Victims of Wall Street con man Bernard Madoff aren't entitled to interest on the money they had tied up in the gigantic Ponzi scheme, a federal bankruptcy judge ruled Tuesday.
The decision by Judge Burton Lifland, if sustained, would allow bankruptcy trustee Irving Picard to free up about $1.4 billion in additional funds to distribute to customers, effectively pushing recovery to 50 cents on the dollar for investors with approved claims. That money was being held in reserve pending Lifland's ruling.
Since Madoff's $17.5 billion scheme imploded in December 2008, Picard has been involved in a worldwide search for funds and has recovered $9.3 billion.
As of Tuesday, Picard has distributed more than $5 billion to investors who were "net losers," those who left more money in their accounts with Madoff than they withdrew. Under the complex math of the recovery process, those customers have recovered about 43 cents on the dollar.
But legal experts said it was unlikely that the extra cash would be released any time soon because Lifland said he was ready to put his ruling on a fast track for any appeal. Attorneys for investors couldn't be reached for comment Tuesday about their plans for an appeal.
In a statement, Amanda Remus, spokeswoman for Picard, said once there is a final non-appealable order, the trustee would seek to distribute the additional money.
A number of Madoff victims had argued that Picard should pay them "time based damages" -- essentially interest as high as 9 percent a year -- for the time they had their money invested and lost with Madoff. Picard opposed that, arguing that no Madoff customer was entitled to interest or damages before other customers had recovered their principal investment.
Lifland, who acknowledged the issue was unique in bankruptcy court, ruled that the federal Securities Investor Protection Act supported Picard.
"When they invested with Madoff, they bargained for a market-driven investment designed to fluctuate with the performance of the market; they did not bargain for a contractually guaranteed interest rate or an inflation-protected investment vehicle," Lifland said in his decision.
Madoff pleaded guilty in March 2009 to running Wall Street's largest Ponzi scheme and is serving a 150-year sentence in a federal prison in North Carolina.