Michael J. Kline writes:
The Securities Investor Protection Corporation (SIPC) issued a news release that “[n]early $2.5 billion in checks were mailed Wednesday (September 19, 2012) to victims in the liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS).” In doing so, SIPC also applauded Trustee Irving Picard for his efforts in making the distribution possible. According to SIPC,
Approximately $17.3 billion in principal is estimated to have been lost in the Ponzi scheme by direct BLMIS customers who filed claims. When combined with the funds already returned to BLMIS customers, the second interim distribution satisfies more than 50 percent of the total Madoff accounts with allowed claims.
Previous Installments in this blog series, most recently Installment 82 and Installments referenced therein, discussed the potential impact that such Picard Distributions may have on the diverse and somewhat divergent interests among the Wilpons and how the Wilpons may try to address such impact. (Capitalized terms not otherwise defined herein have the meanings as defined in Installment 82.)
The earlier Installments focused on possible conflicts and controversies that may be created among the interests of those of the Wilpons who are Allowed Parties holding the aggregate $178 million in Allowed Claims against the Madoff Estate that will not be actually paid out of Picard Distributions but have been or will be offset against the $162 million in aggregate Wilpon Liabilities of the Liable Defendants.
It would appear that the SIPC news release focused on the 53% of specific accounts of allowed claimants that have been satisfied, not the percentage of total allowed claims that have been paid. However, Section 2(c) of the Settlement Agreement among the Wilpons and Picard retroactively credited the Allowed Claims of the Wilpons (and required a corresponding offset against Wilpon Liabilities) in the amount of $8,171,451 or 4.602% of the first Picard Distribution that was made on or about October 5, 2011. Therefore, let us assume that, at this point, there has not been a great change over the last year in the total allowed claims of “good faith” customers of BLMIS. In such a case, application of the deemed percentage of 4.602% to the current $2.5 billion Picard Distribution for the Allowed Claims of Allowed Parties among the Wilpons would yield approximately $115,000,000.
When the two Picard Distributions are added together, the deemed offset against the Wilpon Liabilities would appear to be as much as approximately $123,000,000, with $39,000,000 of the total of $162,000,000 in Wilpon Liabilities remaining. Even if the deemed percentage is considerably less than 4.602%, a substantial portion of the Wilpon Liabilities has already been satisfied. (As an aside, that event provides no satisfaction to the hapless New York Mets baseball fans who suffered through a heart-wrenching three-game home series sweep at the hands of the Philadelphia Phillies, the final straw of which was an ignominious 16-1 defeat last night.)
Installment 82 had suggested that, to minimize conflicts and controversies and with adequate advice of counsel to the involved parties, an Allocation Agreement be entered into among all the Wilpons that are affected by the Settlement Agreement with Picard, in order to provide for Allowed Entities to be compensated for the use of their Allowed Claims for the benefit of the Wilpons as a group and the specific Liable Defendants under the Settlement Agreement. Payments among the Wilpons under such an Allocation Agreement to date could be as much as $123,000,000. While the Wilpons may have successfully limited (and perhaps have already been deemed to have substantially satisfied) their external cash outlays to the Madoff bankruptcy estate under the Settlement Agreement with Picard, resolving rights and obligations among the holders of Allowed Claims and Liable Defendants could be challenging and result in a significant shifting of assets among the Wilpons.
(Michael J. Kline, Esq., the author of this entry and a co-author of this blog, is a partner with Fox Rothschild LLP, based in our Princeton, NJ office, and is a past Chair of the firm’s Corporate Department. He concentrates his practice in the areas of corporate, securities, and health law, and frequently writes and speaks on topics such as corporate compliance, governance and business and nonprofit law and ethics.)
[To be continued in Installment 85]