Convicted investment swindler Bernard Madoff is shown in his federal...

Convicted investment swindler Bernard Madoff is shown in his federal mug shot. (2009) Credit: U.S. Justice Department

Legal challenges are preventing victims of Bernard Madoff from being paid back more than $7 billion recovered by investigators, trustee Irving Picard said Tuesday.

The large cash stockpile, recovered from the estate of the late financier Jeffry Picower, is sitting in an escrow account and can't be tapped to pay back Madoff investors until two lawsuits are resolved, a process that could go on for years, Picard said during a telephone news conference.

David Sheehan, counsel to Picard, said he expected "appeals will take months, possibly a year."

Picard and Sheehan said that while the Picower settlement is in litigation, the trustee still intends to file a plan later this month in federal bankruptcy to start paying investors from a smaller $2.6 billion pool of customer funds recovered from other sources.

Picard wouldn't discuss his lawsuits against the owners of the New York Mets or mediation efforts involving former New York Gov. Mario Cuomo. Madoff's fraud ripped off investors of an estimated $20 billion in the biggest Ponzi scheme ever to hit Wall Street. Since Madoff was arrested in December 2008, Picard has been on a global quest to find customer money. The announcement of the Picower settlement late last year pushed the total recovered so far to $10 billion. Under a deal with federal prosecutors, Picard has control of about $5 billion in Picower money. About $2.2 billion of that money is to be given to the government to pay Madoff's victims.

But because of lawsuits, Picard said the percentage of recovery due each allowed claimant in the case can only be calculated based on the $2.6 billion he alone controls. About 2,400 claims have been allowed for investors who didn't take any money out of their accounts. Thousands of other investors are labeled "net winners" and aren't permitted to recover advances of up to $500,000 because they took out more money than they invested.

Helen Chaitman, one of the lawyers challenging the Picower settlement, said Picard "gratuitously" put into the agreement a clause that prevented any Madoff victim from suing the Picower estate.

Chaitman asked, "What business is it of his to prevent my clients from getting" any money? She blamed Picard from creating the legal delay he complained of.

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