Almost five years after his fraud was uncovered, a London court will be the site of a reunion of sorts for Bernard Madoff’s family and colleagues as the liquidators of his U.K. unit seek to recover $50 million.
Madoff’s brother Peter and son Andrew are among the defendants who will testify during a six-week trial that starts today in London. Stephen Raven, the U.K. unit’s chief executive officer, and Sonja Kohn, a long-time associate of Madoff, are also defendants.
The trial will be a reminder of the tragedy that Madoff’s Ponzi scheme caused not only for victims of the fraud, but also members of his own family. Peter Madoff will testify by video link from a U.S. prison where he is serving 10 years for conspiracy and falsifying records. Andrew Madoff’s brother, Mark committed suicide in December 2010 on the second anniversary of their father’s arrest, and three days after the U.K. lawsuit was filed.
Andrew and Mark “have suffered family loss which is beyond exceptional,” their lawyer David Archer said. The estate of Mark Madoff, is also named in the U.K. suit. “It’s unfair in the extreme that they should face these unmeritorious claims,” Archer said.
Bernard Madoff, 75, is serving a 150-year sentence in the U.S. for what prosecutors said was the biggest Ponzi scheme in U.S. history. Liquidators of his companies have sued banks, feeder funds, and Madoff’s employees to recover some of the $17 billion lost by victims.
Ponzi schemes use funds from new investors to pay artificially high returns to existing ones. Without a genuine source of income, they can collapse without new customers or if investors start withdrawing money.
Pushpinder Saini, a lawyer for the liquidators, said during opening arguments today that Raven and other officials at the U.K. unit were aware the payments they were receiving from the U.S. were a “sham.”
He read out transcripts of a 2007 phone call, in which Raven told another director, “We all know it’s a sham,” referring to payments made by the London directors for advice.
“We are not in the business. We have no training,” Raven said on the phone call, according to Saini. “Why would anyone in the world pay $3 million for that?”
Research written by Kohn was shredded or put in the trash, Saini said.
Raven, a 75-year-old former SG Warburg executive, believed Madoff and his businesses were honest and was shocked when his crimes were exposed, said his lawyer, Trevor Jenkin.
The case “has caused enormous personal stress for Mr. Raven, who will lose his home if the claim against him succeeds, and his reputation built up over several decades will be ruined,” Jenkin said in a statement before the trial started.
Kohn, the former chairwoman of Bank Medici AG who introduced clients to Madoff, has already appeared in pre-trial hearings in London to answer questions about her assets. She described setting up companies in the British Virgin Islands, Italy and Gibraltar for her Madoff income, and said she couldn’t remember all the details. The money was put in trusts for her family, she said.
There’s no allegation by liquidators that Kohn knew anything about the Ponzi scheme, her lawyer Trevor Asserson said in a statement before the trial started. She received a reasonable rate of remuneration for providing introduction and research services, he said.
The liquidators are also trying to recover payments for luxury goods used by the Madoff family, including a yacht and an Aston Martin sports car, according to a statement released when the lawsuit was filed. Madoff’s European employees and associates, including his son Andrew, argue they too are victims.
Madoff Securities International Ltd. in London was owned almost exclusively by Madoff and served as his proprietary trading unit. More than $910 million was transferred between the London unit and Bernard L. Madoff Investment Securities LLC in New York from the time of the office’s founding in 1983 until firm’s collapse in December 2008, the liquidators said when they filed the lawsuit in 2010.
Irving Picard, the U.S. trustee appointed to liquidate Madoff’s assets in 2008, has described Madoff Securities International as a “critical piece of the facade of legitimacy that Madoff constructed.”
Stephen Akers, a Grant Thornton LLP partner winding up the European unit, is suing Raven and the other defendants in the U.K. case for breach of duty.
Simon Rothschild, a spokesman for the liquidators, declined to comment. In 2010, the U.K. Serious Fraud Office said it wouldn’t prosecute any of the directors of Madoff’s London unit.
The case took years to get to trial because of the “sheer complexity” of the collapse of Madoff’s operations, said Nicholas Cropp, a lawyer at Seven Bedford Row Chambers, who isn’t involved in the case.
“While it’s difficult to sympathize with those even peripherally connected to one of the largest Ponzi schemes in history, this case may not quite produce the results that investors defrauded by Madoff are hoping for,” Cropp said.
Peter Madoff, 67, was sentenced in December. While he maintained he was unaware of any criminality, U.S. District Judge Laura Taylor Swain in Manhattan said that notion was “not believable.” He agreed to surrender his assets to liquidators. Charles Spada, a New York lawyer who has represented him, didn’t respond to e-mails and a phone call seeking comment.
The case is Madoff Securities International Ltd. v. Raven, 10-1468, High Court of Justice, Queen’s Bench Division (London)
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