DOJ regulations is only 10 days since each claim will have already been reviewed by DOJ before the FDN was issued.

The RFR process is important and allows you to challenge the determination of your claim if you believe there has been a mistake. When you receive your FDN, please review it promptly because DOJ will strictly enforce the applicable deadlines. If you are satisfied with the FDN, you do not need to respond to it.

If a claimant files an RFR, an official at DOJ, other than the original Ruling Official, will evaluate the RFR and either affirm or modify the original Ruling Official’s decision. The length of time that DOJ will need to review the RFRs depends on how many claimants seek review of the FDNs and the complexity of their submissions. Once DOJ resolves the RFR, MVF will determine the aggregate loss amount for approved claims and compute the pro rata payout percentage for those claims.

Beginning the Payment Phase

As provided in the Plan, MVF anticipates making two or more cash distributions for approved claims. DOJ has not made final decisions regarding the number of upcoming distributions or the aggregate amount of each distribution. However, we now expect that the initial distribution will take place sometime in 2017 and will be larger than we originally had anticipated. MVF will update the website as soon as we receive additional information on the timing and amount of the first payout.

MVF remains acutely focused on completing the remaining steps in the payment process as quickly as possible to compensate victims of this unprecedented fraud.

Respectfully,

Richard C. Breeden
Special Master