NEW YORK (AP) — The news that some of Bernard Madoff’s victims could be getting half their money back was of little comfort to Richard and Cynthia Friedman, and others who saw their life savings erased in the mammoth fraud.
Just days earlier, the Long Island couple learned that Richard’s 85-year-old mother was one of hundreds of longtime Madoff clients sued in recent weeks for millions by the trustee handling the case.
“He is going after innocent people,” Cynthia Friedman said of the trustee, Irving Picard.
Picard’s announcement Friday of a jaw-dropping $7.2 billion settlement from one of Madoff’s richest investors left the Friedmans and other middle-income Madoff victims with mixed feelings.
Some fear that hedge funds will get the bulk of the cash being recovered, while others — especially those with modest incomes — worry that Picard will continue to sue them for what’s left of their scarce savings.
The recent claim against Shirley Friedman, 85, offered a blunt, familiar argument: Yes, the family’s investment had been wiped out. But over the many years Friedman had been a Madoff client, her annual withdrawals from his funds had exceeded the amount of her late husband’s original investment.
As a result, according to Picard, she owed $3.6 million.
To the family, targeting an old lady with Alzheimer’s disease, and others like her, seemed cruel.
“Many of these people are old, sick,and have been impoverished,” said Richard Friedman. “Some of them are now terrified. They don’t have money to pay an attorney.”
After two years of trying to claw back false returns paid to big banks, hedge funds and money managers who never questioned the unbelievable profits they were earning from Madoff, Picard sent a wave of letters this month initiating legal action against a large group of smaller investors, including some who were wiped out in the scandal.
At a news conference Friday, Picard expressed sympathy for the victims he is suing and acknowledged that a large number of them were unaware of the Ponzi scheme. He said people with poor finances could enroll in a hardship program that might exempt them from having to make payments.
On Friday, the widow of Florida philanthropist Jeffry Picower agreed to return $7.2 billion her husband had received in profit over the decades from Madoff’s fund.
Combined with other settlements and seizures, that brought the total amount of money available for victims to more than $10 billion, or about half of the money invested with the fraud king.
It isn’t clear, however, just how many Madoff victims will ever see a dime of it.
Picard has so far authorized payments to fewer than 2,400 of the nearly 16,500 Madoff customers who filed a claim for a share of recovered money.
Many of those claims were denied because they were filed by people who had invested in Madoff indirectly, through a fund run by someone else. They could still wind up receiving a share, but it will be up to the fund managers to redistribute any money they are awarded.
“I don’t quite get how we will ever see a penny,” said Matt Weinstein. The motivational speaker, along with his wife, Geneen Roth, an author of best-selling books on compulsive eating, lost the bulk of their life savings in a Madoff feeder fund.
Peter Leveton, a Madoff victim who lives near Denver, said he worried that even if funds like the one he invested in do get paid, managers will use the money to cover their substantial legal fees and operating expenses.
“So, what trickles down is going to be a very small portion of what people invested,” he said.
Other victims, like Shirley Friedman, were rejected because they had been living off interest generated by their Madoff accounts, and as a result had collected more money from the Ponzi scheme than they originally put in.
“There are thousands of victims that (Picard) is saying owe him money, and these are people who had no knowledge of the fraud,” said Ronnie Sue Ambrosino, who leads a group of Madoff victims who have been fighting for restitution.
“I’m hoping that this $7 billion settlement will make him see the light and do the right thing and not pursue the other victims,” she said.
At his Friday news conference, Picard stressed that the money he is seeking was all stolen from other Madoff victims, many of whom lost everything, too.
“We must recover those funds and restore them to their rightful owners,” he said. “However, and I underscore the however, we recognize that many individuals are not in a financial position to return part or even all of their excess withdrawals and we are prepared, as we always have been, to work with them.”
More than 200 people have entered the harship program so far, he said. Picard said he also preferred to settle, rather than fight, and had discretion not to seek money from people who couldn’t afford to pay.
“We only know the problem these people have if they come forward and share the information with us, and then we can act,” he said.
If Picard is successful in only the biggest of his clawback actions, the total amount of money recovered for Madoff victims could exceed what they actually invested.
In just one lawsuit, he has sought $19.6 billion from a collection of banks associated with a Madoff associate in Europe, who he accused of being part of a criminal and fraudulent scheme to recruit new investors his Ponzi scheme.
(Copyright 2010 by The Associated Press. All Rights Reserved.)