$7.2-billion settlement raises hopes for Madoff victims
The estate of a man who pocketed $7.2 billion from Bernard L. Madoff’s Ponzi scheme has agreed to repay that amount, raising the surprising possibility that victims of the huge fraud could get back most of what they invested in it.
The settlement, the largest civil forfeiture ever, is being returned by the widow of Jeffry Picower, a Florida investor and philanthropist thought to be the single biggest beneficiary of Madoff’s Ponzi scheme.
The agreement more than quadruples the amount available to reimburse Madoff’s victims to about $10 billion — roughly half the estimated amount lost by unwitting investors.
The court-appointed trustee overseeing Madoff’s estate recently filed many lawsuits that could recover substantial additional amounts for victims.
“The unprecedented settlement … makes the hope of significant financial restitution for Madoff victims a reality,” said Janice K. Fedarcyk, head of the FBI’s New York office. “People who two years ago faced a devastating prospect of losing everything now stand to recover about half of their investment — and the concerted effort continues to recover every available penny.”
The amount recovered on behalf of Madoff victims remains far short of the $65 billion that investors thought they had in their accounts at Madoff’s New York firm just before his scheme was discovered in December 2008. But investigators estimate that true losses — the amount given to Madoff minus any withdrawals — totaled only $20 billion. Anything beyond that, they said, represented fictitious gains created by Madoff out of thin air.
Fred Silton, 87, a Los Angeles real estate investor who had entrusted money with Madoff, said that after the fraud was exposed he initially expected to get back little or nothing. But he said the trustee’s work had given him hope.
“To achieve that much of a return at this point is amazing,” he said.
Recently, Silton said, professional speculators had offered to pay him as much as 34 cents for each dollar he has claimed in losses in exchange for the right to any reimbursement he gets. Those offers now appear low, he said.
“I think the best move is to just wait and see, especially with all the new activity taking place,” he said.
The trustee, Irving Picard, said at a news conference Friday that he hoped to start distributing the money early next year. There is also the possibility that recoveries will exceed the $20 billion in actual estimated losses.
Picard has filed lawsuits for $55 billion from banks and investors who he says benefited from or aided Madoff’s scheme, and many of those cases are only just starting to work through the system.
Appearing at the news conference with Picard, Manhattan U.S. Atty. Preet Bharara referred to “the ongoing effort to make Madoff’s victims whole.”
Madoff’s enormous scheme drew in thousands of investors after it began in the 1980s. When it was exposed it appeared to wipe out the life savings of many.
Since then more than 16,000 people have filed claims stating they lost money. Picard has said he can return money only to people who invested directly with Madoff, creating confusion for the thousands of people who had money tied up with Madoff through so-called feeder funds.
Picard’s team says it is almost finished processing victims’ claims and has approved $5.9 billion in payments to 2,363 investors.
In a controversial move, Picard has tried to “claw back” money from Madoff customers who withdrew more from their accounts than they initially put in — even if they honestly believed they had earned it and in some cases had already spent the withdrawn money.
In one recent example, the Jewish charity Hadassah agreed to pay back $45 million that it had taken out of its Madoff accounts.
Picower and his charities and businesses had invested $619 million with Madoff and taken out $7.8 billion.
Picower, a well-known donor to Jewish and medical causes and a close associate of Madoff, drowned in the swimming pool at his Palm Beach, Fla., house in October 2009. Before his death he denied that he had known anything about Madoff’s fraud. But Picard had said in legal filings that Picower’s remarkable returns from Madoff meant that he “knew or should have known” that something was wrong.
On Friday, Picower’s widow, Barbara, said in a statement that her husband was “in no way complicit” and added that “the Madoff Ponzi scheme was deplorable, and I am deeply saddened by the tragic impact it continues to have on the lives of its victims. It is my hope that this settlement will ease that suffering.”
The U.S. attorney’s office led the negotiations with Picower’s widow, and Bharara praised her for being “open and honest in sharing information.”
The settlement does not touch the $619 million that Picower initially invested, and his widow said she had enough money to “return to the philanthropic work that was so important to Jeffry and me.”
The settlement caps a dramatic couple of weeks in the case. Last weekend, on the two-year anniversary of the discovery of the fraud, Madoff’s older son, Mark Madoff, committed suicide in his Manhattan apartment. Only days before Picard had sued both of Madoff’s sons and their wives and children.
The two-year anniversary was the deadline for Picard to file claims, and he came in just under the wire with a number of gargantuan suits against Madoff’s family and friends as well as against banks he said had aided Madoff’s crime or did not do enough to investigate it.
The biggest suit by far asks for $19.6 billion from the owners of an Austrian bank, Bank Medici, and its founder, Sonja Kohn, whom Picard’s filing referred to as Madoff’s “criminal soul mate.”
Picard said Kohn had drawn investors in by advertising her close relationship with Madoff and her operation withdrew hundreds of millions of dollars shortly before the fraud became public.
Lawyers for Kohn and Bank Medici have denied any wrongdoing.
Picard also recently sued JPMorgan Chase & Co., Madoff’s primary U.S. bank, asking for $6.4 billion. Picard’s lead counsel, David Sheehan, said the bank was “thoroughly complicit” in Madoff’s fraud and that “Madoff would not have been able to commit this massive Ponzi scheme without this bank.”
After the complaint was filed under seal at JPMorgan’s request, the bank issued a statement saying “any suggestion that JPMorgan supported Madoff’s fraud is utterly baseless and demonstrably false.”
One of Madoff’s investors who won’t benefit from Friday’s settlement is Peter Moskowitz, a retired dentist in Corona whose last statement from Madoff said he had $1.15 million in his account. Moskowitz, 67, said he had made withdrawals over the years that exceeded his initial investment, making him ineligible for a recovery.
“I not only won’t get anything,” Moskowitz said, “I also may be liable to give back what I took out.”
Moskowitz said he had considered the money his retirement account. Since it disappeared, he’s been living off Social Security and disability benefits.
“I’m very lucky, compared to most,” he said. “Many people lost their homes. Some people lost their lives due to the stress.”
stuart pfeifer@latimes.com
