February 24, 2009 / 9:43 PM / 10 years ago

Madoff investors may be able to trade their claims

NEW YORK, Feb 24 (Reuters) - Investors left in the cold by accused swindler Bernard Madoff, may soon have a place to go to recoup some of their losses without waiting years for the bankruptcy court liquidation process to resolve their claims.

SecondMarket, an online trading platform which specializes in illiquid assets, is considering allowing investors with claims against Madoff, to trade those claims on its marketplace, the company’s chief executive said in an interview with Reuters on Tuesday.

“We always get calls when companies or firms file for bankruptcy and we have to kind of take the creditor through the process and it takes some time for buyers to want to get involved,” said Barry Silbert, chief executive of the New York-based marketplace.

SecondMarket allows investors to trade illiquid assets like auction-rate securities, restricted stock, hedge fund limited partnerships, and last year started a bankruptcy claims trading marketplace.

For example, a bankruptcy creditor who expects to recover 30 cents on the dollar of their claim at the end of a bankruptcy could sell it to another investor for five or ten cents on the dollar through SecondMarket, years before the court decides what the final payout will be.

SecondMarket charges a fee derived from a percentage of the consummated transaction to both buyer and seller for the service.

“In the case of Madoff, people are still uncertain about what their claim actually is,” Silbert said. “We’re starting to see more buy-side interest come in, but the sellers are still saying, ‘You know I don’t know what I own or what I’m owed, and I don’t know what to sell it for.”

Silbert’s firm attended the first meeting of Madoff creditors last week to see if investors were interested in trading their claims.

Among the questions Madoff investors have to sort out is how much their claim is actually worth — considering when they first gave money to Madoff, how much they invested at later dates and how much they took out, Silbert said.

“That will take some time to shake out, I think,” Silbert said.

Madoff, a once-respected Wall Street trader and investment manager, was arrested on Dec. 11, 2008 and charged with securities fraud after authorities said he admitted to running a giant Ponzi scheme with losses of up to $50 billion over many years. A Ponzi scheme is one in which early investors are paid with the money of new clients.

Madoff’s firm is currently being liquidated by Securities Investor Protection Corp (SIPC) trustee Irving Picard, a New York lawyer. The SIPC is, a nonprofit group established in 1970 by Congress to keep a reserve of funds for investors in failed brokerages, has established a customer claim deadline of July 2 as it seeks to recover as many of Madoff’s assets as possible.

Picard told the court on Feb. 4 that he has recovered $946.4 million from the Madoff firm’s assets for customers and said last Friday that 2,350 customer claims had been filed.

The case is: Securities Investor Protection Corp vs. Bernard L. Madoff Investment Securities LLC, U.S. Bankruptcy Court, Southern District of New York, No. 08-01789.

Reporting by Emily Chasan; additional reporting by Daniel Burns and Caroline Humer; Editing by Bernard Orr

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