The massive Bernie Madoff fraud is turning out to be a larger, more global phenomenon than previously believed, according to the Madoff Victim Fund (MVF), which reports that it has received more than 50,000 claims from over 100 countries.
Former chair of the U.S. Securities and Exchange Commission (SEC), Richard Breeden, who is administering the MVF on behalf of the U.S. Department of Justice (DOJ) announced preliminary results for the first stage of the MVF claim process today. According to Breeden, at the close of the claim period on April 30, the MVF received more than 51,700 claims from purported victims of the fraud at Madoff Securities. It says that claimants from 119 countries reported aggregate unrecovered net investment losses of more than US$40 billion. Claims came from countries on every continent other than Antarctica. There were 26 countries or jurisdictions in which there were at least 100 claimants.
“The MVF claims showed a strikingly larger group of victims — with much larger losses — than anyone previously knew to exist,” said Breeden. “Other than the Gobi desert and the polar icecaps, few places on earth seem to have escaped the scourge of this fraud. This fraud was of epic, and truly global, proportions.”
Aggregate net losses are split almost evenly between U.S. and non-U.S. victims, it said, noting that victims have submitted more than three million pages of backup documentation. The MVF also reports that it received more than 43,500 claims from individuals who did not file a claim in the Madoff Securities bankruptcy proceedings. Indeed, it has received more than three times as many claims as were filed in the bankruptcy proceedings (and roughly 20 times more claims as were allowed in the bankruptcy proceedings).
It also notes that the claims have not yet been reviewed to eliminate ineligible, duplicate or overstated claims, and the MVF says that it expects this to be substantial. For example, the MVF reports that it received numerous filings on behalf of banks and other managers of pooled investment vehicles that are not generally eligible to participate. As a result, the final totals are expected to shrink considerably before payments commence, it says.
“We have to eliminate ineligible or overstated claims before we can have an accurate picture of the losses. Nonetheless, it appears that at least twice as many investors as previously thought lost money in the Madoff fraud, with losses running many billions larger than previously documented,” Breeden says. “By far the greatest number of victims report that they have not recovered anything since the fraud. For many of those individuals, the forfeiture program can be a true lifeline.”
Indeed, Breeden notes that more than 36,000 claimants reported to MVF that they have not received even $1 in recoveries from any source. “Tens of thousands of victims have not had any prior recovery for their losses, and for many of them, MVF is the only potential source of a recovery. We hope to make a meaningful difference for all victims, and especially for those who have not previously recovered any of their losses.”
Based on a preliminary review of the claims, the MVF says that approximately 77.5% of claims were submitted by individuals reporting losses of up to US$500,000; approximately 9.5% of claimants reported losing between US$500,000 and US$1 million. Approximately 13% report losses in excess of US$1 million. U.S. residents account for roughly 58% of claimed losses. However, almost 62% of the persons filing claims reside outside the U.S. It also notes that victims in 24 countries reported a higher average loss per person than occurred in the U.S.
After all claims are reviewed, Breeden and the MVF will recommend specific action on each claim to the DOJ, which makes all final decisions. The MVF is the official vehicle for distributing slightly over US$4 billion in forfeited assets that have been recovered by the U.S. Attorney for the Southern District of New York from actions against those involved in the fraud at Madoff Securities. The DOJ retains the discretion to amend its requirements or standards at any time, or to deny any claim that does not meet its criteria. The timing of distributions from MVF will be determined after claims are reviewed.