A federal bankruptcy judge ruled Tuesday that thousands of clients of funds that invested money with fraudulent financier Bernard Madoff do not qualify for payouts aimed at reimbursing Madoff's customers because the clients did not hold accounts in their names and they gave control over their investments to the managers of the funds.
The ruling by U.S. Bankruptcy Judge Burton Lifland means the investors cannot recover up to $500,000 from a fund created to reimburse small investors who are victims of fraudulent schemes. Lifland noted that the customers entrusted no cash or securities with Madoff, received no account statements or other communications from him, and had no transactions reflected on Madoff's books.
The ruling came in a case brought on behalf of 16 feeder funds or hedge funds that invested with Madoff through at least 19 separate accounts. This, though, was only a small subsection of all the feeder funds that invested with Madoff before his private investment company collapsed with his arrest in December 2008. Lawyers for the funds did not immediately return a telephone message for comment. The funds included limited partnerships organized under Delaware or New York law and companies in the Cayman Islands and British Virgin Islands.
The ruling by the Manhattan jurist was consistent with the findings of the Securities and Exchange Commission and the Securities Investor Protection Corp. A court-appointed trustee has denied two-thirds of more than 16,000 claims on the grounds that they were filed by individuals who did not have direct accounts with Madoff.
Madoff is serving a 150-year prison sentence after admitting that he cheated thousands of investors out of the roughly $20 billion they had invested. Just before the two-decade fraud was exposed, Madoff informed the investors in statements that their original investments were worth more than $65 billion. In fact, only a few hundred million dollars remained.