In a Daily Beast exclusive, Lucinda Franks reports that at least $50 million in Madoff funds has been discovered in a Gibraltar bank. Now, the fight begins over who actually gets it.

More than $50 million in missing Bernard Madoff funds has been found in the Gibraltar branch of the International Safra Bank and is likely to become the subject of acrimonious litigation there. The bank, seeing Madoff’s name on transfer documents, froze the money and notified police.

The investors filed suit on Friday to have the funds released, while the New York-based trustees of Madoff's estate are planning, with equal determination, to claim the money for victims’ compensation. "Its going to be a real pissing match," said a source close to the bank. "A showdown that will get very ugly. And this is going to repeat itself all over the world."

Millions of dollars linked to Madoff have been tagged and frozen in offshore banking havens in Europe and the Caribbean.

According to a source close to the investigation, the Gibraltar case is just one of many instances in which banks in Europe and the Caribbean have identified and stopped any monies with a link to Madoff’s investment funds since December, when he confessed to running a massive Ponzi scheme.

The Gibraltar funds were deposited at Safra just a few weeks before Madoff was exposed, according to a source close to the Gibraltar police. This money may have been placed with Madoff through a feeder fund operated by Safra, which asked Madoff to redeem a portion, but not all, of its investment—somewhere between $50 million and $75 million. The returned funds were still being held in the Safra branch when the scandal broke. (The Financial Times last week identified a $300-million fund called Zeus Partners Limited as operating out of a custodial account at Safra's Gibralter bank, although the bank denies having institutional relationship to the fund, and it's not known whether it was the source of the redemption requests.)

After the bank put a stop on the funds, local police informed authorities in the US and are now cooperating with the New York investigation. Gibraltar has a history of shady banking practices, but like many offshore havens, it has made a better effort in recent years to police illegal activity. And in general the behavior of the international banking community in the Madoff case demonstrates an unprecedented level of cooperation with American prosecutors—far more, certainly, than investigators received in earlier cases such as the BCCI scandal.

There was a possibility, of course, that any overseas transfers in this time frame could be part of a scheme by Madoff to hide assets. But the Gibraltar transfers could also reflect legitimate withdrawals from his investment funds, made without any connection to the Ponzi scheme. Those investors,who apparently thought they had gotten out just in the nick of time, "have been screaming to get back their money," according to a Gibraltar intelligence agent. But the bank won't budge.

Even investors who cashed out of Madoff’s scheme before it collapsed may not be entirely protected from losses. In a legal procedure known as a “clawback,” trustees overseeing fraud cases can force investors to return funds they withdrew earlier from the phony operation in order to distribute it evenly among those affected. Unlike in, say, a stock crash, clawbacks mean that there is no such thing as "getting out at the right time."

On Friday, Security Trustee Irving Picard held a press conference at the Federal Bankruptcy Court in New York in which he outlined the steps for filing claims to receive reimbursements according to the Securities Investor Protection Act. He also confirmed that Madoff’s funds made no actual stock trades over the last 13 years that have been investigated so far.

Ironically, Bernard Madoff's mother, Sylvia Madoff, who came from a modest background in Laurelton, Queens, owned spurious investment funds that she called Gibraltar Securities and Second Gibraltar Securities. Their mailing address was the family home in Laurelton, where Bernard grew up, and the funds do not appear to have done any business with the offshore haven. Mrs. Madoff may have thought the name conveyed solidity and a smattering of glamour.

There is speculation that her husband, Ralph, actually ran the funds and listed them in his wife’s name because he was burdened with tax troubles. Friends and neighbors do not recall Sylvia operating as a stockbroker, which would have been an unusual endeavor for a Queens housewife in those days. In any case, she was forced to pack up the funds in 1964 after the SEC discovered she had failed to file any reports.

That corruption has been a Madoff family affair is further suggested by the fact that Bernard's brother Peter was compliance officer for the Madoff fund where the Ponzi scheme took place, and Bernard’s wife, Ruth Madoff, withdrew $15 million from a brokerage firm believed to be a Madoff front shortly before his arrest.

Lucinda Franks is a Pulitzer Prize-winning journalist and author who was on the staff of the New York Times and has written for several publications including the New Yorker and the New York Times Book Review and Magazine. Her latest book is My Father's Secret War, about her father, who was a spy for the OSS during World War II.