In the biggest win yet for victims of Bernie Madoff, the estate of the single biggest beneficiary of Madoff's fraud agreed to pay $7.2 billion to the victims' recovery fund and the Department of Justice.
Irving Picard, the trustee recovering money for Madoff's victims, announced Friday that he had cut a deal with the estate of the late Jeffry Picower that would reap $5 billion for the victims' fund, with another $2.2 billion to be distributed to victims via the U.S. government. Picard had earlier recouped almost $6 billion for victims, meaning he has now made real headway in recovering lost funds; total investor losses have been estimated at about $20 billion.
Picard said the importance of the Picower settlement could not be overstated, "as it shows significant progress in our efforts. ... Every penny of this $7.2 billion settlement will be distributed to BLMIS [Bernard L. Madoff Investment Securities] customers with valid claims."
"People who two years ago faced the devastating prospect of losing everything now stand to recover a significant portion of their investment," said FBI assistant director-in-charge Janie Fedarcyk.
U.S. Attorney Preet Bharara called the settlement "historic" and a "game-changer," and praised Barbara Picower, Jeffry's widow and the executor of his estate, for agreeing to it.
"By returning every penny of the $7.2 billion her late husband received from BLMIS to help those who have suffered most, Barbara Picower has done the right thing," said Bharara.
Picower was one of Madoff's early investors and withdrew about $7 billion in profits from his account over three decades. The 67-year-old Palm Beach, Florida philanthropist drowned after suffering a heart attack in his swimming pool on Oct. 25, 2009, just under a year after Madoff's Ponzi scheme unraveled.
In a statement, Barbara Picower called Madoff's fraud "deplorable" and said she hoped the setllement would ease the suffering of victims.
Said Picower, "I believe that this settlement honors what Jeffry would have wanted, which is to return this money so that it can go directly to the victims of Madoff."
She also emphasized that her husband was never charged with a crime, and that she was confident he was not complicit in the fraud. The trustee had claimed in court papers that Picower should have realized that his profits were unnaturally high and likely based on fraud.
In recent weeks, Picard has filed suits against hundreds of individual investors and big companies like JP Morgan, HSBC and UBS, which bring the total amount sought by Picard in the so-called "clawback" to at least $56 billion.
Through the end of September, Picard had filed 19 lawsuits worth $15.5 billion against longtime individual investors like Picower, members of Madoff's immediate family, and major feeder funds, including those operated by the Fairfield Greenwich Group and J. Ezra Merkin, a prominent Wall Street investment manager.
Picard followed by suing hundreds of individual investors believed to have profited from Madoff's multi-billion-dollar investment scheme by receiving more from Madoff than they paid in. Those suits ask for amounts ranging from $500,000 to $60 million, and total $3.5 billion.
The big bank lawsuits started with UBS AG, which Picard and his team of lawyers sued the day before Thanksgiving for $2 billion, an amount later increased to $2.55 billion. JP Morgan was next, sued for $6.4 billion on Dec 2, followed by HSBC, sued for $9 billion on Dec 5. The banks have all denied wrongdoing and have pledged to fight the suits.
Picard last week filed the largest suit to date, asking Austrian banker Sonja Kohn and Medici Group for $19.1 billion, alleging that she masterminded a multinational money-laundering business for Madoff.
Picard was appointed by the court in 2008 to unravel the fraud and help victims recover losses. As of December 8, Picard and his law firm, Baker & Hostetler, had approved around 2,000 victim claims totaling $5.8 billion out of the more than 15,000 claims filed. The firm says they will continue to allow claims after the clawback deadline and by the end of the year, the value of the approved claims should soar to $18 billion.
When the fraud was discovered, there were $65 billion in profits on Madoff's books, but Picard estimates total investor losses to be closer to $20 billion. The lawsuits filed to date ask for far more than that, but they include demands for punitive damages, and the expectation that not all suits will be successful.
Prior to the Picower settlement, Picard had recovered $5.8 billion for victims through asset sales and out-of-court settlements.