The bankruptcy trustee in the Madoff case is seeking to return at least another US$1.5 billion to victims of the massive Ponzi scheme.

Irving Picard, the trustee for the liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS), filed a motion today in the US Bankruptcy Court for the Southern District of New York seeking approval to return between US$1.5 billion and US$2.4 billion to former customers of the firm with allowed claims. This second distribution, when combined with the funds already returned, would satisfy approximately 46% of the current allowed claims in the BLMIS liquidation, he notes.

“This distribution motion is another major milestone in the worldwide Madoff recovery effort,” said Picard, noting that the motion requests approval to allocate approximately US$5.5 billion to the Customer Fund from which the distribution will be made. A large portion of the allocated funds must be held in reserve pending the resolution of objections seeking inflation or interest adjustments to claim amounts, as well as appeals to other settlements.

“Distributing more money to customers with allowed claims brings us closer to our goal. However, we continue to grapple with issues, mostly objections, that seek to redirect funds that could be going to approved claimants now,” said David Sheehan, chief counsel to the SIPA trustee. He notes that the most significant objections relate to whether former Madoff clients are entitled to ‘time-based damages’, with more than 1,240 objections have been filed on that issue.

While Sheehan says, “These arguments are specious at best.” Nevertheless, until the issue is resolved by the court, the trustee has to maintain a reserve for these claims. Absent that, another US$3 billion could be returned to former clients.

In the meantime, the trustee is seeking approval allowing it to hold a lower reserve against this issue, which would allow it to distribute approximately US$2.5 billion to Madoff’s victims. A hearing on the motion has been set for August 22.

So far, the trustee reports, it has recovered or reached agreements to recover more than US$9.1 billion, which it says exceeds “prior recovery efforts related to all other Ponzi schemes, in terms of dollar value and percentage of stolen funds recovered.”

“Additional, significant interim distributions are still ahead for the victims of the Madoff fraud,” added Picard. “We anticipate recovering more stolen assets through litigation and settlements. Final resolution of disputes will permit us to reduce reserve amounts and distribute those funds to customers in the future. As these uncertainties are resolved, we will seek authorization for further allocations and distributions as quickly as possible.”