Billions of dollars could go out as early as September to victims of Bernard Madoff under a plan outlined Thursday by the trustee handling the search for assets in the giant Ponzi scheme.
In papers filed in federal bankruptcy court, trustee Irving Picard asked for approval of another distribution of recovered funds, ranging from $1.5 billion to $2.4 billion. The cash could mean that the 1,229 Madoff clients whose claims were allowed under federal law could recover as much as 20.5 cents to 33.5 cents on the dollar for their losses in the collapse of his business in December 2008.
The average payment could range from $1.2 million to $2 million, with 100 to 181 customers being paid in full, the trustee said.
Picard said the request to begin the distribution, which could start in about two months, was "another major milestone in the worldwide Madoff recovery effort." He said that more distributions are coming.
Investors lost about $17.5 billion in the fraud.
They had been tricked by Madoff to believe their accounts were worth more than $68 billion as investments. The case is the largest Ponzi scheme to hit Wall Street and has cost $571 million in legal and consulting fees and other expenses, which are being paid by the nonprofit Securities Investor Protection Corp., or SIPC.
Last year, Picard made a payout of about $335 million, about 4.6 cents on the dollar.
The larger payout Picard is now planning was made possible after the U.S. Supreme Court refused in June to hear a challenge to the way the trustee calculates the net equity in investor accounts. Constant appeals, all the way to the high court, forced Picard to hold back on making substantial distributions of the nearly $9 billion he has recovered.
Among customers benefiting are Sterling Equities, owner of the Mets, which owes Picard $162 million after settling his lawsuit for fictitious Madoff profits. Under the settlement, any recovery percentage Picard disburses will go to reduce the Sterling debt, which could be slashed by $35 million to $60 million.
But other legal issues, notably whether Picard should pay investors interest on their money, are causing him to hold back billions of dollars more in cash reserves, the trustee said.
Picard doesn't believe federal law allows for interest in SIPC cases. But as a precaution, Picard is computing the latest disbursement request by assuming a 3 percent interest rate, which would allow him to give out $2.4 billion.
But a 9 percent interest, which some investors want, would allow a distribution for now of only $1.5 billion, he said.
If no interest is allowed, Picard said he would be able to distribute $3 billion, or 42 cents on the dollar, for each customer claim.