Investors who lost their life savings to Bernard Madoff’s multi-billion dollar Ponzi scheme got some welcome news on Friday.
A settlement has been reached that could deposit $7.2 billion into the fund being used to repay victims of the scheme. Authorities said it is the largest forfeiture recovery in U.S. history.
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The settlement with the estate of Jeffry Picower, a billionaire investor and philanthropist, was announced at a press conference in Manhattan. Picower was one of Madoff’s most active clients during a 20-year relationship.
Court appointed trustee Irving Picard had sued Picower not long after Madoff’s arrest in December 2008 alleging that Picower, a sophisticated Wall Street veteran, should have known Madoff’s operation was a scam.
The $7.2 billion figure is what Picard describes as a ‘net gain,’ or the amount of money Picower withdrew from his Madoff account after subtracting the amount he deposited over the years.
Picower, who drowned in his Florida pool in October 2009, allegedly withdrew $2.4 billion in the six years leading up to Madoff’s arrest, Picard’s suit claimed.
The settlement won’t solve the debate over claw backs, however. Many other Madoff clients are also facing suits seeking repayment of Madoff profits. Some are fighting those suits, arguing they inadvertently withdrew more money from their Madoff accounts than they deposited and that they shouldn’t be held accountable for that after the fact. They believe they are owed whatever amount Madoff listed on the final statement he sent to investors shortly before he was arrested two years ago.
“It’s wonderful. I was really surprised,” said Tim Murray, a Minnesota investor whose family lost a bundle in the Madoff fraud. “I congratulate the trustee and his efforts to get back money from people who were in on the fraud. But I wish he would rethink suing innocent people that were in an SEC approved investment.”
The Network for Investor Action and Protection, which organized in the wake of the Madoff scandal, issued a statement Friday echoing Murray's comment: “We hope the Trustee’s great success in recovering these assets from guilty parties means that he will spare innocent victims from further lawsuits. It is clear the Trustee will exceed expectations in his settlements with the complicit, and there is no reason why he should continue to claw back investors who played no role in the fraud.”
Picower’s wife also issued a statement Friday denying that her husband had knowledge of Madoff’s fraud. “I am absolutely confident that my husband Jeffry was in no way complicit in Madoff's fraud and want to underscore the fact that neither the Trustee nor the U.S. Attorney has charged him with any illegal conduct. I believe 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 statement read.
In recent weeks Picard has filed a slew of of suits against banks, feeder funds, investors and others alleged to have profited from Madoff’s decades-long fraud. The trustee was facing a Dec. 11 deadline for those suits, the two year anniversary of Madoff’s arrest.
Prior to today’s settlement Picard had recovered about $2.5 billion through liquidation of all of Madoff’s considerable assets. Earlier this month he set his sights on Madoff’s European connections, suing Bank Medici AG and its founder, Sonja Kohn, as well as Bank Austria, UniCredit SpA and others. The suit seeks $19.6 billion from them, which could triple to $58.8 billion if the Racketeer Influenced and Corrupt Organizations Act is successfully used.
Madoff, whose son committed suicide on Saturday, is serving a 150-year prison term in a North Carolina prison.
Federal prosecutor Preet Bharara, the U.S. Attorney for the Southern District of New York, joined Picard at the news conference. He declined to answer whether investigators believed Picower knew what Madoff was up to.