The cost of fraud still hobbles victims of Bernard Madoff’s $65 billion Ponzi scheme: Howard Schupak, 62, for example, doesn’t know if he and his wife can ever retire from managing their New York-based building-supply company. He and others who suffered Madoff losses say that the man in charge of recovering and distributing their money is emerging as a winner — a claim that other bankruptcy lawyers aren’t so sure about.
It’s the recent approval of $37.6 million in fees for overall liquidation efforts — including $601,202 alone for Irving Picard — that’s setting off the victims. Picard, the court-appointed trustee, decides where the Madoff money comes from and where it will go. He is charged with liquidating Madoff’s firm and processing claims for recovery of Madoff money. He is also responsible for distributing up-front relief from the Securities Investor Protection Corp., a federally mandated corporation that offers a type of investors’ insurance.
Despite an objection filed by a group of victims, Judge Burton Lifland recently approved Picard’s fourth fee request, covering the period from February 1 to May 30. On September 14, Lifland greenlighted SIPC’s payment to Picard and $34 million to his firm, Baker & Hostetler LLP, in addition to about $3 million for 10 other firms listed as special counsel.
Though bankruptcy lawyers say the fees may not be outlandish — there is no basis for comparison, because this fraud trumps others in scope and complexity — some victims have cried foul. As they see it, the man who is supposed to limit their suffering is living large off their losses.
The judge also awarded B&H a total of $945,089 in reimbursements for the four-month period. According to court papers, the firm spent $87,147 on copying charges, $115,977 on online research, about $48,000 on local travel, more than $229,000 on out-of-town travel and $36,457 on business meals. Though these expenses seem large, said Boston bankruptcy lawyer Victor Bass, they make sense in proportion to the total legal fee.
“I think it’s grossly unfair,” Schupak said of the compensation. “I’m scraping around for nickels and dimes, trying to make my mortgage payment, while he’s collecting millions of dollars.”
Madoff was sentenced in June 2009 to 150 years in prison after confessing to what has been called the biggest financial swindle in history, defrauding thousands of people who invested what is now believed to be about $65 billion with him. The impact of the fraud is still unraveling, said Ilene Kent, a coordinator of the Network for Investor Action and Protection, a group that aims to shield investors from fraud. “It resonates throughout the Jewish community, with ramifications that I don’t think we’ve seen since Hitler.”
“Some people don’t have a pot to pee in,” said Kent, whose parents were Madoff investors. “I won’t begrudge anybody for making a living. What concerns me is how slowly he’s paying the victims while submitting huge legal bills.”
But according to Bass, of Burns & Levinson LLP, bankruptcy law lists compensation of the recovery operations as the first priority in distributing recovered funds — and customer compensation as the second.
The approval came after a court hearing and the objection by a group of victims represented by attorney Helen Davis Chaitman. The objections cited a conflict of interest and what was called a slow payment rate.
For the most recent payment period, Picard himself was awarded $601,202; B&H was approved for $33,981,534 — after a 10% public interest discount. According to Kevin McCue, the firm’s chief marketing officer, the number of lawyers working on the case “varies from day to day and week to week, depending on the legal issues that arise.”
“It would first seem that his rate is pretty high,” Bass said, but “$625 an hour is lower than what I would expect.” He added that bankruptcy law mandates that the cost of the trustee’s own fees can reach up to about 3% of money recovered. Picard had recovered $500 million by mid-August, according to his fee application. Including this last payment, he has been awarded $2,867,627, or 0.57% of recovered funds.
Picard’s fee application paints a detailed picture of the team’s billable hours. He has seized Madoff assets, from yachts to diamonds; initiated litigations in such locations as Gibraltar, Ireland, Canada and Bermuda; his team has issued hundreds of subpoenas; he had processed 13,286 customer claims by mid-August, committing to pay claimants $715 million; he consulted with outside legal and investigation firms, and authorized forensic accounting — all while fending off lawsuits from creditors and alleged Madoff co-conspirators.
But some victims, such as Ronnie Sue Ambrosino, a retired computer analyst, say that Picard’s interpretation of bankruptcy law amplifies his bills. Picard measured losses by tracing account histories, limiting SIPC claims to the difference between the amount of money put into an account and the amount withdrawn. Victims assert that the calculations should be based on the last account statement received.
While victims complained about the slowness of recovery, Maryland bankruptcy lawyer Richard Rosenblatt said that it was not out of the ordinary. “This is going to be a relatively slow process because it’s so massive,” he said. “The fraud is huge. Madoff may have hidden money in places where it hasn’t been found yet.”
This tension is part and parcel of Picard’s delicate mission, Bass said. “Depending on the size of the accounts or how much publicity it gets, it’s not uncommon to be upset that the trustee or his lawyers are getting paid a lot of money,” he said. “The trustee is just the guy who’s hired after the fact to come and clean up the mess. They can only get anything if the trustee is successful. They should be hoping and praying for his success.”