POSTED: 09:22 a.m. HST, Dec 17, 2010
LAST UPDATED: 09:25 a.m. HST, Dec 17, 2010
NEW YORK — The widow of a Florida philanthropist who had been the single-largest beneficiary of Bernard Madoff's colossal Ponzi scheme has agreed to return $7.2 billion in bogus profits to the victims of the fraud, she and authorities announced Friday.
The trustee recovering money for Madoff's burned investors filed court papers formalizing the settlement with the estate of Jeffry Picower, a businessman who drowned after suffering a heart attack in the swimming pool of his Palm Beach, Fla., mansion on Oct. 25, 2009.
"We will return every penny received from almost 35 years of investing with Bernard Madoff," Picower's wife, Barbara, said in a written statement.
"I believe 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," she said. "It is my hope that this settlement will ease that suffering."
U.S. Attorney Preet Bharara called the settlement a "game changer" for Madoff's victims.
A recovery of that size would mean that a sizable number could get at least half of their money back — a remarkable turnaround for people and institutions that thought two years ago that they had lost everything.
"Barbara Picower has done the right thing," Bharara said.
Jeffry Picower, who was 67 when he died, was one of Madoff's oldest clients. Over the decades, he withdrew about $7 billion in bogus profits from his accounts with the schemer. That amounts to more than a third of the dollars that disappeared in the scandal.
That money was supposedly made on stock trades, but authorities said that in reality it was simply stolen from other investors.
Picower's lawyers claimed he knew nothing about the scheme, but court-appointed trustee Irving Picard had argued in court papers that he must have known that the returns were "implausibly high" and based on fraud.
In her statement, Barbara Picower said she was "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 act."
Lawyers for Picower's estate have been in negotiations with the trustee for some time.
After Picower drowned, his will revealed that he had earmarked most of his fortune for charity, but his widow said in a statement that the family wished to return some of it to Madoff's victims through "a fair and generous settlement."
A huge charitable foundation that Picower had created with part of his fortune closed in 2009 after its assets were wiped out in the Madoff fraud.
It had donated hundreds of millions of dollars to colleges, libraries and other nonprofit groups.
Thousands of people, banks and hedge funds that invested money with Madoff saw their savings wiped out when the fraud was revealed to be a hoax. Many, though, like Picower, had been drawing bogus profits from their Madoff accounts for years and wound up walking away from the scheme having taken out more money than they put in.
Picard has been involved in a two-year effort to claw back those false profits and return the stolen money to people who were net-losers in the scheme.
It is those people, who lost more than they withdrew, who could now be poised to recover half of their original investment.
The person said Picower's estate would pay $5 billion to settle the civil lawsuit brought by Picard and other $2.2 billion to resolve a civil forfeiture claim by federal prosecutors investigating Madoff's crimes. All the money will go to victims of the fraud.
Bharara called the total "a truly staggering sum that was really always other people's money."
Madoff's clients had thought, based on his fraudulent account statements, that they collectively had more than $60 billion invested in stocks through the money manager's funds.
Investigators found, though, that no investments had ever been made, and that the $20 billion in principal contributed by Madoff's clients was simply being paid out bit by bit to other investors.
Bharara said roughly half of that lost money has now been recovered.