Madoff Trustee's $7.2 Billion Settlement With Picower Approved by Judge

A U.S. bankruptcy judge approved a $7.2 billion settlement between the trustee overseeing the dissolution of Bernard L. Madoff’s investment advisory firm and the estate of investor Jeffry Picower.

Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC, sued Picower in May 2009, claiming he withdrew $7.2 billion more than he invested and should have known Madoff was running a Ponzi scheme. Picower died in October 2009 at age 67.

“This is a great day for the customers, and we’re looking to collect as much money as possible,” Picard said after the hearing today before U.S. Bankruptcy Judge Burton Lifland in Manhattan. Picard said he hopes to recover enough money to pay all of Madoff’s victims, including those who withdrew more money from their Madoff accounts than they invested.

Picard and U.S. Attorney Preet Bharara, who is probing the Madoff fraud, on Dec. 17 announced the settlement with Picower’s widow, Barbara. The agreement brought the amount collected by authorities over the Madoff fraud to $9.8 billion.

Under the deal, the estate agreed to pay $5 billion to Picard for distribution to Madoff’s creditors. It also agreed to pay the government $2.2 billion, which will be distributed to victims, under Picard’s supervision.

The settlement resolved a lawsuit filed by Picard in May 2009. Picard said in the suit that Picower knew or should have known that Madoff’s investments were phony.

‘Obvious Fraud’

“Picower’s accounts were riddled with blatant and obvious fraud,” Picard said in September 2009, in legal papers opposing Picower’s attempt to have part of the claim dismissed.

Opponents of the settlement said that an injunction barring suits against Picower’s estate threatened to make it more difficult for them to recover money they invested with Madoff.

Helen Davis Chaitman, a lawyer who sued Picower’s estate on behalf of Madoff victims, said after today’s hearing that Picard was using his position “to shield Mr. Picower from the consequences of his crimes.”

Chaitman said Lifland’s ruling forces her clients to appeal, likely delaying the distribution of the Picower settlement funds to defrauded investors.

Net Winners

Picard, with Lifland’s approval, calculated Madoff losses based on the amount of principle lost in the fraud. Investors who withdrew more money from their Madoff accounts than they invested, so-called “net winners,” aren’t able to collect until the net losers, who claim about $20 billion, are paid.

“We’re not saying they don’t have a claim,” David Sheehan, a lawyer for the trustee, told Lifland today. “It’s just not a priority claim. They’re general creditors.”

Several times during the hearing Sheehan referred to the claims of Madoff victims to the profits reflected in their Madoff account statements as “other people’s money” and “false profits.”

Sheehan told Lifland that Barbara Picower “stepped up and stepped up big time,” agreeing to return “every penny” the Picowers received from Madoff’s fraud.

“I am absolutely confident that my husband Jeffry was in no way complicit in Madoff ‘s fraud,” Barbara Picower said when the settlement was announced. The estate admitted no wrongdoing in settling the case.

Madoff is serving a 150-year prison term in a federal prison in North Carolina.

The case is Picard v. Picower, 09-01197, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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