A US federal bankruptcy judge ruled on Tuesday that thousands of clients of funds that invested money with fraudulent financier Bernard Madoff do not qualify for payouts aimed at reimbursing Madoff’s customers because the clients did not hold accounts in their names and they gave control over their investments to the managers of the funds.
The ruling by US Bankruptcy Judge Burton Lifland means the investors cannot recover up to US$500,000 from a fund created to reimburse small investors who are victims of fraudulent schemes. Lifland said that the customers entrusted no cash or securities with Madoff, received no account statements or other communications from him and had no transactions reflected on Madoff’s books.
The ruling came in a case brought on behalf of 16 feeder funds or hedge funds that invested with Madoff through at least 19 separate accounts. This, though, was only a small subsection of all the feeder funds that invested with Madoff before his private investment company collapsed with his arrest in December 2008.
The ruling by the Manhattan jurist was consistent with the findings of the US Securities and Exchange Commission and the Securities Investor Protection Corp. A court-appointed trustee has denied two-thirds of more than 16,000 claims on the grounds that they were filed by individuals who did not have direct accounts with Madoff.
Madoff is serving a 150-year prison sentence after admitting that he cheated thousands of investors out of about US$20 billion they had invested. Just before the two-decade fraud was exposed, Madoff informed the investors in statements that their original investments were worth more than US$65 billion. In fact, only a few hundred million dollars remained.
Meanwhile, Madoff on Tuesday said the judge in his case had made him a “human pinata” and passed an overly harsh sentence.
Judge Denny Chin sentenced the one-time Wall Street icon to 150 years behind bars in 2009 after he was found guilty of defrauding investors — ranging from celebrities to well-known banks and Jewish charities — of billions of dollars.
Prosecutors say about US$13 billion was handed to Madoff. The financier himself has talked about losing US$50 billion, which is believed to be the amount that would have been paid out had the funds been properly invested.
Madoff told the Times he had been made a scapegoat for the financial crisis that eventually laid bare his scheme, saying Chin had made him “the human pinata of Wall Street.”
“In my mind, Chin was anything but fair, with zero understanding of the industry,” Madoff said. “Explain to me who else has received a sentence like that ... I mean, serial killers get a death sentence, but that’s virtually what he gave me.”
“I’m surprised Chin didn’t suggest stoning in the public square,” he said.
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