Madoff Confidant’s $62 Million Deal With Trustee ApprovedErik Larson
Bernard Madoff’s lifelong friend Edward Blumenfeld, a New York real estate developer who built a fortune by investing with the con man for decades, won court approval of a $62 million settlement to return fake profit to victims, the trustee unwinding the company said.
The deal with the trustee, Irving Picard, resolves a 2010 lawsuit accusing Blumenfeld, his wife and two sons of receiving almost $40 million in fraudulent trading profits from dozens of accounts and accepting an $11 million transfer from Madoff days before his December 2008 arrest.
Approval by the U.S. Bankruptcy Court in Manhattan comes a day after Picard reached a $495 million settlement with two offshore funds that invested with Madoff, boosting his total recoveries for victims past $10 billion, or about 59 percent of the principal lost in the biggest U.S. Ponzi scheme.
For the past six years, Picard and a team of lawyers have sued customers who withdrew more money than they put into their accounts, including wealthy friends of the Madoff family and offshore funds that funneled money to the fraud.
Blumenfeld “is a lifelong friend, close confidant and business partner of Madoff, who used Madoff’s investment advisory business to amass his family’s wealth and to build his real estate development firm over several decades,” Picard said in his 2010 complaint.
The real estate developer and his family invested about $140 million with Madoff through 38 accounts, while Madoff invested in Blumenfeld’s real estate ventures, according to the trustee’s complaint. Madoff dined with Blumenfeld the day before he confessed his fraud, Picard said.
“The Blumenfelds are happy to have come to terms with the trustee,” the family’s lawyer, Seth Rosenberg, said in a phone interview. “They have put Madoff’s betrayal behind them, and they look forward to moving ahead with their lives.”
The “tightly intertwined” Madoff and Blumenfeld clans lived near each other on New York’s Long Island, vacationed together regularly and partnered to purchase a private jet, Picard said. Madoff’s two sons, Andrew and Mark, grew up with Blumenfeld’s two boys, David and Brad, according to the trustee.
Brad Blumenfeld worked for Madoff as an equity trader for four years, while Madoff’s wife, Ruth, and Blumenfeld’s wife, Susan, were close friends, the trustee said. The close relationship gave the Blumenfelds an advantage, he said.
When industry experts began scrutinizing Madoff in 2001, the Blumenfelds remained “willfully ignorant,” according to Picard. The trustee claimed the family should have known by 2005 at the latest that the trading in their accounts wasn’t legitimate, because the new accounts they opened at the time said Madoff “owed” them a rate of return of 20 percent.
“The Blumenfelds had to have known that legitimate equity trading activity does not, and can never, yield any prearranged rate of return, much less 20 percent,” Picard said in the complaint.
The close relationship between Madoff and Blumenfeld was on display right up until the end of the fraud, Picard said, when the con man wired $11 million to one of Blumenfeld’s family accounts, according to the complaint.
“A week after the media frenzy surrounding Madoff’s confession, the Blumenfelds’ documents show that they made a deliberate decision to keep the $11 million, knowing that it had been stolen” from customers, Picard said.
The Blumenfelds have denied wrongdoing and aren’t accused of participating in the fraud.
Under the deal, Blumenfeld will make an immediate payment of $33 million and transfer to Picard claims in the Madoff bankruptcy case valued at $29 million. The trustee said the claims are currently worth $17.7 million, which will be paid immediately, while the rest will be paid later.
Picard said today he reached a $95 million settlement with another Madoff investor, Cayman Islands-based Senator Fund SPC. The trustee yesterday said he reached an accord with two other offshore funds, Primeo Fund and Herald Fund.
Madoff, 76, pleaded guilty to fraud in 2009 and is serving a 150-year sentence at a federal prison in North Carolina. At least seven other people have pleaded guilty to roles in the scheme, including his Madoff’s brother Peter, who is serving a 10-year term.
A federal jury in Manhattan in March found five former Madoff employees guilty of aiding his fraud for decades by creating fake trading documents and account statements. They were accused of targeting thousands of retirees, wealthy investors, charities and even family and friends, and getting rich in the process. The five ex-workers are scheduled to be sentenced next month.
The case is Picard v. Blumenfeld, 10-04730, U.S. Bankruptcy Court for the Southern District of New York (Manhattan).