Madoff trustee Irving Picard reached a milestone of sorts when he reached a $1 billion settlement with more than a dozen funds associated with hedge-fund firm Tremont Group Holdings.  With the settlement, Picard now has raised about $8.6 billion, or half of the $17.3 billion that Picard has estimated was lost altogether by Madoff customers who filed claims.

Participating in the settlement, besides Tremont, include 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.

Tremont, based in Rye, NY, was the second-largest “feeder fund” group that funneled money to Mr. Madoff from its own investors - more than $4 billion over a 15-year period.  Picarrd sued Tremont and related entities for $2.1 billion, accusing then of missing “red flags” and “blindly relying on Mr. Madoff to drive their funds’ returns” for nearly 15 years, according to a complaint unsealed in March.  Tremont allegedly earned more than $180 million in fees in the six years before Mr. Madoff's fraud came to light in December 2008 and as much as $240 million over the life of the relationship, according to the lawsuit.

Terms of Settlement Agreement.  Tremont and others will pay more than $1 billion in cash into an escrow account, with the funds ultimately going to repay Madoff victims. The settlement requires court approval.

Once the settlement payments are released from escrow, Mr. Picard will allow more than $3 billion in customer claims from several Tremont-managed funds to proceed.  Four of those funds will receive a combined $2 million in advances from SIPC. 

Like Tremont, many other feeder funds lost money when Mr. Madoff's firm shut down in December 2008 and they made claims against the money Mr. Picard is collecting for victims. But Mr. Picard has refused to approve many of those claims, accusing them of ignoring warning signs of the fraud and saying that that they first had to return the money they withdrew from Mr. Madoff's firm.

Picard also will drop his $2.1 billion lawsuit against Tremont and related entities. 

The case is Picard v. Tremont Group Holdings Inc., 10-5310, U.S. Bankruptcy Court, Southern District of New York (Manhattan.)   [WSJournal, NYTimes, Bloomberg, 7/29/11]