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The Madoff Victim Fund, or MVF, is the vehicle that the United States Department of Justice, or DOJ,  will use to distribute more than $4 billion in assets forfeited to the United States to victims of the crimes involving Madoff Securities. These funds were obtained for victims by the United States Attorney for the Southern District of New York through forfeiture actions against various persons involved with Madoff Securities.

The Special Master charged with administering the MVF has announced procedures on how victims can make a claim against the MVF.  The claims procedure is an additional procedure that must be undertaken in addition to the SIPC claims procedure.  All claims must be mailed to the Madoff Victim Fund and postmarked no later than February 28, 2014.

More information and the claim forms can be found at the MVF website.

What Are the Principle Differences From the SIPC Procedure?

SIPC denied all claims by indirect investors in Madoff Securities through “feeder funds” or other entities.  Only direct account holders were eligible for SIPC claims.  However, indirect investors through feeder funds and other entities will be eligible to make claims against the MVF.

Direct account holders who have allowed SIPC claims are also eligible to make claims, unless they have already recovered the full amount of their loss. One exception to this is “conduits,” “feeder funds,” or other indirect investment vehicles that had direct accounts with Madoff Securities may not meet the eligibility standards if the invested funds belonged to underlying investors rather than to the conduit itself.  Though “conduits” will generally not meet the definition of “victim” for purposes of MVF, to facilitate the administrative process of documenting losses, conduits will be allowed to submit claims on behalf of their underlying investors. Individual investors are urged to submit their own claims however.

The SIPC trustee generally looked at claims on an account-by-account basis.  The claim forms indicate a different process may apply for the MVF.  MVF will aggregate the deposits and withdrawals in multiple accounts of a single investor, and among multiple investors, wherever DOJ determines that there is a “unity of interest” between two or more investors or accounts. Where a unity of interest is determined to exist, these accounts will be consolidated for purposes of determining the combined “net loss.”

Who Will Be the Primary Beneficiary of Distributions From the MVF?

Because of the Special Master’s plan to distribute the MVF as disclosed to date, I expect indirect investors will be the primary beneficiaries of distributions from the MVF.  The simple reason is they have not yet been compensated for any loss.

As to direct account holders, I expect the primary beneficiaries will be those who had all or a portion of their SIPC claim denied because they received a so called “preference payment.”  I expect the same will not always be true for direct account holders who had all or a portion of their claim denied because it was a “fraudulent conveyance.”  The reason is the Special Master will use a “cash-in, cash out” methodology that likely mirrors, at least in part, the calculation of the claw-back for the fraudulent conveyance.  However, this will be a fact specific inquiry, and different victims may have different results.

Eligibility and Calculation of Loss

To complete a claim to the MVF, you must be able to document that you suffered a “pecuniary loss” on your investments.  The starting point for measuring a person’s pecuniary loss will be the aggregate of all deposits of cash that the person made into Madoff Securities. All withdrawals that were made from Madoff Securities are then subtracted from that amount, irrespective of whether the person thought they were withdrawing principal or only profits earned on the account.  According to the Special Master, persons who withdrew more than they put in have already recovered the entire amount that was taken from them, and they are not eligible to recover more.

Once your original “net loss” is known, the DOJ’s regulations require all “collateral recoveries” you have already received, or that you will receive in the future, to be deducted from the MVF claim. Collateral recoveries include any payments you received from SIPC, all bankruptcy distributions (directly or through an intermediary) on all accounts you held, insurance or class action recoveries, or any other form of compensation you have received.

A person who lost money because a Madoff investor could not complete a gift or a contractual obligation is not a “victim,” as any loss they suffered came about indirectly rather than directly. Under DOJ regulations, a general creditor is also not a victim.

How Will Distributions Be Made?

MVF payouts will be based on a victim’s loss as a percentage of all eligible losses.  The exact mechanics are still being developed by the Special Master and will not be finalized until the claims process is completed. However, the Special Master currently intends to approach the process in phases once the claims process is complete. MVF already has the data on allowed bankruptcy claims and distributions to date on those claims. To supplement this bankruptcy claims data, the Special Master must determine the eligible losses of indirect investors and other victims whose claims were denied in the bankruptcy, but who file claims with the MVF.

The Special Master currently expects that it will make an initial round of payments to bring all victims up to some minimum baseline percentage recovery of loss, such as 25%, before making any payments to victims who have already received more than that amount. It will then make further rounds of payment with an objective of leveling out recoveries among all eligible victims until MVF’s resources are fully distributed.

Treatment of SIPC Recoveries

The Special Master will deduct payments received from the bankruptcy trustee or SIPC in calculating the applicable loss.  The calculation of loss will also be adjusted for reserves being held by the SIPC trustee (currently $4.5 billion) until certain matters are settled.  Because of the anticipated distribution mechanics, it is expected that those who received money in the SIPC claim process may be paid later than those who did not.

Will the MVF Bring Lawsuits Against Claimants Like the SIPC Trustee Did?

In the past, the Special Master has said it would not.

Will Settlements With the SIPC Trustee Govern Potential Recoveries From the MVF?

In the past, the Special Master has said the answer is “not necessarily.”   According to the Special Master, because the MVF is completely separate from the SIPC process, settlement agreements previously reached by the Trustee with any party do not bind the MVF. 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.

Submitting a Claim If You Had A Direct Account With Madoff

Form DIR is for individual investors with an approved claim in the Madoff Securities bankruptcy (or who held a direct account but did not file a bankruptcy claim). MVF will be sending “pre-populated” Form DIRs to individuals who have allowed bankruptcy claims with unrecovered losses. Individuals receiving a pre-populated form will need to review the form for accuracy, supplement it with some additional information, and return the signed claim.  The pre-populated forms have not been mailed at this date and you can check the MVF website for updates.

If you had a bankruptcy claim that was denied, you have to file a new claim with MVF, including supporting documentation.

Submitting a Claim If You Had an Indirect Investment

Form IND is for individuals who invested in Madoff Securities indirectly through a feeder fund, a bank, a family trust, a “friends and family” investment group, or other funds or products. The Special Master expects Form IND will be appropriate for approximately 90% of applicants. The Special Master has stated if you have any doubt about what form to use, use Form IND.  Pooled investment vehicles can file a claim on behalf of their investors on Form PV. However, the Special Master strongly recommends that individual investors who lost their funds in the fraud should file their own individual claim, rather than relying on any current or former money manager, feeder fund or any other entity to file claims on their behalf.  The MVF will integrate the data from any dual filings.

Submitting a Claim if You Were a Feeder Fund Etc.

Form PV is solely for feeder funds, trust companies, insurance companies, banks or other entities that sold or managed an investment product that commingled the funds of many individuals. Claims on Form PV are for the benefit of the underlying customers of such entities, who will receive any payments directly from MVF rather than through the intermediaries. If you are an individual, you should NOT file on Form PV.

What If I Cannot Find All of the Information to Submit a Claim?

The Special Master has stated “Go ahead and file even if you don’t have some bit of information . . . Our advice to all who lost funds is to fill out as much of the Form as you can, and attach the documentary records concerning your investment.”


The information above was obtained primarily from the MVF website.  This blog does not constitute legal advice.  If you need legal advice, consult a lawyer.


Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 75 largest firms in the U.S., Stinson Leonard Street has more than 520 attorneys and offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street.


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Photo of Steve Quinlivan Steve Quinlivan

Steve has a strong reputation in M&A, securities and international transactions, offering a rare combination of excellence and value who presents well to boards. Steve represents clients across the United States in mergers and acquisitions, ESOPs, REITs, securities regulation, securities offerings, international transactions…

Steve has a strong reputation in M&A, securities and international transactions, offering a rare combination of excellence and value who presents well to boards. Steve represents clients across the United States in mergers and acquisitions, ESOPs, REITs, securities regulation, securities offerings, international transactions and financing matters. He uses his deep background in law, finance, accounting and project management to complete his clients’ most strategically important and challenging assignments.