Trustee Seeking More Money from Madoff Family

November 9, 2011

A little more than a week ago, Andrew Madoff professed to 60 Minutes that he was utterly unaware of his father’s fraud, calling Bernie Madoff’s $65 billion Ponzi scheme “shocking.”

But Madoff trustee Irving Picard, the man charged with recovering money for victims, suggests Andrew Madoff should have had an inkling that something was amiss.

Yesterday, Picard filed a civil suit, increasing the amount he’s seeking from members of the Madoff family by $28 million, for a total of $226.4 million. Picard is asking for $64.7 million from Andrew Madoff alone. The suit claims that Andrew, his late brother Mark, Bernie’s brother Peter and Peter’s daughter Shana “either failed to detect or failed to stop the fraud, thereby enabling and facilitating the Ponzi scheme.”

Because the Madoffs held such prominent managerial positions within the organization, Picard argues that “if the Family Defendants had been doing their jobs — honestly and faithfully” the scheme may not have lasted so long and caused so much damage. Instead, the suit accuses Bernard L. Madoff Investment Securities of operating “as if it were the family piggy bank.”

In particular, Picard claims that Andrew and Mark should have been aware that the returns they were seeing on the 19th floor — the site of the company’s legitimate securities trading business — were being propped up by the Ponzi scheme being run on the 17th floor. According to the suit:

Had they faithfully carried out their compliance, supervisory, and managerial responsibilities, they would have realized that the market-making and proprietary trading businesses were, in fact, incurring tens of millions of dollars in losses and could not afford to pay the exorbitant salaries, bonuses, and other compensation paid to the defendants and others.

Andrew Madoff claimed on 60 Minutes, however, that the 17th floor was a conversation topic that was off limits with his father:

It was always a very similar response. It was, “You guys have your business to worry about and let me worry about my business,” and the conversation would end there.

Madoff added:

Keep in mind these were completely separate businesses. We were executing hundreds of thousands of transactions a day. And that kept all of us incredibly busy. And it just didn’t occur to me that he could be involved in any kind of criminal activity.

Aside from being another legal blow to the family, Picard’s latest suit could also chip away at what New York Times reporter Diana Henriques told us is Andrew Madoff’s ultimate goal:

Andrew, especially, seems to trust that the public will read his story, listen to his account of what happened and eventually conclude: yes, he’s innocent.

Picard’s new suit is just one of several legal developments in the Madoff case this week.

On Monday, two people who invested with Madoff sued JPMorgan — Bernie Madoff’s bank for over 20 years — for $19 million. According to a statement from their lawyer, Stephen and Leyla Hill claim that “JPMorgan was, in effect, the banking back-office for the Madoff Ponzi scheme, shuffling piles of money from one account to another at Madoff’s request.”

This comes after a similar suit filed by the trustee Picard was dismissed last week by a judge because the judge said Picard didn’t have the authority to pursue the case. JPMorgan says they “believe this most recent lawsuit is equally [as] meritless” as Picard’s dismissed case.

Lastly, we have an update on the conflict-of-interest charge against former SEC General Counsel David Becker. Becker, who was involved in conversations at the agency about how Madoff’s victims should be compensated, had inherited a $2 million Madoff investment after his mother died. In September, a report [PDF] from the SEC Office of the Inspector General recommended that the Justice Department look into the case as a possible conflict of interest.

Yesterday, the DOJ declined to investigate the matter further, without comment.

We’ll be rebroadcasting our film The Madoff Affair on Dec. 6 (check local listings), but you can watch the documentary online anytime.

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