Oct. 9, 2009 -- Just days after being appointed, the new chief of the criminal division in the U.S. Attorney's office in Manhattan, Richard B. Zabel, has taken himself off the biggest case his office is handling, the investigation of the Bernard Madoff Ponzi scheme, because his father represents one of the potential targets.
"He has recused himself from any involvement in the Madoff case," a spokesperson for the U.S. Attorney's office, Rebekah Carmichael, told ABCNews.com Friday. Zabel's appointment was announced Tuesday. The spokeswoman declined to provide any details about who would oversee and supervise the Madoff investigation.
Zabel's father, William Zabel, represents financier Jeffrey Picower who bankruptcy trustee lawyers have alleged was complicit in the Ponzi scheme. In court documents, trustee lawyers allege Picower was the "biggest beneficiary of Madoff's scheme," clearing more than $7.2 billion. The trustee alleged the money was "a form of compensation by Madoff to Picower for perpetuating the Ponzi scheme."
The U.S. Attorney's office declined to say whether Picower was considered a target of the criminal investigation.
The elder Zabel said his son's decision to take himself off the Madoff case "is entirely appropriate, because of the appearance of a conflict of interest."
On behalf of his client, the elder Zabel has denied Picower played any role in the Madoff scheme. "The Trustee's villainous portrayal of Mr. Picower is unsupported by facts," Zabel said in a recent court filing.
Madoff Scheme Investigation Setback
Lawyers familiar with the case said the decision by the younger Zabel is yet another setback in the government's investigation and prosecution of others involved in the Madoff scheme.
"They have been dragging their feet and have not shown an appetite for going after others who may have helped Madoff devise the scheme," said one lawyer working on the case.
Madoff's right-hand man, Frank DiPascali, pleaded guilty to fraud charges in August and initially agreed to cooperate with the government. But lawyers say after the judge in the case refused to allow DePascali to stay free on bail, his willingness to help as much as he could was in question.
DiPascali's lawyer, Marc Mukasey, did not immediately return calls seeking comment. Mukasey's role in the Madoff case created an earlier conflict of interest and prosecutorial recusal. His father, Michael Mukasey, was attorney general in the Bush administration and was forced to recuse himself because of his son's representation of DiPascali.
Madoff is serving a 150-year sentence in federal prison and criminal fraud charges are pending against Madoff's accountant.
Lawyers in the case say another set of indictments had been expected shortly after Labor Day but they have been held up as a new prosecutorial team settles in to the U.S. Attorney's office in Manhattan.