Big Recovery in Madoff Case; Fewer Clawbacks for Victims?

There was a major development today in the efforts of bankruptcy trustee Irving Picard to recover money for victims of Ponzi swindler Bernard Madoff, who left hundreds of South Florida families scrambling for money to cover their living expenses.

Barbara Picower, widow of one of Madoff's biggest investors, Jeffrey Picower, announced that she will return $7.2 billion dollars to Madoff victims.

According to the AP story:

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U.S. Attorney Preet Bharara called the settlement a "game changer" for Madoff's victims.

A recovery of that size would mean that a sizable number could get at least half of their money back -- a remarkable turnaround for people and institutions that thought two years ago that they had lost everything.

"Barbara Picower has done the right thing," Bharara said.

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I've also learned that a group advocating for victims hope the recovery is also a game-changer for the trustee's efforts to sue innocent victims in order to recover money.

"We hope the Trustee's great success in recovering these assets from guilty parties means that he will spare innocent victims from further lawsuits," said Ron Stein, President of the Network for Investor Action and Protecton, in a statement. "It is clear the Trustee will exceed expectations in his settlements with the complicit, and there is no reason why he should continue to claw back investors who played no role in the fraud."

I reported on Saturday about the two-year deadline for Picard to file lawsuits to recover money for investors. He has filed hundreds of lawsuits against investment banks, major investors and others who profited from Madoff's Ponzi scheme. That includes a number of lawsuits against smaller investors who may have taken more money out of their fund than they put in.

These lawsuits are called clawbacks and the money would be used to pay back those who lost money to Madoff.

However, Ilene Kent -- one of the founders of the Investor Protection group -- and daughter of Madoff victims -- has been advocating for an end to the clawback lawsuits against innocent investors for months.

"They're being told sorry your account statement means nothing, there's no insurance for you and by the way all the checks you wrote on this account, we want that money back," Kent said. "These were everyday people who built their businesses from nothing and they're only quote crime is investing it with a man who turned out to be a thief."

Kent's organization said in a recent letter to Picard that they applaud efforts to recover money from those who helped Madoff or should have known his business was a fraud. However, they said suing innocent investors with no knowledge of the scheme should be protected.

"Clawbacks are intended to pay back people who never took anything out and by the trustee's own calculations, he only needs 5.8 billion dollars to do that and he has lawsuits well, well, like ten times in excess of that," Kent said.

Kent said hundreds of investors are worried they might soon be served with a lawsuit seeking money they don't have.

"You've got a lot of people -- mostly older people -- sick people who really are just terrified because the laws they thought were there to protect them are being used against them," she said.

Victim Stephie Halio from Boca Raton agrees, although she and her husband lost their entire retirement savings to Madoff and returned to work in hopes of saving their home, and might stand to recoup money from clawbacks of other smaller investors.

"I wouldn't want to take bread off the table of innocent victims," she said. "I think it's so sad to sue people who've lost so much and expect them to pay more."