Madoff investor's estate returns $7.2B

Bernard Madoff leaves federal court in Manhattan. (March 10, 2009) Credit: Getty Images

By ANTHONY M. DESTEFANOanthony.destefano@newsday.comDecember 17, 2010

In the largest forfeiture of any kind in U.S. history, the estate of the late philanthropist Jeffry M. Picower, who was a friend of Bernard Madoff, agreed to turn over $7.2 billion to federal prosecutors so that the cash could be used to pay back investors in the giant Ponzi scheme.

The massive influx of money to compensate the victims could mean that customers with valid claims might recover close to 50 percent of their investment, said Manhattan U.S. Attorney Preet Bharara at a news conference to announce what he said was an "historic" moment in the fraud case.

"By returning every penny of the $7.2 billion her late husband received from [Madoff] to help those who suffered the most, Barbara Picower has done the right thing," said Bharara, referring to Picower's widow and executor.

Picower was a philanthropist and investor who died in 2009 of a heart attack while swimming at his home in Florida. He had been sued by special trustee Irving Picard for more than $7 billion, an amount Picard said represented improper profits taken from Madoff's operation. Federal officials said Picower invested a total of $619 million with Madoff and withdrew $7.8 billion starting in the 1970s until December 2008.

In a statement released through her lawyer William D. Zabel, Barbara Picower said the return of the money would have been something her spouse would have wanted, to help the victims.

"I am absolutely confident that my husband Jeffry was in no way complicit in Madoff's fraud and want to underscore the fact that neither the trustee nor the U.S. Attorney has charged him with any illegal conduct," she said.

At the news conference, Bharara, Picard and officials of the Securities Investor Protection Corporation, the nonprofit group that reimburses individual investors up to $500,000 of the value of investments, said all of the recovery will go to pay back Madoff's victims, who lost an estimated $20 billion in Wall Street's largest scam ever. Madoff is serving 150 years in prison after pleading guilty in 2009. His son Mark committed suicide last weekend in Manhattan.

Despite Bharara's view that recoveries could amount to close to 50 percent, legal experts believe there is still uncertainty. A number of legal sources, who didn't want to be identified, said some angry investors could try to overturn the Picower settlement by legal action.

Picard said he could start reimbursing investors early next year but acknowledged that he would have to hold back a reserve because of challenges to his way of computing the value of investor accounts. Picard maintains that investors who took out more money than they invested with Madoff are "net winners" and not entitled to any more money.

If Picard's method is overturned on appeal, payouts could amount to as little as 10 percent, instead of 50 percent, said one lawyer.

"I'm not jumping for joy," said Ronnie Sue Ambrosino, a Madoff investor who left Bay Shore six years ago to tour the country in a motor home. Ambrosino thinks Picard should base his calculations on Madoff's last statement to investors, statements the trustee said are fake.

Richard Friedman, who moved from Jericho to New Jersey after losing his "life savings," said it was not "Christmas Day" for victims as federal officials had portrayed the forfeiture Friday.

Ron Stein, a spokesman for some investors, said he hoped Picard can now stop pursuing innocent investors for money through clawback lawsuits.

With Ellen Yan