The Litigation Daily turns now to a subject we hold near and dear: restitution in federal fraud cases. A couple years ago, we wrote “Three Cents on the Dollar” in the litigation supplement to The American Lawyer about the difficulties federal prosecutors face when trying to collect funds for victims of fraud. The title should give you an idea of how successful those collection efforts are. (We found one ex-convict who owed victims $1 billion but was not paying a dime in restitution at the time.)

So we weren’t too surprised Thursday when Manhattan federal district court Judge Denny Chin issued a one-page order concluding that it wouldn’t be feasible to order restitution in the case of Ponzi schemer Bernard Madoff. “The number of identifiable victims is so large as to make restitution impracticable,” he explained, adopting the position advocated by the government. Instead, investors’ recoveries in the criminal case will be determined by forfeiture principles.

Practically speaking, for Madoff’s victims this decision means they won’t have to go through the painful process of proving the extent of their investment and loss to the government. Often, in forfeiture cases, the government distributes the proceeds of seized assets to victims on a pro rata basis, a solution that we imagine would not please many of Madoff’s victims. But the government has indicated it won’t take this approach, and has suggested that it work with Baker Hostetler partner Irving Picard, the trustee for Bernard L. Madoff Investment Securities, to arrive at a plan for compensating victims. Picard has already undertaken the task of analyzing victims’ claims.

When Chin in June sentenced Madoff to 150 years in prison, the judge asked prosecutors to tell him whether restitution was practicable. In this filing, prosecutors recommended that they be allowed to rely on forfeiture law to repay Madoff’s victims.

“There are thousands of potential victims of Madoff’s crimes and, during the fraud, Madoff solicited billions of dollars of funds over a period of decades” wrote Assistant U.S. Attorneys Lisa Baroni and Marc Litt. “[Madoff's company]‘s records have not yet allowed for a definitive compilation of victims or a precise computation of the amount of loss suffered by each identified victim.”

The prosecutors’ proposal to work with Picard drew the objection of a group of victims who have been arguing for months that Picard is miscalculating claims in the Madoff bankruptcy case by ignoring fake profits attributed to victims’ accounts. [Hat tip to Bloomberg.] The victims’ lawyer, Phllips Nizer’s Helen Davis Chaitman, filed this memorandum of law with Chin on Thursday. “Giving Picard a role in the remission process is like putting the fox in the hen house,” Davis wrote.

Picard did not immediately return our call for comment.

This article first appeared on The Am Law Litigation Daily blog on