A planned USD800 million settlement between Kingate Management and bankruptcy trustee Irving Picard has collapsed, sources said.
Kingate Management is one of the largest investors in the Bernard L. Madoff Ponzi scheme, whereas Picard is the trustee recovering funds for Madoff investors.
According to the Wall Street Journal (WSJ), the deal between Madoff's feeder fund and bankruptcy trustee Irving Picard fell apart after the Justice Department this week ruled to exclude such funds from payouts out of the agency's USD2.35 billion Madoff Victim Fund.
The deal would have returned USD800 million to the Madoff bankruptcy trustee, which manages a separate fund for victims of the fraud. Victims of the world's biggest Madoff scheme have so far recovered USD9.51 billion out of the estimated USD17 billion, the report said.
WSJ reported that Picard has been reimbursing only direct Madoff investors, including feeder fund managers and liquidators.
Richard Breeden, who oversees the Victim Fund, wanted Madoff victims who invested through Kingate to be able to collect payments directly instead of those funds going through the feeder fund, WSJ said.
In a statement, Breeden said that he prioritized returning money to Madoff's victims over Picard's negotiations with feeder funds. He added that the forfeitures were not set up so that hedge funds could have another asset class to trade. Breeden stressed that the move was made to allow fraud victims to recover a portion of their losses.
Kingate had planned to sell its claims against Madoff's estate to German bank Deutsche Bank AG should it reach a settlement with Picard.
The settlement, which is now on hold, will be renegotiated as soon as Picard and Kingate reach a new settlement, WSJ said.
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