MVF Commences its Seventh Distribution

An Additional $568.6 Million Distribution!

In its seventh major distribution (“D7”) since payouts began, MVF is paying $568.65 million to 30,539 victims of the Madoff fraud. In number of victims paid, D7 is MVF’s largest distribution yet. The Department of Justice (“DOJ”) has approved increasing the recovery percentage from all sources to 81.35 percent — up 1.3 percent from the payment level in D6 at the end of 2020. 39,494 victims of the crimes committed by Madoff have received one or more payments from MVF. MVF has now paid out $3,762,124,240, or approximately 93 percent of its assets.

MVF was created in 2013 to distribute funds forfeited to the U.S. Government to victims of the Madoff fraud. Since MVF’s claim filing deadline in 2014, DOJ has approved 42,618 claims from Madoff victims after reviewing MVF’s recommendations. Payments to victims began in November 2017, and since that time MVF has paid out an average of more than $80 million per month.

Prior to making our recommendations to DOJ, MVF evaluated over 65,000 initial claims. Determining eligibility and measuring losses required MVF to identify billions in cash that flowed through more than 1,200 investment firms or intermediaries. Tracking the cash that flowed into Madoff back to the source — real victims — was painstaking and complicated work. In most cases cash from indirect investors flowed through at least three or more different intermediaries on its way to Madoff. However, that work enabled MVF to identify the real victims, and to measure their losses accurately. This has allowed MVF to pay victims directly, rather than through feeder funds or other intermediaries. Indeed, we are very proud that every dollar we have paid to petitioners went directly to the actual victim and was not diverted for any other purpose or eroded by costly litigation.

MVF’s direct cash payments to 39,494 victims now exceed $3.762 billion. Every dollar was paid directly to victims.

As the MVF process has proceeded, we have been able to increase steadily the number of approved claims. In D7, 30,539 victims will receive a check, which is the greatest number of victims participating in a single distribution. The number of victims participating in D7 is up more than 40% since the 21,530 victims who received payments in MVF’s first distribution. Overall, since MVF’s payouts began we have averaged more than $80 million per month in payments to victims.

Resolving the Held Vehicles

At the time of D6 in December of 2020, MVF’s website noted:

“Sometime in the first half of 2021 we anticipate that decisions will be made on whether to maintain any funds for remaining HVs. Of course, we hope that these remaining HVs can all be resolved. We also know, however, that for some it may prove impossible within MVF’s timeline as we push hard to complete our work.”

For the past four years, DOJ has directed MVF to utilize payment holds where neither victims nor MVF were yet able to determine the petitioner’s likely collateral recoveries. These holds were necessary to prevent depleting MVF’s resources through excessive payments to victims who invested in Madoff through an intermediary that had not yet distributed cash recoveries to its investors. As intermediaries distributed their recoveries, the number of “held vehicles” (“HVs”) fell from 21 at D4, to 14 at D5 and to only 7 at D6 as shown in the chart.

During the first half of 2021, MVF and DOJ carefully weighed the issues involved in the petitions from investors in the remaining 7 HVs. After extensively considering relevant data on each HV and possible alternatives, DOJ reached final decisions on all the remaining HV petitions.

In resolving the HVs, several different approaches were used. In one case the HV completed its distributions, so the payment hold on those investors was lifted as occurred with the prior 14 HVs that completed their payouts. In three other cases HVs had collectively recovered hundreds of millions from MBE, which was certain to be distributed eventually. DOJ directed MVF to make payments to investors through these HVs after imputing the actual net cash recoveries of the HV from MBE to the underlying investors in proportion to their net equity in the bankruptcy proceeding, which eliminates the risk of overpayments. In three other HVs, this constructive recovery methodology could not be utilized because MBE had not yet paid out cash to the relevant HVs due to continuing litigation. DOJ determined that no further payments could be made on these incomplete claims other than bringing these investors to a modest recovery level that avoided risks of excessive payments.

In reaching these decisions, DOJ had to balance the interests of the HV petitioners in waiting longer to complete their petitions against the interests of all other victims in proceeding to MVF’s final distributions. Indefinite delay might have changed the outcome somewhat, or it might not have changed it at all. That made waiting for developments over which MVF had no control – and which might not happen for several more years – an unacceptable choice. MVF and DOJ could not allow duplicate or excessive payments to occur, as this would dilute final recoveries to all victims as well as violating U.S. law. The actual decisions on individual petitions have now been communicated to all affected victims, and all remaining vehicle holds have been eliminated.

The HV process was very successful in preventing overlapping payments between MBE and MVF, which in turn was instrumental in maximizing recoveries for all MVF victims. MVF estimates that the vehicle holds prevented as much as $540 million in excess payments that would otherwise have occurred. Absent blocking that enormous amount of overpayments, MVF would never have been able to reach an 81.35 percent payout level.
In 2021 to date DOJ has also acted on many other petitions that were among our most difficult or complicated, and decided dozens of requests for reconsideration (“RFRs”). Taken together, these actions have allowed MVF to make $492.3 million in catch-up payments as part of D7. Perhaps as importantly, resolution of the HV petitions and the recent petition and RFR decisions has helped significantly in clearing the decks for MVF’s final payouts in 2022.

MVF’s Assets and Reserves Used for D7

The chart below shows the current allocation of MVF’s cash following D7.

With completion of D7, MVF has removed many obstacles to its final payouts. However, there are still several hundred petitions and/or RFRs that must be finalized. Similarly, MVF must obtain collateral recovery updates from petitioners with recent approvals, as well as petitioners who have previously filed regular updates. Resolution of these issues may alter eligible loss totals slightly, and will also affect the allocation of remaining funds between catch-up payments and general distributions to all victims.

In any remission proceeding of this size and scale, the final payouts are dependent on resolving every outstanding RFR and all other issues. The timing of that process is difficult to predict with certainty, as it entails considerable deliberations as issues are reviewed.

Looking to the Future

MVF has done our best to deliver funds to victims during the course of the long and painful Covid-19 pandemic. D7 is our third distribution completed during the pandemic, which has certainly challenged our staff with many new protocols and processes. However, we all remain committed to delivering the greatest possible recovery to the largest number of victims in the fastest and fairest manner. We can never predict the future, but we are very optimistic that in 2022 we will complete D8, and if necessary, a smaller final distribution. When we have paid out all of our assets, our work to deliver the greatest recovery our assets will allow will be finished. As always, we will continue to keep you updated on our progress.

Respectfully,

Richard C. Breeden
Special Master, Madoff Victim Fund