NEW YORK When he was first told in 2008 about Bernard Madoff's epic Ponzi scheme, attorney David Sheehan had a response that now sounds inconceivable.
"Who," he wondered, "is Bernie Madoff?"
Four years after Madoff's arrest, Sheehan would end up earning the equivalent of a doctorate on the disgraced financier.
Irving Picard, the trustee appointed to recover funds for Madoff victims, and a battalion of lawyers headed by Sheehan have spent long days untangling Madoff's fraud. On the fourth anniversary of Madoff's Dec. 11, 2008, arrest, it's an international effort that shows no signs of slowing.
So far, they have secured nearly $9.3 billion of the estimated $17.5 billion that thousands of investors put into Madoff's sham investment business. In a recent interview, Sheehan said his team at the Manhattan law firm of BakerHostetler is hopeful it can recover at least $3 billion more, cutting investors' losses to around $5 billion. Of the money collected so far, about $3 billion has been approved for redistribution to victims through an ongoing claims process.
It's an outcome that neither Sheehan nor Picard thought possible at the outset.
"I don't think either of us thought we could achieve these results," Sheehan said. "There's never been any case like this."
Sheehan described the task first faced four years ago as daunting: It required cracking the code on a secret Ponzi scheme that spanned decades and victimized thousands of customers on a scale never seen before. Madoff, 74, pleaded guilty and is serving a 150-year sentence.
"We had to reconstruct this from ground zero and put it back together again," Sheehan said.
After examining the books at Bernard L. Madoff Investment Securities LLC, lawyers quickly realized that statements showing investors held more than $60 billion in securities were fiction.
Madoff made no investments. Instead, principal was simply being paid out bit by bit to other investors.
Having to hammer home that reality - over and over - to disbelieving investors was one of the first major hurdles, Sheehan said. Win or lose, Madoff clients were only entitled to what they put in.
Investors who had reaped fake profits had to accept they had "someone else's money," Sheehan said. "We had no choice but to get it back."
Last year, an appeals court concluded the trustee's calculation was "legally sound" and that a bankruptcy court was correct when it rejected arguments from lawyers for investors who said their clients should receive more than what they initially gave to Madoff.
Picard couldn't be expected "to step into the shoes of the defrauder or treat the customer statements as reflections of reality," the court said.
Most of the conflicts over what's owed to the burned clients have been resolved without a serious fight. But in scores of other cases, the trustee has sued wealthy individuals and institutions, claiming the defendants knew or should have known their returns were fraudulent and asking a judge or bankruptcy judge to force them to return them.
The litigation has resulted in a series of settlements, including a historic $7.2 billion deal with the estate of Jeffry Picower, a close Madoff associate who drowned in 2009 after suffering a heart attack in the swimming pool of his Palm Beach, Fla., mansion.
A lawsuit against the owners of the New York Mets was settled last spring in a deal that called for them to pay up to $162 million after four years. The deal was structured so that the owners will likely pay much less than the maximum depending on what happens to their own claims against Madoff's estate.
Picard is "a very aggressive advocate of the people who were scammed," said Richard Roth, a Manhattan securities lawyer.
"While his aggressiveness has been a topic of controversy, as several institutions object to it, in light of the extent of the fraud, he has been a strong, positive advocate for those individuals whose money was stolen by Madoff," Roth added.
Still, Picard has had to fend off accusations that he's dragging out the process because it's a windfall for his firm. He's so far sought more than $600 million in fees for work done between Sept. 15, 2008, and Sept. 30 of this year - money that comes from a federally-authorized nonprofit, not from Madoff victims.
Sheehan said the critics are ignoring the true magnitude of the fraud and the work still needed to get what's recoverable, some of it overseas. The trustee is involved in Madoff-related "litigations, investigations and proceedings" in Great Britain, Spain and Israel and is chasing customer money throughout the Caribbean, Sheehan wrote recently on a Madoff victim-information website.
On balance, Picard "is doing a good job" with a recovery process that usually fails to satisfy fraud victims, said Jeffrey Klink, a former federal prosecutor who runs his own private investigative firm that researches the safety of potential investments and performs fraud probes.
With most investment swindles, once "the money is gone, the odds of getting most of it back are almost zero," Klink said. "The investors end up holding the bag."