Madoff unit auctioned for $25.5 million

Accused swindler Bernard Madoff enters the Manhattan federal court house in New York March 12, 2009.

NEW YORK (Reuters) - Bernard Madoff's market-making business was sold at an auction on Monday to Castor Pollux Securities LLC for up to $25.5 million, a fraction of what it was worth previously, as part of an increasingly contentious global effort to recover money for the swindler's defrauded customers.

The court-appointed trustee winding down Bernard L. Madoff Investment Securities LLC said in a statement late on Monday that the Boston financial company will pay $1 million at closing and up to $24.5 million in deferred compensation through December 2013.

Three bidders competed in the auction for the trading unit, which was once worth $1 billion. Castor Pollux originally bid $15.5 million in March.

"The auction today yielded a higher and better offer for the market-making business," trustee Irving Picard said. "The additional consideration that we will receive as a result of the auction will benefit Madoff's victims."

He said the deal allows Madoff's victims to participate in future earnings of the business. The New York lawyer has said he has recovered only about $1 billion in assets of Madoff, who ran a worldwide fraud that drew in as much as $65 billion.

In the protracted process that invariably attends the retrieval of assets in such frauds, 223 individual and institutional investors have been told by Picard to return a total of $735 million in profits or be sued.

The so-called "clawback" has been feared by these direct investors, who withdrew money in the six years before the discovery of the massive fraud last December, the biggest investment scam in Wall Street history.

"People are invited to provide their valid defenses against a potential lawsuit...If they have one, the trustee would not commence any action," said a source familiar with the position of the trustee.

Other investors continue to use the courts to stake claims, notably one lawsuit in the past week by an investor against Madoff's banker JP Morgan Chase, which the investor accuses of knowing that the billions it held in Madoff money was part of a fraud.

The bank denied the allegations that if it had shut down the Madoff accounts in September, when it withdrew its own money out of a Madoff "feeder fund" run by Fairfield Greenwich Group, the $12.8 million of Florida plaintiff MLSMK Investments Co would not have been lost.

Fairfield has also been sued by investors for fraud and charged by Massachusetts state regulators.

Madoff, 70, a former nonexecutive chairman of the Nasdaq stock market, was arrested on December 11 and pleaded guilty on March 12 to charges including securities fraud, money-laundering and perjury. He is in jail pending his scheduled June sentencing.

Only Madoff and his outside accountant have been charged, but Fortune magazine reported on Friday that his top deputy of 33 years, Frank DiPascali, is trying to negotiate a plea bargain with federal prosecutors.

DiPascali's lawyer did not return calls for comment.

In the fight over who should spearhead the search for assets and compensating those defrauded, an interim trustee has been appointed to oversee a case involving Madoff's personal assets.

Alan Nisselson, a partner at the law firm Windels, Marx Lane & Mittendorf LLP and a member of its bankruptcy and creditors' rights group, was named to the position, according to court documents.

The case is Securities Investor Protection Corp v Bernard L. Madoff Investment Securities LLC 08-01789 in U.S. Bankruptcy Court for the Southern District of New York (Manhattan)

(Editing by Muralikumar Anantharaman)