Bloomberg News

Judge Approves Madoff Trustee Settlement With Tremont Funds

September 22, 2011

(Updates with quote from judge in third paragraph.)

Sept. 22 (Bloomberg) -- A judge approved a $1 billion settlement of a lawsuit by liquidator of Bernard Madoff’s firm and hedge-fund firm Tremont Group Holdings Inc.

In the deal approved today by U.S. Bankruptcy Judge Burton Lifland, trustee Irving Picard will accept a cash payment of more than $1 billion from funds associated with Tremont. In exchange, the Tremont funds will be allowed to make claims on the Madoff estate of about $3 billion, according to court filings.

The settlement is “fair and reasonable,” Lifland said.

Among the parties settling were Oppenheimer Acquisition Corp., an affiliate of the Oppenheimer mutual funds that bought Tremont, and Oppenheimer’s parents, MassMutual Holding LLC and Massachusetts Mutual Life Insurance Co.

Earlier this month, New York Life Insurance Co. and six other insurance companies assailed the settlement. As limited partners of the hedge-fund firm’s Opportunity III fund, they said they would lose if a court rules that the Ponzi scheme’s so-called net winners should be compensated, because they wouldn’t be allowed to recalculate their claims. A U.S. appeals court yesterday denied Picard’s move to strike a request by Madoff investors for a second hearing on the issue.

Picard sued Tremont and related entities for $2.1 billion, saying they ignored warnings that Madoff could be running a Ponzi scheme and profited from it, according to a complaint unsealed in March. The payment from Tremont, the second-biggest so-called feeder into Madoff’s multibillion-dollar fraud, will add to the $2.6 billion in the fund for Madoff customers, Picard has said.

The $3 billion in claims on the Madoff estate allowed to Tremont will give its investors “the potential to recover a substantial portion of their losses incurred as a result of Madoff’s fraud,” said Montieth Illingworth, a spokesman for the hedge fund firm, in an e-mailed statement when the deal was announced in July.

Fairfield Deals

The settlement follows two deals in May with funds related to the Fairfield Greenwich Group, the biggest feeder fund in Madoff’s Ponzi scheme. In those agreements, Picard dropped efforts to collect about $4 billion in transfers, and the funds in return reduced their claims on the bankrupt Madoff estate.

Picard’s biggest settlement was his $5 billion share of a deal with the estate of Jeffry Picower, among the larger individual investors with Madoff. Counting that money, which is tied up in a court challenge, he said in July he has raised more than $8.6 billion, or almost half of the $17.3 billion in principal lost by Madoff customers who filed claims.

The case is Picard v. Tremont Group Holdings Inc., 10-5310, U.S. Bankruptcy Court, Southern District of New York (Manhattan.)

--Editors: John Pickering

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.


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