updated 4/8/2009 6:00:34 PM ET 2009-04-08T22:00:34

The U.S. government said Wednesday it will not try to keep any money recovered from the sale of Bernard Madoff’s assets, a message meant to reassure skittish investors who feared some proceeds might land in the U.S. Treasury rather than their pockets.

Federal prosecutors and the Securities and Exchange Commission each filed papers with a federal judge to say the proceeds would all go to investors.

The actions were prompted by an effort by several investors earlier this month to get a judge presiding over civil litigation to lift a ruling prohibiting the filing of a personal bankruptcy case against Madoff.

Madoff, 70, pleaded guilty last month to federal charges that he defrauded investors of billions of dollars over several decades with a gigantic Ponzi scheme that paid longtime investors with money from new investors. He is jailed, awaiting a June sentencing for charges that carry a sentence of up to 150 years in prison.

The SEC first filed papers Wednesday to calm investors who fear they need to initiate bankruptcy proceedings to protect their money. It said bankruptcy would create unnecessary confusion and cause costly and potentially wasteful litigation.

Later in the day, prosecutors filed their own arguments, saying the action brought April 1 by a half dozen investors “is premised on a fundamental misunderstanding of forfeiture and bankruptcy law.”

They said a bankruptcy proceeding also would delay the recovery of victim funds.

“Moreover, the motion, if granted, would risk detracting from the recovery to victims because funds otherwise available for return to victims by way of forfeiture would unnecessarily be used to pay the fees of a bankruptcy trustee,” prosecutors said.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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