Victims of Bernard Madoff's Ponzi scheme might recover as much as $6.2 billion less than previously estimated if a recent court decision involving owners of New York Mets baseball team remains the law.
A spokeswoman for Irving Picard, the trustee seeking money for former Madoff customers, said Tuesday's decision in the Mets case by U.S. District Judge Jed Rakoff in Manhattan could preclude the recovery of at least $2.7 billion and throws the recovery of at least $3.5 billion more in question.
As a result of the decision, the biggest legal setback in his nearly three-year recovery effort, Picard delayed on Thursday an initial distribution of $272 million scheduled for September 30 to former Madoff customers with valid claims.
The trustee said Rakoff's decision raised several issues that require a thorough evaluation of the impact, if any on how much can be distributed and how to calculate payouts.
We know how difficult this delay is for those who have waited so long to recover the money they lost to Madoff, Picard's chief lawyer, David Sheehan, said in a statement. He said payouts would be made as soon as we possibly can.
The Ponzi scheme was uncovered on December 11, 2008.
On Tuesday, Rakoff threw out nine of Picard's 11 claims against Mets owners, including Fred Wilpon and Saul Katz, and reduced the size of that case to $386 million from $1 billion.
Picard had accused the owners, who were longtime Madoff customers, of having willfully blinded themselves to red flags of Madoff's fraud. The owners denied these allegations.
In his decision, Rakoff said Picard could try to recover fictitious profits and principal paid out from Bernard L. Madoff Investment Securities LLC only in the last two years of the Ponzi scheme, not the last six years as Picard sought.
Another part of the decision limited recoveries related to sums withdrawn during the last 90 days of the fraud, known as preference claims.
Picard is expected to appeal Rakoff's decision. But if the decision is upheld and other judges follow its reasoning, payouts could be lowered on many of Picard's other lawsuits, which number more than 1,050.
The spokeswoman said the net difference between the 2-year and 6-year look-back periods could cost Madoff victims at least $2.7 billion, while the reasoning relating to preference claims could cost at least $3.5 billion.
Picard has said he raised more than $8.6 billion for Madoff victims, roughly half the estimated $17.3 billion in principal lost.
Much of the recovered sum raised has been tied up in litigation by former customers who challenged the trustee's methodology for determining losses and how much should be recovered from net winners in Madoff's fraud.
Former New York Governor Mario Cuomo is mediating the Mets dispute. On Wednesday, Rakoff set a March 19, 2012 trial date.
Madoff, 73, is serving a 150-year prison sentence.
(Reporting by Jonathan Stempel in New York; editing by Ted Kerr and Andre Grenon)