UBS and other Wall Street banks have found a way to profit from the Madoff ponzi scheme, swooping in like vultures to snap up claims from defrauded investors at a fraction of their nominal value, according to Michael Rothfield’s Wall Street Journal article entitled “Madoff Claims Lure Banks.” At the same time, UBS is being sued by the Madoff bankruptcy trustee for allegedly ignoring warning signs of the fraud while receiving fees as a custodian and sponsor of funds that invested with Madoff. By defending this suit, UBS and Royal Bank of Scotland (another bank being sued by the Madoff trustee in connection with the fraud) are effectively “fighting off victims of the fraud, while at the same time seeking to profit from payouts based on other claims.”
Some of the world’s biggest banks are jumping into a multibillion-dollar Madoff claims market. They are offer defrauded investors a fraction of what they are owed, intending to profit by collecting a larger payout when the settlement is made final. The offers have reported increased from 30% to 75% as the Madoff trustee, Irving Picard, has extracted billions through settlements and the prospect of billions more are looking better. Even at 75% the banks expect to make millions on larger claims.
“It’s like a circus out there, a feeding frenzy,” one bankruptcy attorney was quoted as saying, adding: “There’s people buying and paying quite extraordinary prices.”
Other banks seeking to profit in this way include Deutsche Bank AG and Goldman Sachs, according to the article.
Ironically, Wall Street sees the Madoff claims market as potentially more lucrative and less risky than the treacherous financial markets that ordinary investors are stuck with.
“There are some people who say that one of the best performing asset classes of 2010 was Madoff claims,” Richard Levin, head of the restructuring practice at Cravath, Swaine & Moore LLP, was quoted as saying.
For the most part, Wall Street banks are seeking the larger claims of feeder funds that funneled investor money to Madoff. Now those Madoff feeder funds, which are expected to have $10 billion or more in claims, are funneling money to Wall Street.
The bankruptcy laws allow the trustee to “claw back” money that was withdrawn from Madoff accounts shortly before its December 2008 collapse. That enables the trustee to avoid preferential payments and maximize the pool of recovered assets available to defrauded investors. Only after disgorging preferential payments will the feeder funds’ claims be approved. Since many of the feeder funds have no assets, they are selling their claims.
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