April 26 (Bloomberg) -- Bernard L. Madoff believed that one of his billionaire investors, Jeffry Picower, may have suspected him of running a Ponzi scheme, according to a book by Diana B. Henriques.
Madoff, serving a 150-year term for the largest Ponzi scheme in history, said in a prison interview that Picower could have figured out the fraud at Bernard L. Madoff Investment Securities LLC, according to the book. Picower invested $620 million and withdrew $7.8 billion before Madoff confessed to his brother and two sons in December 2008. Henriques asked Madoff who knew of the fraud.
“Picower was the only one that might have,” Madoff said. “I mean how could he not?”
In “The Wizard of Lies: Bernard Madoff and the Death of Trust,” Henriques chronicles how Madoff stole from thousands of investors around the world while fooling regulators, banks and hedge funds about his investment returns. She analyzes Madoff’s deceptive powers, the market forces propelling him, and dozens of key investors such as Picower.
Picower, a lawyer and accountant, “had a genius for making money in the stock market, a passion for privacy, and a willingness to take big risks in pursuit of big rewards,” Henriques writes.
Picower also had been victimized by a Ponzi scheme in the 1970s, she said. He began investing with Madoff in the late 1970s, controlling dozens of accounts. By the late 1990s, Picower’s separate trading account at Goldman Sachs Group Inc. was worth $10 billion, she writes.
‘Exploit the Leverage’
“Was he now astute enough to realize what Madoff was doing and devious enough to exploit the leverage that knowledge gave him?,” Henriques writes. “Madoff often suspected that the answer was yes.”
Picower had a heart attack and drowned in his pool in Palm Beach, Florida, in October 2009 at age 67. He wasn’t charged with a crime, although the bankruptcy trustee recovering money for Madoff’s victims, Irving Picard, sued him for $7.2 billion.
Last December, Picower’s widow, Barbara, agreed to forfeit the entire $7.2 billion to victims. She said she wanted to resume her philanthropic gifts, and she was “absolutely confident that my husband Jeffry was in no way complicit in Madoff’s fraud.”
Madoff told Henriques that he helped Picower avoid income taxes on short-term stock trades in the 1980s. Still, Picower was among Madoff’s big investors who withdrew money after the 1987 stock market crash, putting the firm in a cash bind and possibly setting the stage for the Ponzi scheme, Henriques writes.
Private Jet Flights
While Picower and his wife shared dinners and private jet flights with Madoff and his wife, the friendship was a sham, Madoff said. In the first of two prison interviews, Madoff said: “Picower had no friends. He was a very strange person. It was always a very tense relationship.”
The Picowers withdrew $400 million from Madoff’s fund in 1997, $500 million in 1998, $600 million in 1999, and $3.4 billion from 2000 to 2003. One of the “deepest mysteries” is why Madoff didn’t dump Picower, who was “shrewd enough to know that he shouldn’t leave his possibly fictional profits in Madoff’s hands for very long,” writes Henriques, a reporter for the New York Times.
“Perhaps he simply figured that he’d continue to milk Madoff’s fraud-fed accounts until the money finally ran out, knowing that Madoff had no choice but to let him do so,” she writes.
‘Keep Him Attached’
“I had to keep him attached to me,” Madoff told the author.
Henriques writes of “separating the villains from the victims, the knaves from the fools” in the Madoff affair. “If Picower was numbered among the fools, he became one of the richest fools in the crowd -- richer, by far, than the people who were certainly villains, including Madoff himself,” she writes.
William Zabel, Picower’s attorney, said U.S. prosecutors and Picard didn’t find any illegal conduct by Picower or proof of his complicity in the fraud.
“If he was so smart, he wouldn’t have left several billion dollars, including his entire charitable foundation money, with Madoff,” Zabel, who remains an attorney for Barbara Picower and her husband’s estate, said in an interview. “I believe that Mr. Picower did not know that Madoff was running a Ponzi scheme.”
Henriques concludes that three members of Madoff’s family -- his wife Ruth, and his sons Andrew and Mark -- weren’t villains even though they were demonized by the public. The sons worked at the firm and were stunned by his confession in December 2008, Henriques writes.
Ruth was 18 when she married Madoff in 1959. Her father was an accountant who helped Madoff, then a young stock broker, raise $30,000 to conceal losses in customer accounts.
Henriques writes that Madoff’s family was unfairly pilloried after Madoff’s arrest in 2008.
“No one seriously disputed that Madoff had successfully and repeatedly hidden his crime from regulators, foreign accounting firms, hedge fund due-diligence teams, and his savviest professional investors,” she writes.
“Why was it so implausible that he had hidden it from his wife, who had no official role at the firm, and from his sons, who worked in a separate part of the business and learned only as much about his private, closely held investment management business as Madoff chose to tell them?”
“Motive to Flee’
She said that while the sons had “the opportunity, the means, and the motive to flee,” they didn’t do so, and they weren’t charged with a crime. Madoff’s younger brother, Peter, who spent almost four decades at the firm, is a subject of the investigation by federal prosecutors in New York, according to court papers in a federal lawsuit by the foundation of U.S. Senator Frank Lautenberg of New Jersey and his children. The Lautenberg family and the fund seek $9 million in that lawsuit.
Picard sued Madoff’s wife, sons and other family members, seeking almost $200 million of victims’ money he claims that they spent.
Mark Madoff committed suicide on Dec. 11, the two-year anniversary of his father’s arrest.
Ruth Madoff forfeited $80 million in assets.
Henriques says Ruth Madoff told a source, “I had a love affair with someone for fifty years -- I couldn’t abandon him, even though he had committed a terrible crime. If you had a grown child who committed a terrible crime, what would you do? Would you abandon him?”
“So she stayed,” Henriques writes, “apparently staggered by the crime but somehow unable to desert the man who had committed it.”
To contact the reporter on this story: David Voreacos in Newark, New Jersey, at firstname.lastname@example.org
To contact the editor responsible for this story: Michael Hytha at email@example.com