Over a period of decades, Congress has enacted numerous statutes authorizing the DOJ to seek the forfeiture of assets generally representing either the proceeds of crime, or property used in the commission of crimes, to the United States. If a building, vehicle, boat, airplane or other property is used to commit eligible crimes, then (subject to certain limitations) the government can seize the asset and have it forfeited. Similarly, the cash proceeds of racketeering, narcotics trafficking, Ponzi schemes, and other criminality may also be forfeited to the United States.

In some types of cases, the proceeds of forfeitures may be used to fund law enforcement efforts. In this case, the forfeiture proceeds will be paid to the victims of the Madoff fraud.

SIPC proceedings for failed brokerage firms

Forfeiture proceedings through the Department of Justice

The final decision on every claim submitted to the Madoff Victim Fund will be made by a Ruling Official, who works for the Asset Forfeiture and Money Laundering Section of the DOJ’s Criminal Division. However, the Special Master and his firm, RCB Fund Services (“RFS”), will carry out the day-to-day work of preparing and reviewing claims, and making recommendations to the Ruling Official. While final approvals on all aspects of the claims and distribution process will be made by DOJ, the Special Master manages the processing of claims to enable distribution of funds as rapidly as possible.

Mr. Breeden is a former Chairman of the U.S. Securities and Exchange Commission (1989-1993). Last year, he and his firm distributed approximately $728 million to over 8,500 victims of the securities fraud at Adelphia Communications Corp. The Adelphia case, which was investigated and prosecuted by the U.S. Attorney’s Office for the Southern District of New York, is the largest single distribution of forfeited assets to victims in Department of Justice history, to date. Mr. Breeden and his colleagues have also handled asset distributions relating to securities frauds in the WorldCom, Enron, Bennett Funding, and other cases.

The Trustee and his team in the BLMIS bankruptcy proceedings have already spent several years assembling information regarding the accounts at BLMIS. That has included extensive work to verify the cash deposits, withdrawals, and transfers in each BLMIS investment advisory account. To the maximum extent feasible, the Special Master and the DOJ intend to avoid repeating work that already has been done, so that distributions from the Madoff Victim Fund can be made as quickly as possible.

The Special Master and his team are currently working with the Trustee’s team to obtain data that has been collected and analyzed, so that the Madoff Victim Fund will hopefully be in a position to utilize so-called “pre-populated” claims forms. If this approach proves feasible, we will send accountholders and other likely claimants forms that already contain account and claims information, in order to minimize the burden on Madoff victims. We will then work with claimants to correct, supplement, or confirm this claims-related information.

At present, the Special Master cannot determine what additional information, if any, we will require from each claimant or account holder. That will depend, in part, on a review of the data received from the Trustee. We will update this website promptly with information on the claims process as decisions are made. However, the team at RFS has handled distributions in many of the largest securities fraud cases over the past 20 years. Therefore, we are familiar with the process and challenges of collecting account statements and other data covering long periods of time. At the same time, if we find inconsistencies, gaps or other issues, we may need to ask for the data necessary to be certain claim amounts are measured accurately.

Some of the legal requirements for payments of remission under the laws applicable to forfeitures are different than the rules under SIPA that govern the customer fund and payments by the Trustee. For example, the forfeiture laws require that recoveries from all other sources (including payouts by the Trustee or advances from SIPC) must be deducted from claims for remission, so that no one recovers more than their fair share of the Madoff Victim Fund. The law governing forfeitures and remissions also requires that the facts underlying the claim must be certified under oath by the petitioner. Thus, there may be some additional information and certifications that will be required as the process unfolds.

No. It is part of the powers of a bankruptcy trustee to bring actions to “avoid” certain payments or transfers that took place prior to a bankruptcy. Those legal provisions, contained in the Bankruptcy Code, are fundamental to the process of recovering “customer property” from a failed brokerage so it can be equitably distributed among the former customers of the fund. The bankruptcy Trustee has used those powers extensively in seeking to recover assets for eventual distribution in the SIPA proceedings.

As Special Master of the Madoff Victim Fund, Mr. Breeden does not have either the power of a SIPA/bankruptcy trustee, or the obligation, to bring avoidance actions. The U.S. Attorney’s Office for the Southern District of New York already has recovered forfeited funds that will be distributed through the Madoff Victim Fund, and it is pursuing additional recoveries, as well, which will augment the Madoff Victim Fund. The Special Master’s role is simply to recommend to the Ruling Official within DOJ which claims to accept and which to reject, in whole or in part, based on the applicable law and the DOJ’s decisions in this proceeding. Our expectation is that this will allow the Madoff Victim Fund to be administered reasonably promptly and efficiently.

Not necessarily. Because the Madoff Victim Fund is completely separate from the SIPA process, settlement agreements previously reached by the Trustee with any party do not bind the Madoff Victim Fund. Therefore, it will be up to the Special Master in the first instance, and ultimately to the DOJ, to review any such agreements independently and decide what effect, if any, they should have on the forfeiture distribution process.

Yes, as required by the forfeiture laws, all payments already received from the bankruptcy Trustee, SIPC, or any other source in the past will reduce the amount of any victim’s claim. Similarly, future recoveries will reduce the amount of any claim on the Madoff Victim Fund.

The converse is also true. Payments you receive from the Madoff Victim Fund will be deducted from your total claim in the bankruptcy proceedings. Recoveries from either fund will reduce the remaining claim of a recipient to avoid double payment, so that no one recovers more than their fair share.