Madoff-Mets case may cost $6.2B, payout delayed

NEW YORK (Reuters)—Victims of Bernard Madoff's Ponzi scheme might recover as much as $6.2 billion less than previously estimated if a recent court decision involving owners of New York Mets baseball team remains the law.

A spokeswoman for Irving Picard, the trustee seeking money for former Madoff customers, said Tuesday's decision in the Mets case by U.S. District Judge Jed Rakoff in Manhattan could preclude the recovery of at least $2.7 billion and throws the recovery of at least $3.5 billion more "in question."

As a result of the decision, the biggest legal setback in his nearly three-year recovery effort, Mr. Picard delayed on Thursday an initial distribution of $272 million scheduled for Sept. 30 to former Madoff customers with valid claims.

The trustee said Judge Rakoff's decision raised several issues that require a "thorough evaluation of the impact, if any" on how much can be distributed and how to calculate payouts.

"We know how difficult this delay is for those who have waited so long to recover the money they lost to Madoff," Mr. Picard's chief lawyer, David Sheehan, said in a statement. He said payouts would be made "as soon as we possibly can."

The Ponzi scheme was uncovered on Dec. 11, 2008.

On Tuesday, Judge Rakoff threw out nine of Mr. Picard's 11 claims against Mets owners, including Fred Wilpon and Saul Katz, and reduced the size of that case to $386 million from $1 billion.

Mr. Picard had accused the owners, who were longtime Madoff customers, of having "willfully blinded themselves" to "red flags" of Mr. Madoff's fraud. The owners denied these allegations.

In his decision, Judge Rakoff said Mr. Picard could try to recover "fictitious" profits and principal paid out from Bernard L. Madoff Investment Securities L.L.C. only in the last two years of the Ponzi scheme, not the last six years as Mr. Picard sought.

Another part of the decision limited recoveries related to sums withdrawn during the last 90 days of the fraud, known as preference claims.

Mr. Picard is expected to appeal Judge Rakoff's decision. But if the decision is upheld and other judges follow its reasoning, payouts could be lowered on many of Mr. Picard's other lawsuits, which number more than 1,050.

The spokeswoman said the net difference between the two-year and six-year "look-back" periods could cost Madoff victims at least $2.7 billion, while the reasoning relating to preference claims could cost at least $3.5 billion.

Mr. Picard has said he raised more than $8.6 billion for Madoff victims, roughly half the estimated $17.3 billion in principal lost.

Much of the recovered sum raised has been tied up in litigation by former customers who challenged the trustee's methodology for determining losses and how much should be recovered from "net winners" in Mr. Madoff's fraud.

Former New York Gov. Mario Cuomo is mediating the Mets dispute. On Wednesday, Judge Rakoff set a March 19, 2012 trial date.

Mr. Madoff, 73, is serving a 150-year prison sentence.