Third Party Madoff Fraud Victims Granted $2.35bn in Compensation

Thousands of indirect investors and third party victims of Bernard Madoff's fraud may start chasing an additional $2.35bn in compensation.

According to US Attorney Preet Bharara, the sum represents money obtained by federal prosecutors through criminal and civil forfeiture actions, after Madoff's $65bn (£40bn, €48bn) Ponzi scheme collapsed in December 2008 and led to investors losing around $19bn in total.

It is being held in a Madoff Victim Fund and overseen by special paymaster Richard Breeden, a former US Securities and Exchange Commission chairman.

Breeden's fund is separate from money recovered by Irving Picard, the court-appointed trustee who is liquidating the bankrupt Bernard L. Madoff Investment Securities LLC.

Picard has said he has distributed more than $5.4bn of the $9.5bn he has recovered so far.

Breeden's fund is different because, under criteria approved by the US Department of Justice, people who lost money by investing indirectly in Madoff through "feeder funds," investment groups and other pooled vehicles will for the first time be eligible to recover, Bharara said.

Picard has denied 10,921 "third party" claims, according to his website, though some claimants continue to challenge his methods in court.

"We expect approximately 12,000 direct and indirect investors will be eligible for a recovery, compared to approximately 1,000 remaining claimants in the bankruptcy proceedings," Breeden said in a statement.

"Today's announcement brings fairness and justice for thousands of victims a giant step closer to reality," Breeden added.

The latest payout includes about $2.2bn from a $7.2bn settlement in December 2010 with the estate of Jeffry Picower, a Florida investor and large beneficiary of Madoff's scheme. Picard recovered the remaining $5bn.

Other sums in the latest pay out came from a civil forfeiture action against former investor Carl Shapiro and his family, and criminal and civil forfeiture actions against Bernard Madoff, his brother Peter and others.

"The process we have put in place opens the door for thousands of defrauded victims who otherwise might never have recovered anything," Bharara said in a statement.

According to the statement from prosecutors, nearly anyone who lost funds invested with Madoff and who can document their net loss will be eligible to seek recovery from the new victim fund.

The deadline to submit claims is 28 February, 2014.

Madoff, now 75, was arrested in December 2008, pleaded guilty three months later and is serving a 150-year sentence in a North Carolina federal prison.