What did hedge funds know about the Picower negotiations?

By Felix Salmon
December 17, 2010
report headlined "Speculators Are Eager to Bet on Madoff Claims", saying that hedge funds were bidding somewhere around 30 cents on the dollar. Meanwhile, Barbara Picower was coming to the end of months-long negotiations which culimanted this morning in the announcement that she would return $7.2 billion for the benefit of those defrauded by Madoff.

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Is there such a thing as insider trading in things which aren’t remotely securities? On Monday, the NYT had a report headlined “Speculators Are Eager to Bet on Madoff Claims”, saying that hedge funds were bidding somewhere around 30 cents on the dollar. Meanwhile, Barbara Picower was coming to the end of months-long negotiations which culminated this morning in the announcement that she would return $7.2 billion for the benefit of those defrauded by Madoff.

The trustee has already recovered nearly $2 billion, and total investor losses are probably somewhere in the $20 billion range, which means we’re already up to 46 cents on the dollar, before any number of other suits are settled — $9 billion from HSBC, $6.5 billion from JP Morgan, $3.6 billion from Fairfield Greenwich, $2.5 billion from UBS, and so on. Those suits alone, if settled near par (as the Picower suit was), would bring recovery up to 154 cents on the dollar. Which would more than recover the money that investors put in to Madoff, even if it doesn’t come close to recovering the kind of money that they trusted they had.

But here’s the thing: what if Barbara Picower was talking to friends about the status of her negotiations with Irving Picard? There’s no reason why she shouldn’t do so — but if those conversations made their way to hedge funds interested in buying claims, that information could be very valuable. Given the new-found focus on prosecuting insider dealing, I wonder whether any trades made as a result of finding out that information might be suspect.

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