In New Madoff Filings, Largest Beneficiary of Fraud Was Possibly Unaware of Ponzi Scheme

By Josh Nathan-Kazis

Published December 22, 2010, issue of December 31, 2010.
  • Print
  • Share Share

Jeffry Picower, the late investor who earned more than even Bernard Madoff did from the fraudster’s huge Ponzi scheme, has long been accused by the court appointed trustee in the Madoff case of knowing the operation was a fraud. But a new filing by the trustee following his settlement with the Picower estate suggests that Picower may just have been an innocent Madoff victim after all.

Giving Back: Barbara Picower with her late husband, Jeffry, who may have been an innocent victim of Madoff.
Getty Images
Giving Back: Barbara Picower with her late husband, Jeffry, who may have been an innocent victim of Madoff.

Trustee Irving Picard’s new posture comes in legal papers submitted to a federal bankruptcy court in connection with an agreement he has reached with Picower’s widow to return all her late husband’s Madoff related earnings. The settlement is thought to be the largest forfeiture in U.S. legal history. Together with more than $2 billion in Madoff assets that have already been recovered, the massive Picower settlement brought investors nearly halfway to the recovery of the currently estimated $20 billion in Madoff losses.

“Since settlement discussions began with the Picowers,” Picard wrote in his filing, “the Trustee, through his investigation, has uncovered facts which the Picowers claim show that Mr. Picower did not know of or participate in the Ponzi scheme.”

A spokesman for Picard did not respond to a request for comment on whether the careful new wording in his filing was the product of negotiations with Barbara Picower to secure the return of her late husband’s Madoff assets.

Picard’s new filing, submitted December 17, goes on to reframe some of the most incendiary allegations he made in a May 2009 filing. Among other things, his initial claim that Picower received a 950% return on one account was contradicted by further research, he wrote. In addition, Picard noted in his new filing that Picower had plans to give much of the money he received from his Madoff accounts to charity.

In contrast, Picard alleged in his May 2009 filing that Picower “knew or should have known” that the Madoff operation was a fraud.

“I am absolutely confident that my husband Jeffrey was in no way complicit in Madoff’s fraud,” Barbara Picower said in a written statement. Picower suffered a heart attack while in his Palm Beach, Fla., swimming pool in October 2009, at age 68.

The Picower settlement was announced at a press conference December 17, the same day that Picard submitted his new documents.

The development marks a significant step forward for those tasked with recovering the assets stolen in the Ponzi scheme on behalf of Madoff’s victims, though questions loom as to how those assets will be distributed among Madoff’s burned investors.

Negotiations between Picard and the Picowers began in September 2009, a month before Jeffry Picower’s death. According to William Zabel, the Picowers’ attorney, the process was slow because the family needed to settle a slew of competing claims brought against them by the trustee, the U.S. Attorney’s Office, the IRS, and the Securities and Exchange Commission, among others.

“I couldn’t settle one and then get hit with a billion dollar suit from another,” Zabel said.

According to Zabel, the Picowers settled with the IRS for an undisclosed sum, and the SEC chose not to press charges. The Picowers also have a preliminary injunction from the bankruptcy court, barring lawsuits by individual Madoff investors.

At the December 17 press conference, held in the lobby of the U.S. Attorney’s Office, in Manhattan, Picard said that Barbara Picower and her attorney had been cooperative in negotiating the record-breaking settlement. “They were open and honest in sharing information and conducting good-faith negotiations with us,” Picard said.

Barbara Picower believes that “when you know that you have money that was the result of a fraud, you should give it back to the people that lost it from the fraud,” Zabel said.

The $7.2 billion recovery will be split between the customer fund administered by Picard and a separate fund administered by the Department of Justice. A portion of the settlement was approved December 17; a bankruptcy judge will also rule on the settlement January 13, 2011.

The current $20 billion estimate of the total value of Madoff customer losses is down substantially from the estimates of $65 billion that circulated two years ago. The higher estimate was revised downward after Picard determined that customer claims should be calculated based on the amount invested minus the amount withdrawn, not on the value of the most recent account statement. Picard’s valuation method has been upheld in the bankruptcy court and is currently being appealed.

Once the bankruptcy court judge approves the Picower settlement, the $5 billion share that will go to Picard’s customer fund will boost the amount he has collected to more than $7.5 billion. But so far, Picard has only approved Madoff customer claims of $5.8 billion — nearly $2 billion less than the total he has collected to return to investors.

Picard explained the discrepancy at the press conference, saying that he had not yet approved claims by certain investors — including a number of feeder funds — because of pending suits he had filed against those investors for transfers made within 90 days of the Madoff collapse. He said that their claims would be included among the total customer claims after those suits are settled.

Picard did not answer directly when asked what he would do if he recovered more from Madoff investors than he agreed to pay out, saying only that the total value of approved claims could end up being more than $20 billion. But Orlan Johnson, chairman of the Securities Investor Protection Corporation, said at the press conference that all funds recovered from Picower would end up in the hands of Madoff victims.

Picard said at the press conference that Madoff victims could begin receiving initial payments at the end of the first quarter of 2011.

It’s unclear how much of Picower’s estate remains. Before the 2008 revelation of the Madoff affair, the Picowers were prominent philanthropists. According to Zabel, the terms of Jeffry Picower’s will require that any funds left over in the estate after the Madoff settlement and some bequests to Barbara Picower and others will be used to create a new foundation dedicated to medical research, the environment and poverty issues.

Contact Josh Nathan-Kazis at or follow him on Twitter @joshnathankazis

The Jewish Daily Forward welcomes reader comments in order to promote thoughtful discussion on issues of importance to the Jewish community. In the interest of maintaining a civil forum, The Jewish Daily Forwardrequires that all commenters be appropriately respectful toward our writers, other commenters and the subjects of the articles. Vigorous debate and reasoned critique are welcome; name-calling and personal invective are not. While we generally do not seek to edit or actively moderate comments, our spam filter prevents most links and certain key words from being posted and The Jewish Daily Forward reserves the right to remove comments for any reason.

Find us on Facebook!
  • “You will stomp us into the dirt,” is how her mother responded to Anya Ulinich’s new tragicomic graphic novel. Paul Berger has a more open view of ‘Lena Finkle’s Magic Barrel." What do you think?
  • PHOTOS: Hundreds of protesters marched through lower Manhattan yesterday demanding an end to American support for Israel’s operation in #Gaza.
  • Does #Hamas have to lose for there to be peace? Read the latest analysis by J.J. Goldberg.
  • This is what the rockets over Israel and Gaza look like from space:
  • "Israel should not let captives languish or corpses rot. It should do everything in its power to recover people and bodies. Jewish law places a premium on pidyon shvuyim, “the redemption of captives,” and proper burial. But not when the price will lead to more death and more kidnappings." Do you agree?
  •'s Allison Benedikt wrote that Taglit-Birthright Israel is partly to blame for the death of American IDF volunteer Max Steinberg. This is why she's wrong:
  • Israeli soldiers want you to buy them socks. And snacks. And backpacks. And underwear. And pizza. So claim dozens of fundraising campaigns launched by American Jewish and Israeli charities since the start of the current wave of crisis and conflict in Israel and Gaza.
  • The sign reads: “Dogs are allowed in this establishment but Zionists are not under any circumstances.”
  • Is Twitter Israel's new worst enemy?
  • More than 50 former Israeli soldiers have refused to serve in the current ground operation in #Gaza.
  • "My wife and I are both half-Jewish. Both of us very much felt and feel American first and Jewish second. We are currently debating whether we should send our daughter to a Jewish pre-K and kindergarten program or to a public one. Pros? Give her a Jewish community and identity that she could build on throughout her life. Cons? Costs a lot of money; She will enter school with the idea that being Jewish makes her different somehow instead of something that you do after or in addition to regular school. Maybe a Shabbat sing-along would be enough?"
  • Undeterred by the conflict, 24 Jews participated in the first ever Jewish National Fund— JDate singles trip to Israel. Translation: Jews age 30 to 45 travelled to Israel to get it on in the sun, with a side of hummus.
  • "It pains and shocks me to say this, but here goes: My father was right all along. He always told me, as I spouted liberal talking points at the Shabbos table and challenged his hawkish views on Israel and the Palestinians to his unending chagrin, that I would one day change my tune." Have you had a similar experience?
  • "'What’s this, mommy?' she asked, while pulling at the purple sleeve to unwrap this mysterious little gift mom keeps hidden in the inside pocket of her bag. Oh boy, how do I answer?"
  • "I fear that we are witnessing the end of politics in the Israeli-Palestinian conflict. I see no possibility for resolution right now. I look into the future and see only a void." What do you think?
  • from-cache

Would you like to receive updates about new stories?

We will not share your e-mail address or other personal information.

Already subscribed? Manage your subscription.