Money clawed back from Madoff scam may not reach his victims ... and some will lose even more

Richard Friedman

Targeted: Richard Friedman says his mother is being sued despite being a victim of Bernard Madoff

The news that about half of the money lost in Bernard Madoff's investment scandal would be recovered for his victims has come as little comfort to many who lost their life savings in the massive fraud.

Despite headlines announcing that up to $10 billion had been recovered from settlements and seizures - including $7.2bn from one investor alone - victims of the Ponzi scheme are unlikely to see any of it as it trickles down through court costs and various funds.

And some long-time Madoff investors who lost their fortunes face being sued for millions more by Irving Picard, the trustee handling the case.

These include Richard and Cynthia Friedman, a Long Island couple who recently learned that Richard's 85-year-old mother was one of hundreds of long-time Madoff clients being sued to recover money.

'He is going after innocent people,' Cynthia Friedman said of  Mr Picard, who announced on Friday that a jaw-dropping $7.2 billion settlement had been reached with one of Madoff's richest investors.

It left the Friedmans and other middle-income Madoff victims with mixed feelings.

Some fear that hedge funds will get the bulk of the cash being recovered, while others - especially those with modest incomes - worry that Mr Picard will continue to sue them for what's left of their scarce savings.

The recent claim against Mr Friedman's mother Shirley offered a blunt, familiar argument: Yes, the family's investment had been wiped out - but, over the many years Friedman had been a Madoff client, her annual withdrawals from his funds had exceeded the amount of her late husband's original investment.

As a result, according to Mr Picard, she owes $3.6 million.

Irving Picard
Bernard Madoff

Legal action: Trustee Irving Picard, above left, is suing smaller investors in the scheme of Bernard Madoff, above right, many of whom lost their fortune

To the family, targeting an old lady with Alzheimer's disease, and others like her, seems cruel.

Mr Friedman said: 'Many of these people are old, sick, and have been impoverished. Some of them are now terrified. They don't have money to pay an attorney.'

After two years of trying to claw back false returns paid to big banks, hedge funds and money managers who never questioned the unbelievable profits they were earning from Madoff, Mr Picard sent a wave of letters this month initiating legal action against a large group of smaller investors, including some who were wiped out in the scandal.

Mr Picard has expressed sympathy for the victims he is suing and acknowledges that a large number of them were unaware of the Ponzi scheme.

He said people with poor finances could enrol in a hardship programme that might exempt them from having to make payments.


Massive settlement: Barbara Picower, seen with her late husband Jeffry, has agreed to return $7.2 billion that her late husband made through Madoff

On Friday, the widow of Florida philanthropist Jeffry Picower agreed to return $7.2 billion her husband had received in profit over the decades from Madoff's fund.

Combined with other settlements and seizures, that brought the total amount of money available for victims to more than $10 billion, or about half of the money invested with the fraud king.

It isn't clear, however, just how many Madoff victims will ever see a dime of it.

Mr Picard has so far authorised payments to fewer than 2,400 of the nearly 16,500 Madoff customers who filed a claim for a share of recovered money.

'We must recover those funds and restore them to their rightful owners. However, and I underscore the however, we recognise that many individuals are not in a financial position to return all or even part of their excess withdrawals'

Many of those claims were denied because they were filed by people who had invested in Madoff indirectly, through a fund run by someone else.

They could still wind up receiving a share, but it will be up to the fund managers to redistribute any money they are awarded.

Other victims, like Shirley Friedman, were rejected because they had been living off interest generated by their Madoff accounts, and as a result had collected more money from the Ponzi scheme than they originally put in.

Mr Picard stressed that the money he was seeking was all stolen from other Madoff victims, many of whom lost everything as well.

He said: 'We must recover those funds and restore them to their rightful owners. However, and I underscore the however, we recognise that many individuals are not in a financial position to return all or even part of their excess withdrawals - and we are prepared, as we always have been, to work with them."

More than 200 people have entered the hardship programme so far, he said.

Mr Picard said he also preferred to settle, rather than fight, and had discretion not to seek money from people who couldn't afford to pay. 

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