Banking and Finance

Feeder Funds to Pay Nearly $500M to Madoff Liquidation Trustee

 NEW YORK — (Mealey’s) Two feeder funds of Bernard L. Madoff Investment Securities LLC (BLMIS) will pay nearly $500 million to settle all claims associated with their role in Madoff’s massive Ponzi scheme, according to court documents filed Monday in New York federal bankruptcy court (Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, No. 08-01789, [Irving H. Picard v. HSBC Bank PLC, et al., No. 09-1364] S.D. N.Y. Bkcy.).

According to a motion for entry of judgment filed by BLMIS liquidation trustee Irving H. Picard in the U.S. Bankruptcy Court for the Southern District of New York, the settlement with feeder funds Herald Fund SPC and Primeo Fund will benefit the BLMIS customer fund by nearly $497 million, pushing the total amount recovered by Picard during the liquidation proceedings to more than $10 billion.

Under the terms of the settlement, the money will be placed in the BLMIS customer fund, and the Herald Fund will receive nearly $1.6 billion in the liquidation, which entitles Herald to “catch-up payments from the four interim distributions to BLMIS victims to date.”

Further Distributions

“Out of these catch-up payments, the first approximately $497 million will be used to pay the amount owed by Herald Fund to the BLMIS Customer Fund. As of approval of settlement, Herald Fund SPC becomes an allowed claimant and will receive further distributions along with all other BLMIS customers with allowed claims not yet fully satisfied,” Picard says.

Both feeder funds are in bankruptcy proceedings in the Cayman Islands, and both deposited more in BLMIS than they withdrew before BLMIS’s bankruptcy was announced, according to Picard’s press release announcing the settlement.

Additional terms of the settlement include:

  • • “Herald will receive credit for $100,098,057 of the amount paid by JPM [JPMorgan Chase] to the Trustee, reducing the Herald Six-Tear Transfers from $567,800,000 to $467,701,943. Herald shall pay the Trustee 100% of the Herald Adjusted Six-Year Transfers.
  • • “Herald shall have an allowed customer claim in the SIPA [Securities Investor Protection Act] Proceeding in the amount of $1,639,896,943. The allowed claim is comprised of Herald’s net equity of $1,172,195,000, plus an increase of $467,701,943 under section 502(h) of the Bankruptcy Code. (Primeo did not file a customer claim.)
  • • “At Closing, the Funds shall pay or cause to be paid to the Trustee for the benefit of the customer property fund $496,844,288 in full and final satisfaction of the Trustee’s Claims, as follows:  (i) $500,000 from SIPC advance; and (ii) $496,344,288 from the catch-up distribution owed to Herald based on its Allowed Claim. This amount represents Primeo’s Settlement Payment of $29,142,345 and Herald’s Settlement Payment of $467,701,943” and 
  • • “At Closing, the Trustee shall pay Herald $258,975,845, consisting of the balance of the catch-up distribution owed to Herald under its  allowed claim.”

Counsel

Picard is represented by Marc E. Hirschfield and Oren Warshavsky of Baker & Hostetler in New York.

Herald Fund appeared pro se.

Primeo Fund is represented by Gary S. Lee of Morrison & Foerster in New York.

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