Tuesday, December 14, 2010

More Bets on Lawsuits

If you thought the bubble was over, think again.

Now dozens or hedge funds and investment firms are placing bets on the returns from the Madoff case. In this morning's NY Times an article by Peter Lattman & Diana Henriques - Speculators are Eager to Bet on Madoff Claims - gives a full account of how speculators are buying claims of Madoff's victims on the chance of big returns.

Many of the victims can't wait for the years it may take for Irving Picard, the trustee in the Madoff bankruptcy to bring a suit to a successful conclusion. So, speculators are out to buy those claims.

Betting on claims in bankruptcy has been going on for years. Each bet (or "investment" if you will) is certainly well considered and researched. These bets are not made to finance the suit itself. Picard, as trustee, has virtually no option but to file the suits and has probably already amassed a litigation fund from the proceeds from the sale of Madoff assets. These bets are more like laying wagers at the race track. If you can accurately judge a horse's abilities your chances of winning can make wagering pay off.

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