MVF Commences Fifth Payout to Madoff Victims

A New Payout

MVF is pleased to announce that it has commenced its fifth major payout.  In D5, MVF will pay $438.1 million to 26,045 participating victims.  Of this amount, $377,681,445 represents “fresh cash”, while the balance is reissuance of prior checks that expired. Each victim will now have a total recovery from all sources of 73.65% — up 6.8% from the prior payment level of 66.85% in the summer of 2019.  MVF’s total cash payments to 32,674 victims now exceed $2.72 billion.  In addition, MVF holds “Earmark Reserves” or “Earmarks” of $883.3 million on behalf of investors in 14 “held vehicles” (“HVs”).[1]   MVF has either paid or committed Earmarks to 37,817 victims, in an aggregate amount slightly in excess of $3.6 billion.

Of the victims being paid in D5, 382 victims (receiving $37.6 million) are victims with petitions that have been approved since MVF’s D4.  Of these, 185 victims had prior recoveries of zero from the Madoff bankruptcy or any other source, and these individuals will receive $20.5 million in catch-up distributions.  Overall, MVF has paid 15,194 victims who received their first recoveries – from any source –from MVF.

MVF was created in 2013 to distribute funds forfeited to the United States Government to victims of the Madoff fraud.  In the 71 months since MVF’s claim filing deadline, MVF has recommended, and the U.S. Department of Justice (“DOJ”) has approved, 42,115 claims from victims of the crimes committed at Madoff Securities.  Prior to approving these claims, MVF evaluated more than 500,000 individual investment transactions by victims, and millions of pages of documentation to trace and verify billions in investor cash channeled to Madoff Securities through more than 1,200 individual investment firms around the world.

In addition to the cash payments of $438.1 million in D5, an additional $418.7 million is currently reserved for potential payment once approximately 1,200 Requests for Reconsideration (“RFR”) or claims that are pending a decision are finally resolved (“Payment Reserves”).  In addition, as mentioned above MVF holds Earmark Reserves of $883.3 million for nearly 8,250 victims who invested through 14 HVs.

The chart below shows the current allocation of MVF’s cash following D5.

One important feature of MVF’s payments is that they go directly to victims, rather than to middlemen or investment vehicles as is the case in other types of payouts.  As a result, MVF’s payments can’t be delayed, diluted or diverted to other claimants or to legal fees. [2]  U.S. law has already determined who is eligible to receive these funds, and we make sure that they get them without impediment.

From the outset, DOJ and MVF have been clear in our goals to 1) compensate as many victims of Madoff’s fraud as possible at the highest possible recovery percentage, and 2) narrow the gap in recoveries among all victims. Although the work is not finished, MVF has been successful in meeting both goals.  As articulated in our Plan of Distribution, our guiding principle has been that any person whose own funds were actually invested in Madoff and were lost as a direct result of the fraud should be eligible for compensation irrespective of how their funds were stolen.

In accordance with US law, MVF measures losses through a cash-in, cash-out methodology, not the “last statement” approach that some other countries have adopted, which results in diverting significant funds to former investors who were “net winners” in the fraud.  We also follow US law that requires a pro rata distribution to all victims, rather than the practice adopted in several foreign courts of paying 100% plus interest to a handful of former investors who unsuccessfully sought to redeem shortly before collapse of the fraud.  Since all investors would have sought to redeem if they learned that a collapse was about to occur, that result seems inequitable, and in any event is contrary to the equal treatment under the law required in the US.  Since MVF’s funds come entirely from the United States Government, we distribute those funds in accordance with US law, and we are proud that we have been able to deliver on our  promise of equal assistance for tens of thousands of victims.

Recapping MVF’s Distribution Record

In November of 2017, 43 months after MVF’s claim filing deadline, MVF’s first payout (D1) brought 21,530 victims of the Madoff fraud to a recovery of 25% of their fraud losses.  More than half of the victims receiving payments in D1 had never received any payments through the Madoff bankruptcy or from any other sources.  Most of the other victims participating in D1 had previously received less than 10% in recoveries before receiving their D1 payment from MVF.

Over the subsequent 29 months since D1, MVF had been able to improve our distributions in two fundamental areas.  First, we have been able to broaden significantly the number of individuals receiving checks.  The number of victims receiving checks in D5 – 26,045 – is 21% higher than the number paid in D1.  Second, we have been able to increase the amount of the recovery percentage.  Today’s 73.65% recovery percentage is nearly triple our initial payout of 25%.

In total, as of the end of D5, 37,817 victims in 122 countries and 49 U.S. States have received payments of more than $2.7 billion.  Since the first payments in November, 2017, MVF has paid out an average of approximately $94 million per month.  Including Earmark Reserves, MVF has committed over $124.3 million per month since November of 2017. The total amounts distributed were front loaded due to the 25% payout of D1.  The four payouts since D1 have averaged just over 12% of fraud loss each.  The chart below shows each of the five distributions:

Including Earmark Reserves, MVF has paid or committed funds totaling $3,604,793,228 to 37, 817 victims during the past 29 months.

MVF Claims by US State 

MVF Claims by Country

MVF’s Assets Are Now Nearly Fully Obligated

At the end of D4, MVF had paid or reserved all its funds except for $51.1 million that remained unobligated.   As part of D5, MVF used approximately $25 million of the unobligated funds, or roughly 48% of total unobligated funds.

At the end of D4, MVF held $529 million in Payment Reserves.  In the intervening time, MVF and DOJ have resolved nearly 1,029 previously unfinished claims or RFRs.  This enabled MVF to reduce Payment Reserves by approximately $110 million, or nearly 21%.  This entire amount was added to D5 as either catch-up payments for newly approved claims, or to help fund the 6.8% increase in payout percentage for all victims.

Finally, at the end of D4, MVF had Earmark Reserves of $1.09 billion that were being held for approximately 10,250 petitioners who invested through what at that time were 21 HVs.  In D5, MVF paid out $207.8 million, or approximately 19%, from these Earmark Reserves.

Roughly 75% of the reduction in Earmarks resulted from releasing all holds on seven HVs when MVF was able to calculate the Collateral Recoveries accurately for the investors in these HVs.

This resulted in payments of approximately $31 million to more than 800 petitioners. In these seven cases, MVF found that existing Earmarks proved more than sufficient to make catch-up payments to petitioners once the latest collateral recoveries were reported to us. Indeed, had MVF paid these claims before obtaining the full information on CRs, the claims would all have been substantially overpaid. However, the process of releasing holds on these 800 petitioners demonstrated that it is likely that additional collateral recoveries will reduce the dollar amount of necessary Earmarks for all 14 remaining HVs.

Therefore, in addition to releasing payments to petitioners who invested through the seven HVs, no new Earmarks were added to reflect the increase in the payout percentage in D5. In addition, $70 million was withdrawn from total Earmarks. This reduction, which was approved by DOJ, is the first step to sunsetting these reserves. The amount of the first sunset reduction was approximately 7% of aggregate existing Earmarks.

MVF cannot finish its work and pay victims a final distribution until all Earmark Reserves are released. Once that happens, all these funds will be paid out to the petitioners who invested in the HVs, or to all other victims. Therefore, MVF recommended the initial 7% partial sunset as the first in what will ultimately be a series of future additional reductions in the dollar amount of Earmark Reserves. MVF hopes that as many as possible of the remaining HVs find ways to complete their final distributions promptly. This will enable their own investors to advise MVF of their recoveries from all sources, thereby enabling their claims to be completed.

However, some of the HVs have been mired in litigation for more than 10 years disputing how funds paid out by the bankruptcy estate should be divided among former investors. If these or other HVs continue to hold the cash paid to them by the US bankruptcy proceeding – or divert it elsewhere (such as paying for litigation) – the funds held in reserve for future payment to their investors are likely to shrink through future additional sunset reductions. As future sunset percentage reductions occur, MVF will gradually lose the ability to continue waiting for these funds to finalize their distributions. Once all Earmark Reserves are redeployed to pay all other victims, remaining incomplete claims will have to be expunged.

We remain optimistic that some of the remaining HVs will be able to wind up litigation and distribute funds to their investors before MVF completes its work. If others are unable to do so and their underlying investors cannot be paid, we will at least know that MVF gave as much time as possible for these HVs to complete their liquidations. MVF cannot control foreign litigation, but at the same time holding up further payments on complete claims indefinitely is not a viable option. We hope it will prove possible to release existing holds affecting many of the underlying investors in these HVs.

Collateral Recovery Updates

We hope that by now all victims appreciate why MVF requires periodic updates of a victim’s collateral recovery amounts. As we have described on this website previously, this can be done by simply clicking the button shown below to generate a form that can easily be submitted to us. Before each distribution, all victims who may be eligible to participate must either certify that 1) they have not received any recoveries, 2) they have not received new recoveries since prior reports to MVF, or 3) they have received new recoveries of a specific amount. In any of these cases, victims must certify to the accuracy of these updates under penalty of perjury as was true with the original claim. The update process is very simple, and it lets MVF calculate the correct payment amount for each victim.

If you have not updated your collateral recoveries after January 1, 2020, then you will not receive a check in D5 until we receive an update from you. Please call us immediately if you have an issue in providing an update. This is the same process that we have followed prior to each distribution, and it makes overall payments fair to every victim.

Please remember, failing to update your recoveries makes your original petition – filed under penalty of perjury — incomplete. Falsely certifying that you have not received any additional collections would constitute a false statement under U.S. perjury laws and is a criminal offense.

So, please be complete and accurate!

Future Payment Reserves

MVF and the Department are currently evaluating more than 1,700 Requests for Reconsideration (“RFR”) or other “pending” claims that raise unique eligibility issues that have not yet been resolved. MVF holds just over $529 million in reserves to pay all of these claims that are ultimately approved by the Department. This number has been reduced by approximately $700 million since December 2018, and we anticipate continued reductions in this future payment reserve as remaining claims receive final action.

Looking to the Future

MVF’s ability to make future payments will depend on the timing and amount of final action on all remaining pending claims, RFRs, and resolution of the holds that have led to committed funds. MVF expects a further significant reduction in RFRs and pending claims throughout the balance of 2020.  We also expect that during the remainder of 2020 Earmark Reserves will continue a gradual phase-out process.  This will permit redirection of nearly $900 million in funds if the HVs do not finalize their payouts first.  

When a pending claim or an RFR is approved, a portion of our future payment reserves will go to paying the newly approved claim. The balance, if any, after taking into account collateral recoveries, will be released to fund more payments to every victim. Similarly, as RFRs are denied, the entire previously reserved amount becomes available for an increased payout to all victims.  This process led to our ability to increase general payouts by 6.8% in D5.

Based on our experience, we know that our reserves will only be partly used to fund newly approved claims, and other amounts will become available to pay all other claims. MVF also believes that some of the held vehicles will be resolved in coming months, which when added to additional sunset of ERs, will also result in the release of some previously reserved funds.

We hope that the funds distributed in D5 significantly benefit victims in this time of unusual stress due to the worldwide Corona virus problem.  We are delighted to be able to send D5 to you at this time.  As with prior distributions, our work to increase payout percentages for victims will continue.  We are also committed to updating you on our progress periodically.

Physically processing this payout has required an extraordinary effort by the staff at MVF.  Whether working remotely or in our offices, our staff has followed all social distancing and other health protocols designed to stop the rise in infections. At the same time, many of our staff braved the obstacles to complete the physical production and audit of checks so that this mailing could occur.  My deepest gratitude goes out to entire staff for their extraordinary determination to get these funds out to victims.  This is another facet of our commitment to doing everything possible to make a positive difference in the lives of every Madoff victim.

Respectfully,

Richard C. Breeden
Special Master, Madoff Victim Fund

[1] Six of the HVs have to date received over $1.1 billion from the Madoff bankruptcy, but either have made no distributions to their underlying investors or have not completed distributing the cash received in the bankruptcy. Other HVs are still litigating with the bankruptcy estate, and for others MVF has been given inconsistent information concerning payouts to their investors. In some cases liquidators have cited privacy restrictions in withholding information regarding payouts. As a result, MVF’s payments to underlying investors have been suspended until their recoveries are known.

[2] With a handful of exceptions of victims that elect to hire counsel, virtually all of MVF’s victims have been able to file claims and receive recoveries without having to pay legal fees that can severely deplete recoveries.