Wall Street’s billion-dollar Madoff tax
Today’s FT reveals the astonishing amount of money that Irving Picard and other Madoff-related clean-up artists are going to make from the world’s biggest ever Ponzi scheme:
The army of lawyers and consultants helping to recover funds from Bernard Madoff’s $19.6bn fraud stands to earn more than $1.3bn in fees…
The biggest payment is set to go to Baker Hostetler, the law firm where Irving Picard, the court-appointed trustee charged with recouping money for Mr Madoff’s victims, is a partner.
Baker Hostetler has been paid $128m since being appointed in December 2008 and will receive an estimated $603m for its work between 2011 and 2014, according to a letter sent last month by the Securities Investor Protection Corporation to Scott Garrett, a US congressman….
Two other firms, forensic accountants FTI Consulting and restructuring experts AlixPartners, will earn an estimated $334m and $171m, respectively…
The payments to Mr Picard and others have to be approved by a court and will not come from recovered funds but from the SIPC, which is funded by the securities industry.
What’s happening here is that Picard and others are recovering much more money than anybody thought they would, and they’re getting a percentage of their total recoveries. But their money isn’t coming from the Madoff victims, who get all the money recovered. Instead, it’s coming from the SIPC.
This is surely a very welcome development: the numbers are big enough to cause noticeable pain to Wall Street, and maybe encourage banks like JP Morgan to be a bit more forthcoming in future when they start having doubts about fraudsters like Madoff. We can but hope, anyway.
Update: SIPC CEO Stephen Harbeck emails to clarify that the fees are flat fees, based upon time expended; they aren’t based on a percentage of recoveries.