ROBERT SIEGEL, HOST:
This is ALL THINGS CONSIDERED from NPR News. I'm Robert Siegel.
Just over four years ago, the Ponzi scheme operated by Bernard Madoff came to light. The onetime NASDAQ chairman had been paying high returns for years. He's now in prison, of course. And the people who invested with him want their money back.
A couple of years ago, Irving Picard, the court-appointed trustee who was charged with recovering what he could of investors' money, figured that all told, over $17 billion had been invested with Madoff. Investors, taken collectively, thought their investments had risen to $57 billion. Well, Picard said that he had located about $7.5 billion. That was back in 2011. And Mr. Picard and his counsel and colleague David Sheehan join us now from New York for an update. Welcome.
IRVING PICARD: Thank you.
DAVID SHEEHAN: Thank you.
SIEGEL: And first, Irving Picard, at this time, how much money has been recovered and returned to Madoff's investors?
PICARD: Well, at this time we've recovered approximately $9.3 billion. And with the distribution that we expect to make in March, we will have returned approximately $5.4 billion. That will actually satisfy over 50 percent of people with the wild claims. So we're well on our way towards, hopefully, reaching out to everyone, but we're over 50 percent already in terms of satisfying people completely who've had their claims allowed by the trustee.
SIEGEL: And what will happen with the other billions?
PICARD: Well, the other money is being held at the moment in reserve. We have a number of claims that haven't been allowed, and we'll be entitled to some money in the future. And we have a number of litigations that have required us to retain almost $4 billion in reserve.
SIEGEL: Well, second, the two of you, Mr. Sheehan and Mr. Picard, have spoken this week about a new theory you have of how Madoff operated for so long, paying returns to investors effectively with the capital given to him by new investors. Mr. Sheehan, you've said that major financial institutions used Madoff the way he used his investors. What does that mean?
SHEEHAN: Well, the fraud started out as an affinity fraud where he preyed upon relatives, friends, et cetera. But as it grew and the need for cash in a Ponzi scheme is paramount, he kept looking for more money. And as a result, he started bringing in feeder funds, which are, I guess, the equivalent of what would be, like, people would invest in a mutual fund. But these are high-net-worth individuals investing literally millions and millions of dollars in feeder funds. And the largest one, Fairfield, for example, had over $3 billion invested with Madoff.
Financial institutions such as JPMorgan Chase and many, many other banks saw those funds as ways of investing some of their clients' money, and they knew exactly where the money was going. They knew it was going to Madoff. They did the due diligence on it and so they did know enough information. We have lots of emails that indicate that they were fully aware of this, but they went ahead and invested. So at the end of the day, they were as much part of this fraud as everyone else.
SIEGEL: I believe JPMorgan Chase has denied any wrongdoing here at all. But when you say that they did due diligence and they knew what they were doing, are you saying they knew that Madoff really wasn't investing in anything and that it was a fake?
SHEEHAN: No. I'm not saying that at all. What I'm saying is that what they saw was that, for example, if you were investing with him and you asked him where he kept the money (unintelligible), he would tell you he's not going to give you that information. If you asked him what the strategy was, he would tell you that as well. And there were many people in the industry who did not invest in Madoff because he would not answer those questions. What I'm saying is that when they did the due diligence and didn't get the answers that they should have gotten, they went ahead nonetheless and made the investment anyway.
SIEGEL: You're saying they ran a red light, that they (unintelligible) is what you're saying.
SHEEHAN: Exactly. Perfectly put.
SIEGEL: Well, Mr. Picard, does this change the prospects of recovering the other, whatever it is, $8 billion that was invested with Madoff?
PICARD: Our goal is to recover at least that amount of money. We have pending litigation and we have some appellate cases, and we're hoping and expect to get some good decisions that will help us on the way to collect that.
SIEGEL: Well, I guess if the market is a measure of the success of your work, then you're doing pretty well because I gather people are buying Madoff's debt claims. You know, did I see 70 cents on the dollar is what it was going for?
PICARD: What we've heard is that as high as 77 cents is being paid for this, which is a phenomenal amount of money to be paid for a claim, and I think it is a tribute to the success that we've had to date.
SIEGEL: Who said that was better than Greek debt? Which of you...
SHEEHAN: I did.
SIEGEL: You did.
(LAUGHTER)
SHEEHAN: There's no question that...
SIEGEL: It's a low standard, but it is...
SHEEHAN: It is. It is. But we're one of the best distressed debts out there, come on.
SIEGEL: Of course, what that means is, I mean, when people come in and buy what hasn't been collected yet, the original investors are getting reimbursed by that, yes?
PICARD: That's right.
SHEEHAN: That's right. It's given them an opportunity to monetize their claim. And we have a lot of elderly people and people with medical problems, so this has given them an opportunity to get money back, maybe not the whole hundred percent but get money back without having to wait that extra four or five years.
SIEGEL: Of course, what that means is if I say, boy, I lost $1 million that I had set aside, you know, for 40 years of investing that I put in with Madoff, I may be able to collect $770,000 for that, take away some fees. But I actually thought I had like $3 million. I thought that - my book show that I was set because of the...
SHEEHAN: Mm-hmm. That's right. That's really the very unfortunate part of this. Everyone that invested with Mr. Madoff was victimized, not just the people who didn't get their money back, but all the people who were relying on those statements.
SIEGEL: Last year, we learned from The New York Times' Andrew Ross Sorkin that you and other lawyers had received over $500 million in fees, not from the Madoff investors, but from the fund that insures investors against fraud. What's the total of fees up to these days?
PICARD: The fees are over $600 million. And as you noted, they are paid by the Securities Investor Protection Corporation.
SIEGEL: But - I mean, you can - that does sound like a colossal amount of money. I assume - you have to explain, it's not the two of you making 300 million each here.
SHEEHAN: That's correct. There are many people working on the case. What we're looking at here is the largest and most complex fraud in history. It spanned at over 40 years. So it's more the size and scope and nature of it that drives the legal fees. And I think the proof is, as they say, in the pudding, is that at the end of the day, the result that we have achieved, and from our standpoint, justify the expenditure today.
If we've spent all this money and had come up dry, I could see everyone suggesting, oh, my goodness. What were they doing? But here, what we have is yes, a lot of money - no question. no one's ever going to say otherwise - being spent but very well on very well-thought-out courses of action that have resulted in great results for the victims who now have over $5 billion returned and the prospect of billions more being returned.
SIEGEL: Well, Irving Picard and David Sheehan, thank you very much for talking with us today about the Madoff case.
PICARD: Very happy to be here.
SHEEHAN: Thank you.
SIEGEL: Court-appointed trustee Irving Picard and his counsel and fellow lawyer David Sheehan are working to recover money lost in Bernard Madoff's Ponzi scheme. Transcript provided by NPR, Copyright NPR.