Millions Paid to Administrator, Zero to Victims of Madoff

By Eric Larson / Bloomberg News

A firm hired by the U.S. to distribute $4 billion to victims of Bernard Madoff’s Ponzi scheme has racked up $38.8 million in billings over four years. The investors are still waiting for their first checks, though.

The Justice Department disclosed its payments to Richard Breeden, the Madoff Victim Fund administrator, in response to a Freedom of Information Act request from Bloomberg News. Breeden’s fees, which are being paid from cash in the fund, cover his work through 2016.

The delay highlights how, 8 1/2 years after Madoff’s arrest, investors are still scrambling to recover money from a U.S. fund that was announced with great fanfare. Victims have recovered billions of dollars from another fund, but they have yet to be made whole.

“It’s very frustrating that people are making money off us like this, using money that was recovered for victims,” said Daphne Brogdon, a Food Network personality, whose family lost about $5 million in the Madoff scam. “They’re eating away at whatever percentage we could possibly get.”

Messages left with a representative of Breeden’s firm, RCB Fund Services, weren’t returned. Justice Department spokeswoman Dawn Dearden declined to comment on the fees or claims process but pointed to information on the fund’s website.

“We now expect that the initial distribution will take place sometime in 2017 and will be larger than we originally had anticipated,” Breeden, a former chairman of the U.S. Securities and Exchange Commission, wrote on the website.

The compensation fund was created in December 2012 to repay thousands of Madoff’s victims after the U.S. seized $2.4 billion from the estate of one of his biggest investors, the late Jeffry Picower. The fund grew by $1.7 billion following a 2014 forfeiture deal with Madoff’s bank, JPMorgan Chase & Co., which was accused of turning a blind eye to the scam.

Breeden, 67, estimated in February 2016 that as many as 40,000 victims would get initial payments by the end of that year. They didn’t. An update on the website in January cited the time-consuming claims process and issues with inadequate paperwork from some victims.

The Justice Department is “notoriously slow” making decisions on forfeited assets, said Jon Barooshian, a white-collar defense lawyer at Bowditch & Dewey in Boston who has dealt with forfeiture issues.

“I’m surprised it’s taking so long, but I don’t know if the fault will fall at Richard Breeden’s feet. It might be more of an internal DOJ issue,” said Barooshian, who isn’t involved in the Madoff case.

By comparison, Irving Picard, who is overseeing the liquidation of Madoff’s firm, has paid out more than $9 billion since 2009. Picard, a lawyer at Baker & Hostetler LLP, brought numerous lawsuits to recover assets, and his fund is administered separately from Breeden’s under different U.S. laws.

Picard has racked up considerable fees himself, telling ABC News in 2015 that his firm might collect as much as $1 billion when all is done. He called it a “very good return on an investment.” His fees are paid by the industry-financed Securities Investor Protection Corp. rather than from money recovered for victims.

Heather Wlodek, a spokeswoman for Baker & Hostetler, declined to comment.

Breeden will eventually make recommendations to the Justice Department’s Money Laundering and Asset Recovery Section on which claims to pay and which to deny. His firm has already been paid the $38.8 million in fees, the Justice Department said.

Madoff, 79, pleaded guilty to fraud in 2009 and is serving a 150-year sentence. His victims lost a combined $17.5 billion in principal, though their final account statements totaled about $64 billion including profit from bogus trades.

Picard accepted claims only from Madoff’s direct account holders. That meant customers of so-called feeder funds, which directed cash to Madoff’s firm for years, weren’t eligible. Feeder funds could, however, file claims with Picard and repay their investors if they received payments from the trustee.

Breeden accepted claims from all Madoff investors, including feeder funds. That increased the amount of work, particularly because Madoff’s records don’t have any information about feeder-fund customers that could be used to verify claims.

In 2013, the fund’s website said the process “is moving forward toward necessary decisions in the relatively near term.” A year ago, Breeden said he was preparing to recommend approval of more than 25,000 claims covering almost $4 billion in losses, but he didn’t say when checks might go out. He also said the fund would recommend denial of more than 7,500 claims covering more than $25 billion that didn’t satisfy requirements of the plan.

Breeden’s hiring at the end of 2012 came months after he handed out more than $728 million to about 8,500 Adelphia Communications Inc. victims, which he described as “the largest single distribution of forfeited assets to victims in Department of Justice history.”

He had less luck a few years earlier. In 2010, New York City’s $36 billion pension fund for civil-service employees fired Breeden’s money-management firm, Greenwich, Connecticut-based Breeden Capital Management, following losses on his investment in retail jeweler Zale Corp. The pension fund had paid the firm $6.2 million in fees, according to the city comptroller’s records. At the time the city fired Breeden, Maryland and California had also lost money in their Breeden investments.

After the SEC in 1993, Breeden was chairman at accounting firm Coopers & Lybrand and was the court-appointed monitor for WorldCom Inc., the telecommunications company that imploded after an accounting scandal. In all, Breeden distributed more than $80 billion to claimholders in 139 countries in cases that included Enron Corp., according to his website.