Was $280 Million In Madoff Legal Fees Worth It?

The recent request by Madoff trustee Irving Picard and the Baker & Hostetler law firm for $47.9 million in legal fees, on top of approximately $235 million already approved by the bankruptcy court overseeing the Madoff case, leads one to ask what that money has paid for. Picard and his firm have a ready for that question - although their response may not satisfy Madoff victims. 

The application reports that Picard and Baker & Hostetler have “spent considerable time prosecuting 1,031 pending actions seeking to recover over $101 billion in funds from various feeders funds, banks, [Madoff] customers, and Madoff family members and friends.” As of September 30, 2011 (the end date for the $47.9 million fee request), Picard had recovered approximately $8.7 billion (including approximately $6.4 billion subject to appeals and other reserves), representing more than 50 percent of the approximately $17.3 billion in principal estimated by Picard to have been lost in the Ponzi scheme by customers who filed claims. (As we know, customers believe that number to be substantially higher.)
 
As of February 17, 2012, Picard has recovered or entered into agreement to recover more than $9 billion (which still includes approximately $6.4 billion subject to appeals and other reserves). It should be noted that the $9 billion includes a $7.2 billion settlement with the estate of Jeffry Picower and his widow.
 
The recovered money has not all just been sitting in an account in the trustee’s name. Picard made an initial pro rata interim distribution beginning on October 5, 2011, and to date, $325.7 million has been distributed to Madoff customers, relating to 1,232 accounts. Additionally, as of September 30, 2011, SIPC committed to advance to Picard approximately $795 million for payment to Madoff customers with allowed claims. More than $1.1 billion has now been distributed to Madoff victims.
 
Should there have been more distributed, or recovered, by now for $280 million in legal fees? Many people - Madoff victims, victims' advocates, and perhaps even some members of Congress - undoubtedly would say yes. We know, however, that the legal system can run slowly. It may be that we will not be able to answer that question until we know the final amounts that are recovered and distributed - and the final legal bills are filed. Still, it is important to keep in mind that the largest financial fraud in history, with billions of dollars in losses and thousands of claimants, is not a simple case to unwind.