Distressed Asset Firms Offer to Buy Out Madoff Victims

Date: Wednesday, December 15, 2010
Author: Mike Taylor, The New York Observer

Following the climax of Madoff trustee Irving Picard's lawsuit frenzy, The New York Times reports that hedge funds and other investors in distressed assets are offering Madoff victims cash up front in exchange for the chance to reap big payouts once Mr. Picard's crusade gets hashed out in courts.

After Mr. Picard went after HSBC, JPMorgan Chase and other deep-pocketed targets, investors have ramped up their efforts to get a shot at big winnings in bankruptcy court, The Times reports. They're offering former Madoff investors less money than the eventual potential award. The upside is that the funds will pay now, whereas the courts could take years to offer restitution, and the eventual outcome is uncertain.

One Madoff investor, who declined to be identified to protect his privacy, reported receiving letters from no fewer than six companies in the last two months. He provided copies of those letters, which offered to pay 20 to 34.5 cents for every dollar in claims. The firms making those bids included Contrarian Capital Management, a large Greenwich, Conn., hedge fund; Fulcrum Credit Partners of Austin, Tex.; and the Hain Capital Group of Rutherford, N.J.

One former Madoff investor told The Times that the best offer he's received is 30 cents on the dollar. A money manager from Third Avenue Management said that his firm had weighed the possibility of investing in Madoff payouts, but decided against it because the whole thing was too scummy. Apparently that's not the case for Contrarian, Fulcrum and Hain.

mtaylor@observer.com | @mbrookstaylor