A New York real estate broker described as a “surrogate father” to Bernard Madoff transferred more than $83 billion in and out of his account with the convicted con man from 1998 to 2001, the Securities Investor Protection Corp. said in a letter.
Norman F. Levy’s transactions in those years dwarfed those of all other Madoff clients. The others put in a total of $10.2 billion and took out $8.5 billion during the same period, according to a Jan. 24 letter from the SIPC to U.S. Representative Scott Garrett, a Republican from New Jersey, who is looking into the fraud. Levy died in 2005 at age 93.
Suspicious transactions by the customer dealing with Madoff’s firm “most often and in the largest dollar amount” during that time should have alerted JPMorgan Chase & Co. to the Ponzi scheme, according to allegations in a complaint against the bank demanding $6.4 billion for its role in managing Madoff’s main account.
Irving Picard, named as the trustee to liquidate Madoff’s firm, claims in the complaint that JPMorgan, the second-largest U.S. bank by assets, was aware of “what appeared to be a check-kiting scheme” in December 2001 between Madoff and that customer. The client, identified only as “Customer 1,” also engaged in “suspicious loan activity” involving Customer 1 and another longtime Madoff friend, according to the complaint, which was unsealed last week.
Based on the transaction figures produced by the SIPC for Garrett, Levy is the only investor in Madoff’s defunct investment firm, Bernard L. Madoff Investment Securities LLC, whose transaction volume matches up with Picard’s allegations against Customer 1.
Picard declined through a spokeswoman to say whether Levy, who invested with Madoff from the mid-1970s until his death, is “Customer 1.” Picard settled with the estate and family of Levy last year for $220 million, the amount of money Levy and they allegedly profited from their accounts.
Picard didn’t mention any suspicious transactions involving Levy in court papers or in a hearing seeking court approval of the settlement.
“We cannot comment on any part of the complaint that remains sealed,” said Picard’s spokeswoman, Amanda Remus. Remus wouldn’t say whether Picard knew of the information in the SIPC letter when he agreed to the Levy deal.
“I am troubled that Mr. Picard did not disclose the key role that Norman Levy played in financing the Ponzi scheme when he sought the court’s approval of the settlement with the Levy family,” said Helen Davis Chaitman, a New York lawyer who represents hundreds of Madoff victims.
Cary Lerman, a lawyer who represented the Levy family in the settlement with Picard, said Levy was one of Madoff’s victims. Madoff, 72, whom Levy had named as an executor of his estate, stole $250 million from it, using the money to fund his fraud, Lerman said. Levy and the estate lost an additional $200 million of principal in the fraud, he said.
Levy “never would have engaged knowingly in wrongdoing,” Lerman said.
JPMorgan knew Madoff “as ‘Customer 1’s trader,’ who had helped increase Customer 1’s wealth from $180 million in 1986 to $1.5 billion in 1998,” according to Picard’s complaint.
Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan, had no comment on the transactions.
Hundreds of Millions
Picard claimed that in 1996, when Chase Bank was acquired by Chemical Bank, Customer 1 had $188 million in outstanding loans, which he used to invest in his Madoff account. JPMorgan lent Customer 1 hundreds of millions of dollars, which he invested with Madoff, Picard claimed.
In the complaint, Picard claimed that the main JPMorgan account Madoff used in his fraud showed “suspicious activity constituting approximately $6.8 billion worth of transactions and conducted primarily through checks” in December 2001.
In 2002, Madoff sent 318 checks, each for exactly $986,301, to Customer 1’s account, sometimes more than one a day, Picard claimed. From December 2001 to March 2003, the amount of monthly totals going from Madoff to Customer 1 almost always equaled those going the other way.
“There was no clear economic purpose for such repetitive transactions that had no net impact” on Customer 1’s account, Picard said in the complaint.
Madoff’s insolvency forced the closing of the JEHT Foundation, which stands for Justice, Equality, Human Dignity and Tolerance, a supporter of criminal justice reform funded with Levy’s fortune.
In court papers filed last year, Marc Hirschfield, a lawyer from Picard’s firm acting as counsel to the trustee, said accounts Levy had opened with Madoff for himself, his children, family and charitable trusts had withdrawn about $305 million in false profits in the six years before Madoff’s firm went bankrupt.
Picard settled for $220 million, deciding not to pursue about $84 million already distributed to charities by the Betty & Norman F. Levy Foundation.
At a hearing in Manhattan to approve the settlement, Hirschfield told U.S. Bankruptcy Judge Burton Lifland that lawyers for Norman Levy’s children, Jeanne Levy-Church and Francis Levy, had approached the trustee to discuss their possible liability.
‘They Felt Badly’
“They felt badly about having other people’s money and they wanted to return to the trustee the profits they received,” Hirschfield said, according to a transcript of the Feb. 18, 2010, hearing.
In December, Picard and U.S. prosecutors settled a suit against the estate of billionaire Jeffry Picower for $7.2 billion. Also that month, the family of Boston philanthropist Carl Shapiro agreed to pay back $625 million in Madoff profits.
Vanity Fair reported in 2009 that Madoff regarded Levy as a “surrogate father,” based on interviews the magazine did with some of his victims and friends.
The U.S. Securities and Exchange Commission’s Aug. 31, 2009, report on an investigation into its failure to uncover the Madoff fraud includes information about two anonymous tips it received, in 2006 and 2008, that Madoff had stolen from Levy’s account. The SEC took no action on the tips after Madoff claimed he had never managed money for Levy.
“An accused fraudster’s unsubstantiated denial of wrongdoing is insufficient grounds for concluding that the accusation is without merit,” the report said.
The case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).