Madoff victims could soon start getting funds

NEW YORK (CNNMoney) -- The trustee in charge of recovering money stolen by Bernard Madoff took steps Wednesday to begin payments to victims totaling $272 million.

The trustee, Irving Picard, is seeking approval from the U.S. bankruptcy court in New York to put $2.6 billion in a fund and make the first payments. Picard has recovered more than $7.6 billion in Madoff assets.

The initial payments would be relatively small because of outstanding appeals by some former Madoff customers whose claims have been rejected by Picard.

"This initial distribution represents a significant milestone," said David Sheehan, counsel to the trustee.

Picard has criticized appeals related to the Picower estate, which was surrendered to the trustee and federal authorities last December. Barbara Picower inherited the estate from her husband Jeffry, who died of a heart attack in 2009.

Picard considers Jeffry Picower to have been greatest beneficiary of the Ponzi scheme, having withdrawn $7.8 billion from Madoff's firm since the 1970s, even though he invested only $619 million. Barbara Picower agreed to hand over the difference, some $7.2 billion, to give back to the victims.

But other Madoff victims, whose claims have been rejected by Picard, are appealing the Picower settlement.

"It is regrettable that the landmark Picower settlement is unavailable for distribution to customers at this time because of frivolous appeals," said Sheehan.

The majority of the 16,518 investors who filed Madoff claims with the trustee have been rejected. More than 10,000 of those investors had their money in so-called feeder funds, rather than having given it directly to Madoff.

Thousands of other investors were rejected -- and some of them have also been sued by Picard -- for being "net winners." That is, they withdrew more money than they invested with Madoff.

James Beasley of the law firm Beasley Hauser Kramer & Galardi in West Palm Beach, Fla., is representing some 3,000 Madoff investors whose claims were rejected for being "net winners."

But many of the "winners" identify themselves as victims who were wiped out by Madoff.

Some of these victims were living off payments from Madoff's firm and they believed his fraudulent statements claiming that their accounts were substantial. They lived accordingly, and had nothing left when the Ponzi scheme unraveled in December 2008.

"The Picowers helped Madoff steal money from our clients," said Beasley. "We want that money back, with interest."

Sheehan said the trustee's definition of net "winners" is "consistent with decades of legal precedent" and has been upheld by the court in the Madoff case.

"Certain parties contest these longstanding legal precedents and claim that [Madoff] customers are entitled to receive the fraudulent amounts shown on the November 2008 [Madoff] statements," he said.

Picard's goal is to compensate Madoff customers "for their actual losses and distribute recovered funds on that basis," he added.

-- CNNMoney's Aaron Smith contributed to this report.