The decision by the justices to ditch the appeal on the so-called net-equity method frees up trustee Irving Picard to disburse hundreds of millions of dollars to victims with approved claims.
But as Picard was celebrating his tactical victory with the high court, he was also preparing to do battle with New York State Attorney General Eric Schneiderman over a $410-million settlement he announced involving philanthropist and investor J. Ezra Merkin.
Schneiderman said he had settled his Martin Act lawsuit against Merkin, who was sued in 2009 for allegedly not disclosing that four of his investment feeder funds were essentially controlled by Madoff. The state also sued to recover hundreds of millions of dollars in fees Merkin received.
"Mr. Merkin is pleased to have achieved a resolution that is fair to his investors, many of whom are friends and institutions that he and his family have cared about deeply for generations," said Merkin's attorney Andrew Levander.
Schneiderman's lawsuit -- started by then-Attorney General Andrew M. Cuomo in 2009 -- invoked state law to get money back for Merkin's clients. But Picard is concerned the state settlement might impact funds that should be put in the pot for all Madoff victims in federal bankruptcy court.
"To the extent any third-party settlement seeks to divert funds that are rightfully sought by [Picard] for equitable distribution to all BLMIS customers with allowed claims, we will have to consider taking appropriate steps. [Picard's] claims, by law, take precedence," said Amanda Remus, a spokeswoman for Picard.
Picard was appointed trustee under the direction of the nonprofit Securities Investor Protection Corp., which is allowed to advance individual investors up to $500,000 each for losses. So far SIPC has agreed to give investors $801 million. Picard has recovered close to $10 billion. But because of appeals and other legal challenges Picard has only been able to give back $332.6 million, or 4.6 cents on the dollar, for 1,230 claimants.
However, with his hands freed by the Supreme Court action, Picard can move ahead with another distribution. Picard may also be able to start sending out billions of dollars more if certain appeals are not filed by July 16, SIPC officials said.
Under the intricacies of federal law, only Merkin's four feeder funds, and not their hundreds of individual investors, are considered Madoff customers eligible for SIPC recovery.
"What Schneiderman has done has created an avenue for feeder fund members to be compensated for their losses; I think that is a step in the right" direction, said Garden City attorney Jerome Reisman, who represents some Madoff victims.