New hope for more Madoff victims

In a major development for spurned victims of Bernard Madoff, investors who had been denied recovery of their investment learned Thursday that they could get some of their cash back as money is recouped through lawsuits and settlements, according to the special trustee handling the bankruptcy case.

The announcement, which renews hope for thousands of investors, came as Manhattan bankruptcy judge Burton Lifland signed an order formalizing the recovery of $7.2 billion from the estate of philanthropist Jeffry Picower, who died in Florida in 2009.

The Picower case, done in conjunction with the Manhattan U.S. attorney's office, has pushed the total amount of funds recovered to about $10 billion. Madoff investors, including hundreds from Long Island and New York City, lost about $20 billion in the Ponzi scam.

During a courtroom discussion with Lifland, lawyers for the nonprofit Securities Investor Protection Corp. and counsel for trustee Irving Picard described how Picard can, under the intricacies of the bankruptcy law, include all investors in the recovery process, said David Sheehan, who represents Picard.

"I think it is a very big deal," Sheehan told Newsday Thursday, adding that he hopes that enough money will be found to pay off all investors. "It's a game changer."

Under SIPC rules, only investors who didn't withdraw more from their accounts than they had invested - about 2,312 "net losers" - are eligible to get a percentage of their investment back, including an advance of up to $500,000.

Other investors, about 2,736, who took out more money than they originally invested are considered "net winners" and aren't eligible to get any cash. Also cut off from recovery are about 10,600 customers who invested with Madoff through feeder funds. They may have to seek recovery through their investment funds.

But while Picard is giving net losers priority as he divvies up the cash, he also is required under the law to consider everyone else who has filed a claim as a general creditor, Sheehan said. Those general creditors will be able to have their original claims considered for the value of what they originally invested with Madoff, plus any increase in value they would have received from a legitimate investment, explained Sheehan.

But, he said, those customers wouldn't be able to claim the bogus values Madoff had reported on his fictitious account statements. Claims had to have been filed by July 2009, he added.

"For the net winners it gives them some relief," said Jerome Reisman, a Garden City attorney who represents some Madoff investors.

Madoff, 72, is serving a 150-year prison term in North Carolina.