Lehman/Madoff fees may deplete fund: SEC's Kotz

NEW YORK (Reuters) - Trustees for the bankrupt brokerages of Bernard Madoff and Lehman Brothers are charging so much they could end up depleting a $2.5 billion federal fund meant to help customers, a U.S. watchdog said.

The report dated Wednesday by David Kotz, the U.S. Securities and Exchange Commission's inspector general, identified "significant criticism and concern" about the fees that Madoff trustee Irving Picard and Lehman trustee James Giddens are charging the Securities Investor Protection Corp.

SIPC President Stephen Harbeck downplayed Kotz's concerns, saying new fees being imposed on brokerages will help ensure the fund's stability.

Kotz said that through September 2010, Picard had charged $102 million for 21 months of work related to Bernard L. Madoff Investment Securities LLC, while Giddens charged $108 million for two years of work related to Lehman Brothers Holdings Inc's brokerage.

"Fees paid to date for both the Lehman and Madoff liquidations are a mere fraction of the amounts that will eventually be sought," Kotz wrote. "The possibility exists that SIPC could deplete its $2.5 billion fund."

Amanda Remus, a spokeswoman for Picard, said the Madoff trustee declined to comment on Kotz's report and its impact on the SIPC. Representatives for Giddens did not immediately return emailed requests for comment.

Harbeck challenged Kotz's findings about the SIPC fund.

"I absolutely disagree with the idea that the fees in the Lehman and Madoff cases will deplete the SIPC fund," Harbeck said in an interview. The new assessments "will replenish the fund to allow it to conduct all its statutorily required obligations to pay customers and expenses," he added.

Kotz also concluded that SEC oversight of SIPC was "generally in compliance" with the 1970 law that created the agency, but that "significant improvements" could be made.

SIPC has so far committed to pay $793.1 million to former Madoff customers, according to Picard's website for the Madoff liquidation. Harbeck said SIPC has committed a "small amount" toward payments to Lehman creditors.

(Editing by Steve Orlofsky)