NEW YORK - Five months after Bernard Madoff's massive fraud was revealed, little of his victims' money has been found and it appears increasingly likely that the worldwide hunt for their missing billions will drag on for years.
So far, the court-appointed trustee sorting through Wall Street's biggest investment fraud has located only about $1 billion to be distributed to defrauded customers -- a fraction of the $65 billion the confessed con man's records purported to have in nearly 7,000 client accounts when the FBI arrested him in December.
Trustee Irving Picard has signaled, however, that he is ramping up efforts to find more money, a ray of hope for victims if these funds can ever be tracked down and shared among them.
At this relatively early stage of Picard's investigation, though, it is unclear if that is possible.
Legal wrangling could take years, especially the complicated court battles in U.S. Bankruptcy Court over whether some investors who withdrew money should be forced to compensate others, said Earl Colson, an attorney at law firm Arent Fox LLP in Washington.
He said that not only is Picard examining the dollar amounts that investors deposited or withdrew over decades in making determinations about who should be forced to give back money, the trustee is also developing legal cases on whether some investors were or should have been aware of the fraud.
It's not a question of how much you put in or took out, it becomes a question of motive, Colson said.
In recent weeks, Picard has sued a number of hedge funds and other big investors, demanding they return $10.1 billion in fictitious profits they received from Madoff, who confessed in court in March that he had not done any trading in client accounts in years.
Picard argues in these lawsuits that sophisticated investors such as California money manager Stanley Chais, New York hedge fund founder Ezra Merkin and Florida philanthropist Jeffry Picower knew or should have known Madoff's consistently high returns were implausible.
The trustee has hired lawyers in Gibraltar, the Cayman Islands and elsewhere to help trace the money from Bernard L. Madoff Investment Securities LLC in New York and Madoff Securities International Ltd in London. He has said that legal action against Madoff's relatives in what was a family-run business is a possibility.
Madoff, 71, has pleaded guilty to 11 criminal charges including securities fraud, money laundering and perjury for a scheme in which he used money deposited from new clients to finance the withdrawals of earlier customers.
The scheme fell apart as a wave of clients sought to withdraw their money in 2008 amid the financial crisis.
Madoff is in jail and faces the possibility of life in prison when sentenced on June 29.
The trustee has been on the job since December and spent much of the first few months sorting through paper records kept by the Madoff firm and interviewing employees.
Wielding his far-reaching powers under federal bankruptcy law, he is pursuing the likes of Picower for $5.1 billion, Chais for $1 billion and Merkin for $500 million. Hedge funds Vizcaya Partners, Kingate and Harley International are also in his sights.
Legal experts say, however, that Madoff victims should not count on a quick resolution, in part because some of the allegations touch on a still-emerging area of bankruptcy law dealing with whether some investors knew or should have known that Madoff's investment business was a fraud.
These concepts haven't been tested too often, said Steven Gatti, a partner at law firm Clifford Chance in Washington. The amounts of money involved in the lawsuits will make people fight pretty darn hard to defend themselves, he said.
Picard has likely studied the legal theory behind a recent court ruling stemming from the $400 million Bayou Group hedge fund fraud that could help his case, legal experts said.
In the Bayou case, a bankruptcy court judge found that investors who cashed out of their investments within two years of the fraud coming to light had to give back principal as well as profits if there was evidence they exited because they knew -- or even suspected -- a fraud was occurring.
The decision is being appealed by Bayou investors who say it is unfair to those who redeemed early.
Carole Neville, an attorney for Bayou investors who opposed the judge's ruling, said the Madoff trustee's lawsuits are delving into similar territory and it was unclear how they would play out. But such cases can be hard fought.
If I were defending those lawsuits we could keep him busy for the next 20 years before any decision got made, said Neville, a partner at law firm Sonnenschein Nath & Rosenthal LLP in New York.
Picard himself has not given much indication of how long he thinks his job will last, though it is clear that he hopes to settle some disputes rather than engage in protracted lawsuits. He has said he expects several significant settlements in the next few weeks that would boost investors' ultimate recovery.