Irving Picard, the liquidator for Bernard Madoff’s investment advisory business, has asked a judge to approve $22.1 million in fees for him and his team with the law firm Baker & Hostetler LLP, for five months of work on the case. The fees, which include a ten percent “public interest discount” from the firm’s normal rates, cover work performed on the liquidation from 1 May through 30 September, according to a filing in U.S. Bankruptcy Court in New York.
Picard, hired by the Securities Investor Protection Corp. to recover assets and repay victims, won his first request in August for $14.7 million in fees for work from 15 December to 30 April. Some victims objected to that request, claiming Picard was burning through cash while approving victims’ claims too slowly. Picard has recovered about $1.4 billion in assets for victims who thought they had $65 billion in their accounts. He is also seeking the return of about $15 billion in fake profit through so-called clawback lawsuits against Madoff’s biggest investors and beneficiaries, including Madoff’s wife and sons.
“No single document could comprehensively set forth all of the tasks engaged in by the trustee since his appointment,” Picard said in the filing. “This task is ongoing and will be engaged in for a number of years in order to fully understand the scope and depth of the fraud perpetrated by Mr. Madoff.”
Picard is seeking a hearing on the matter before U.S. Bankruptcy Judge Burton Lifland, who approved the previous request. Additional fees for international law firms and forensic accountants on the case will also be considered. The new fee request averages $4.42 million a month for five months of work, or about $210,476 per business day. That’s more than Picard’s first fee request, which averaged $3.67 million a month for four months, or $175,000 per business day.
“Unfortunately, one of the problems we have in the way these cases are managed is that there’s very little oversight in relation to fees,” Stephen French, a partner at Legalbill.com LLC, a firm that analyzes legal costs for companies, said today in a phone interview. “There’s no specific set of expectations that he is placed under that he could then be held accountable to.” If approved, the fees will be paid by SIPC, which is overseeing the liquidation and is financed by the brokerage industry. Some victims argued after the first fee request that SIPC is low on cash and needs the money to make required payments of as much as $500,000 for each account.
Picard says his fee payments won’t come from money earmarked for victims, and SIPC has repeatedly said that it isn’t low on cash. The Washington-based entity recently requested an increase in its U.S. Treasury line of credit to $2.5 billion from $1 billion and increased fees it charges member firms, SIPC President Stephen Harbeck said in an interview last week.
Picard in October said he had approved initial repayments of $534.2 million to 1,558 victims who invested directly with Madoff’s firm. Another 1,303 victims had their claims denied. The payments are considered to be SIPC advances on the group’s allowed claims of $4.43 billion. Victims with allowed claims will receive a share of the money Picard recovers.
One time-consuming dispute in the liquidation, based on a review of court filings, stems from Picard’s method for calculating claims in the case by using victims’ cash deposits minus their withdrawals. Hundreds of victims argue that years’ worth of fake profit should be included. A judge will decide if Picard’s method is correct at a hearing scheduled for 2 February.
“I don’t begrudge an attorney his fees for work performed, but this is just another kick in the stomach to the victims he continues to make life miserable for,” Helen Chaitman, a lawyer and a Madoff victim who sued Picard over his claim-calculation method, said in an email. “This is a travesty of justice.”
Madoff, 71, pleaded guilty in March and is serving a 150-year sentence. The global nature of the con man’s fraud has resulted in extensive international legal work for Picard and his team, including lawsuits against “feeder funds” that directed customer money to Madoff.
Picard has filed lawsuits in Europe and throughout the Caribbean, including Bermuda, the Cayman Islands, and the British Virgin Islands and hired International law firms in all of these jurisdictions, according to the filing. Picard’s share of the fee request is $835,605, based on 1,198 hours of work on the case at a rate of $697.50 per hour, according to his filing. Picard spent 385 hours reviewing claims, 68 hours working on previously filed lawsuits, and 92 hours responding to press inquiries, he said. “The trustee has expended a substantial amount of time in connection with his efforts to liquidate the estate, advance the cause of customer-claimants and initiate litigation and negotiations for the return of customer property,” Picard said of himself in the filing.
24 November 2009
Nice work if you can get it
Erik Larson has an article at Bloomberg.com about the latest twist in the Bernie Madoff saga; the case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan):
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This press release was published in July.
FOR IMMEDIATE RELEASE
Contact: Ronnie Sue Ambrosino
Coordinator,
BernardMadoffVictims.org Coalition
Email: Madoffcoalition@gmail.com
MARY SCHAPIRO ANSWERS THE QUESTION MADOFF VICTIMS HAVE BEEN ASKING FOR 7 MONTHS
Mary Schapiro, newly appointed Commissioner of the SEC was the only witness in a Congressional Hearing on July 14th. Her testimony before the United States House of Representatives Committee on Financial Services, Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises, gave former Madoff investors the answer as to why they have not received up to $500,000 from SIPC based upon their November 30, 2008 statements, as required under the Securities Investor Protection Act (“SIPA”).
When asked by Congressman Gary Ackerman (D-NY) “Which investors are eligible for their SIPC insurance?”, Ms. Schapiro hesitated, adjusted the microphone, then replied, "It shouldn't be such a difficult issue but it is." She then goes on to say, "The tragic truth is there is not enough money available to pay off all the customer claims." (source: http://www.house.gov/apps/list/hearing/financialsvcs_dem/cmhr_070709.shtml)
Stephen Harbeck was named President and CEO of SIPC in 2003 and at that time he said, “ When SIPC was founded in 1970, Congress stated that one of the primary purposes of the legislation was to restore investor confidence in the markets.” (source: http://www.sipc.org/media/release01dec03.cfm¬)
SIPC was created in 1970 after the Securities and Investor Protect Act (“SIPA”) was passed. Senator Edward S. Muskie, the prime mover in Congress behind the idea that investors should be protected against brokerage failures, was impressed enough by the SEC's arguments to incorporate most of them into his bill to set up a corporation to insure investors.
(source http:/www.time.com/time/magazine/article/0,9171,878871-2,00.html)
The Madoff investors received trade confirmations for every security they believed was bought and sold by the broker/dealer. Each trade confirmation confirmed that Madoff was a member of SIPC and thus investors believed Mr. Harbeck’s and Senator Muskie’s words and felt assured their accounts were protected (up to $500, 000).
On Tuesday, Ms. Schapiro told the world that SIPC is a mere façade and that its protection is nonexistent because SIPC and the SEC failed to charge the securities industry a realistic price for the alleged SIPC insurance.
SIPC has access to a $1 billion line of credit from the SEC and a $1 billion line of credit from the US Treasury, both of which would have to be repaid by the securities industry. However, the securities industry benefited over the last 39 years by having hundreds of billions of dollars of Americans’ savings invested in street name securities to the enormous enrichment of Wall Street. It is a national outrage that Ms. Schapiro claims SIPC can’t afford to honor its statutory obligation to innocent American investors whose only mistake was assuming that the SEC was competent.
Lack of proper funding is not the investors’ responsibility. SIPA provides that “SIPC shall have the power to borrow moneys and to evidence such borrowed moneys by the issuance of bonds, notes, or other evidences of indebtedness” (source sipc.org). The SEC has a statutory obligation to assure that SIPC borrows sufficient funds to pay off the obligations to all Madoff investors immediately. Although more than 15,000 claims have been filed, as of July 9th, SIPC had paid only 561 claims of Madoff investors.
(source: http://madofftrustee.com/AdditionalInformation.html
(continued on next comment)
(continued)
In order to avoid SIPC’s statutory responsibilities, the SEC has conspired with SIPC to invent a totally new definition of “net equity” which limits investors to recovering their net investment, rather than the balance on their last statement. Thus, an investor who invested $100,000 in 1996 and had a last account statement (dated November 30, 2008) showing a value of $800,000 would only get $100,000 from SIPC. Under SIPA’s clear language, and under 38 years of SIPC’s compliance with SIPA, that investor is entitled to a claim of $800,000 and to $500,000 in SIPC insurance.
As is clearly evident, Mr. Picard’s false definition is obviously a way to work around the shortage of funds that Ms. Schapiro confessed exists.
Two days after Ms. Schapiro’s stunning proclamation that there aren’t enough funds to pay all the customer claims, investors received a notice from the court that Irving Picard and his firm, Baker & Hostetler, submitted the First Application for Interim Compensation for Services Rendered and Reimbursement of Actual and Necessary Expenses Incurred. These fees include $14,662,319.83 for Baker & Hostetler LLP and an additional $759,228.75 for Irving Picard, Esq. (Source: http://www.scribd.com/doc/17270706/Baker-Hostetlers-Interim-Fee-Application ). Legal fees are paid out of the SIPC funds.
In the 7 months since Bernard Madoff turned himself in to authorities, the victims have been asking why they aren’t being paid the SIPC insurance money they are entitled to. This week, Mary Schapiro gave them the answer, albeit the wrong answer. Now, the victims are hearing that the very man, Irving Picard, who has created a false premise for not paying the victims what they are legally entitled to is asking for more money (for 4 months of work) than he is willing to pay any one single victim. The logic (or lack thereof) is astounding. The legality is non-existent.
The Madoff investors who are the victims of the SEC’s incompetence demand that Ms. Schapiro and her agency take their mandated responsibility and follow that law.
If the SEC does not step up to the plate, the victims are asking Congress to intervene.
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The bankruptcy system is a license to steal. I've never heard of a case where the court-appointed trustees didn't get whatever outrageous fee they wanted to charge.
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