Baupost Group Sitting On 116% Return From Madoff Claims

Baupost Group Sitting On 116% Return From Madoff Claims

Years after the breakup of Bernard Madoff’s Ponzi scheme, one current and one former owner of a claim resulting from that breakup are squabbling over their trade. Forbes’ Nathan Vardi found evidence of the fight in a bankruptcy court document.

Baupost Group Sitting On 116% Return From Madoff Claims

James Mooney, who was a partner at Seth Klarman’s Baupost Group, believed he could make money by acquiring claims from customers who had bought into Madoff’s fake investment firm. He thought it likely that the trustee appointed to handle Madoff’s firm in the wake of the financial disaster would reach a settlement with Barbara Picower, the window of Jeffrey Picower, who managed to pull $7.2 billion from Madoff’s firm before the collapse.

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Mooney also believed that the net equity process established to reimburse the victims of Madoff’s scheme would survive challenges in court. The only think he needed to do was find someone who would trade their Madoff claim.

This is where Kenneth Krys comes in. His Madoff claim had a face value of $230 million, and he wanted to sell it in 2010. Mooney found out about it, and Baupost started negotiating with Krys to buy his claim. Baupost bought Krys’ claim for $74 million in December 2010.

A few days later a deal between the trustee and Picower was announced. The deal resulted in the trustee having significantly more money than was originally thought to be able to pay off victims of the scheme. It didn’t take long for claims from Madoff’s victims to start selling for 60 cents on the dollar, and in no time, the claim Baupost had bought for $74 million became worth $138 million. That claim is now worth about $160 million, according to Vardi. Total return so far is approximately 116%.

Krys is now pursuing Baupost in court, claiming that the trade should be negated. However a Manhattan federal bankruptcy judge chalked it up to “seller’s remorse,” and denied his effort to negate the trade.

Forbes contacted Baupost for a comment, but Baupost declined.

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