The Great Baupost Madoff Claim Trade That Made A Big Madoff Feeder Fund A Loser Again

Thanks to Matt for passing this along.

In the summer of 2010, James Mooney, a partner at Baupost Group, the massive $24 billion Boston hedge fund run by investment legend Seth Klarman, sensed there was money to be made acquiring customer claims of Bernard Madoff’s bogus investment firm. Mooney believed the Madoff claims represented a classic distressed debt situation, where “sophisticated participants in the market” who were “aided by their advisors, such as legal counsel,” could better understand the complex dynamics at play, according to a court-filed declaration Mooney made last year.

In particular, Mooney thought it was possible that Irving Picard, the court-appointed trustee of Madoff’s investment firm, could reach a favorable settlement with Barbara Picower, whose late husband, Jeffry, had extracted $7.2 billion from Madoff’s Ponzi scheme before it collapsed. Mooney also felt it was very possible that the trustee’s net equity process of reimbursing Madoff’s Ponzi scheme victims would survive court challenges. All Baupost needed was to find someone willing to trade their Madoff claim at the right price.

Baupost found that trading partner in the British Virgin Islands and now the hedge fund is currently sitting on a fat estimated return of 116%–although it still needs to finish getting through a long legal fight over the trade.