The announcement that $7.2 billion would be forfeited from the estate of Jeffry M. Picower to benefit victims of Bernard Madoff brought optimism from officials last week that investors might recoup close to 50 percent of what they had deposited in the estimated $20-billion Ponzi scheme.

"Today is a good day for a group of people who haven't had much cause for optimism," Janice K. Fedarcyk, assistant director in charge of the New York FBI office, said Friday as the settlement was announced.

While recovery of almost 50 percent is possible, there is still uncertainty among those working on the effort to compensate victims about whether they will see that much.

For a start, much work remains to be done with lawsuits filed by court-appointed trustee Irving Picard to recover cash. In addition, there is still an unresolved legal question before the courts, which could affect the formula used to work out the percentage for compensating victims.

Picard in recent weeks filed a flurry of lawsuits aimed at recovering billions of dollars in what he believes are illegal profits taken out of Madoff accounts by some investors and feeder funds. The total Picard seeks runs to an estimated $41.5 billion to $80 billion - taking into account a treble-damage claim in one civil racketeering lawsuit filed by the trustee.


Legal challenges expected

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Yet while those amounts are large, Picard knows the litigation's outcome is uncertain. Many of the defendants are represented by large Wall Street firms and are expected to fight Picard with tough tactics. Some lawyers believe even the Picower settlement will be challenged.

"We are at 'the end of the beginning,' " Picard's counsel, David Sheehan, said last week, quoting Winston Churchill and acknowledging the tough work the trustee faces in the courtroom.

There is also uncertainty over how victim compensation will be computed.

Madoff's operation has been likened to a counterfeiting ring: He fabricated account statements, making up balances. Investors, thinking they were earning 15 percent or more with Madoff, took out what they thought were legitimate earnings. They were unaware that Madoff made no investments and in typical Ponzi scheme fashion simply paid them with cash from other investors.

Picard maintains investors who withdrew more money than they originally deposited with Madoff were "net winners," who - in effect - took stolen property owed to others.

As a result, he has said he won't allow them to recover any more cash and is even suing some for return of trumped-up investments. Investors whose claims have been denied by Picard insist that under the law, the trustee must pay out on the basis of what equity was shown on their last account statement from Madoff, even if the figure was fictitious.


Losses owed still an issue

So far, Picard has prevailed in bankruptcy court and federal district court on the account equity issue. He now has about $10 billion in assets to dole out - or 50 percent of the losses on approved claims.

But if Picard loses at the appeals court, his calculation of what to pay out would change drastically. Instead of figuring compensation based on $20 billion in losses, he would have to use a number of $65 billion, which is what victims believed they are owed. That, in turn, dramatically changes the percentage from the 48.5 percent officials touted Friday, to around 15 percent, when you consider the $9.7 billion in assets currently recovered.

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Because resolution of this account equity issue is still unclear, Picard told Newsday late last week that he will have to retain a significant reserve - a kind of rainy day fund against future litigation - when he starts paying back investors, scheduled to begin early next year.