Billions Clawed Back from Madoff Now in Mail

Artistic rendering of Bernie Madoff
Artistic rendering of Bernie Madoff, by Thierry Ehrmann

Last month, Irving Picard, the trustee of the victims of the Bernie Madoff Ponzi scheme, authorized the cutting of payback checks to defrauded individuals totaling $2.5 billion. This is a huge sum. Consider this: That same week, Suffolk County released its budget for next year. That is $2.7 billion. Now consider that the $2.5 billion is just a part of what Picard hopes to collect.

Checks range from as little as $1,784 and as much as $526.9 million. It will be a pleasure for some of our wealthy local people to be opening their mail.

Bernie Madoff moved in the circle of the wealthy, both in the Hamptons and in New York City, where his firm for decades consistently averaged returns on investment of 14% and 15%, far above what most other money managers could ever do.

How did he do it? Nobody ever knew. Some thought he had the magic touch. And many people thought it a privilege to be able to invest their money with him. Here on the East End, he had an oceanfront home in Montauk and a membership at a private golf club in the Hamptons. He was often seen at fundraisers.

Of course, for those many years it was all a fraud. And when this Ponzi scheme collapsed—to keep the scheme going, he’d been using new money to pay off older investors who had decided to pull out—he had nothing. The losses, after the fraud was discovered in 2008, were determined to be about $17.3 billion. Many people lost everything.

Here in the Hamptons, many people invested with Madoff. I personally know two men, both of whom were major donors to charity in those years, who have been reduced to abject poverty. And now come these envelopes.

A great many people filed claims against Madoff. But Picard disallowed many of them, either because the money to back up the claims never existed or because they took ill-gotten gains over the years when they cashed out. In the end Picard accepted the claims of 1,230 people. Unclear? But it remains to be seen how much Picard will get back in total.

One very public person involved in the catastrophe that was Madoff is New York Mets majority owner Fred Wilpon and his family, including brother-in-law Saul Katz. Wilpon’s money was invested with Madoff, and a lawsuit brought by Picard contended that Wilpon and Katz used ill-gotten gains to build their fortunes and that they ignored signs that Madoff may have been involved in a fraud. “They knew nothing. They knew nothing,” Madoff said of Wilpon and Katz in a New York Times article from February 2011.

In any case, the two sides, to avoid what might be a long and expensive battle in court, instead worked out a deal.

In the terms of the deal, Wilpon and Katz will repay $162 million, “fictitious profits” from their dealings with Madoff. Since the duo claim that other accounts lost a total of $178 million in Madoff’s elaborate Ponzi scheme, they stand to collect the difference—$16 million—but not until Picard collects 91% of the total Madoff fraud losses ($17.3 billion). In addition, if they don’t pay thair share within three years, they get nothing. The clock has been ticking on this deal since March.

Bernie Madoff and his wife and two sons lived the life of luxury for years. They had a house not only in Montauk but also in Palm Beach and  in Europe on the French Riviera. They owned an Upper East Side penthouse. They also owned multiple yachts. That has
all come to an end.

There was a separate business, a legitimate one, that Madoff ran in addition to the top-secret Ponzi outfit where the reason for his success was carefully guarded. The secret firm was on one floor. The legitimate firm was on another. His wife worked part-time for the legitimate firm. His two sons had cushy jobs paying sizable salaries working for the legitimate firm. None of the three apparently knew of the Ponzi scheme Bernie was operating. They, like everybody else, just thought he was a genius to be able to invest and get such impressive returns.

Today, the properties and other toys have been sold, with the money going into Picard’s basket for the victims. One of the sons committed suicide. And Bernie Madoff, one of the most hated men ever because of those he defrauded, is in prison serving a 150-year sentence for what he has done.

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