NEW YORK (Reuters) - Thousands of victims of Bernard Madoff's fraud, including many who have so far recovered nothing, may start pursuing an additional $2.35 billion to cover some of their losses, U.S. Attorney Preet Bharara in New York said on Monday.
The sum represents money obtained by federal prosecutors through criminal and civil forfeiture actions since Madoff's massive Ponzi scheme was uncovered in December 2008.
It is being held in a Madoff Victim Fund and overseen by special master Richard Breeden, a former U.S. 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 $5.4 billion of the $9.5 billion he has recovered so far.
Breeden's fund is different because, under criteria approved by the U.S. 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."
The latest payout includes about $2.2 billion from a $7.2 billion settlement in December 2010 with the estate of Jeffry Picower, a Florida investor and large beneficiary of Madoff's scheme. Picard recovered the remaining $5 billion.
Other sums in the latest payout 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.
Breeden said he will measure investor losses by subtracting withdrawals from cash investments. He said the resulting "net investments" will be the amount of claims, less any prior recoveries. The deadline to submit claims is February 28, 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.
Reporting by Jonathan Stempel in New York