Madoff Secrets Go to the Grave

Jeffry Picower, found dead at the bottom of his swimming pool yesterday, was Suspect Number One in terms of what happened to Madoff’s billions. Now, Allan Dodds Frank asks, will they ever find the money?

10.26.09 10:56 AM ET

Before he was found in his swimming trunks, dead at the bottom of the pool at Casa Del Sud, his $33 million oceanfront mansion in Palm Beach, Jeffry Picower held the keys to Bernard Madoff’s vault.

Investigators say Picower was the most important witness in the investigation of Madoff’s crimes and more importantly, they believe he was Madoff’s most valuable accomplice, a truly equal co-conspirator.

The Picower Foundation rained money for medical research and education-related causes. His wife liked to tell friends: “Jeffry makes the money; I get to give it away.”

When investigators wonder where Madoff’s money went, they keep asking: “Why did Picower get more than one-third of the more than $20 billion that is missing from Madoff investors? How could Bernie have allowed Picower to take out $7.2 billion more than he invested, unless Picower was money-laundering the proceeds for Bernie?”

With the possible exception of Madoff’s brother Peter, the 67-year-old Picower remained co-conspirator Suspect Number One, in spite of his lawyer’s assertion that Picower was simply Bernie’s biggest victim.

“Picower made off with a totally grotesque amount of money. Unlike many other people, I don’t know that he paid taxes on all of it,” an investigator told The Daily Beast. “Unless Bernie showed him his printing facility where he was making counterfeit, Picower had to know the money was stolen, those were the only choices.”

Now investigators may want to question Picower’s lawyer, Princeton and Harvard Law graduate William D. Zabel, of Schulte, Roth & Zabel. A prominent New York wills, trusts and estate lawyer, Zabel has represented Jeffry & Barbara Picower and their foundations for at least two decades. On Sunday, Zabel told several news organizations Picower was in poor health, suffering from Parkinson’s disease and “heart-related problems.”

With Jeffry Picower gone, the inquiries will focus on how and why trusts, corporate entities and other legal instruments were used by Picower to move money. Should the bankruptcy trustee win a court ruling that he is entitled to recover money from Picower, the money hunt will be on in full force and Zabel could become a witness.

Courtesy of Allan Dodds Frank

“Then the question comes, where is it?” Says the investigator. “If it turns out it moved around, he set up this trust, he set up that trust. The money went to 17 different countries. Who set up the trusts? Who coordinated the movements?”

Zabel also told various news organizations that there has been progress in settlement negotiations with the bankruptcy trustee. Zabel did not return the calls from The Daily Beast so we could not confirm that the trustee’s representative viewed Picower’s initial settlement office as so low that it would not be seriously considered.

For the U.S. Attorney’s Office, Picower’s untimely death means one criminal case disappeared and the investigation just got harder. And the new U.S. Attorney’s Oct. 6 appointment of William Zabel’s son Richard as head of the criminal division just got messier, despite the younger Zabel’s recusal from the Madoff case.

Now there will be even more urgency by prosecutors when they ask U.S. District Judge Richard Sullivan Wednesday to reconsider releasing on bail Frank DiPascali Jr., the former Madoff chief financial officer who actually has been co-operating in the criminal investigation.

Picower wanted to be known only as a deep-pocketed philanthropist and even in death, he partly got his wish as the New York Times and the Associated Press characterized him that way in their lead sentences.

The Picower Foundation, run by his wife Barbara, rained money for medical research and education-related causes. She liked to tell friends: “Jeffry makes the money; I get to give it away.”

Yet at bottom, Picower was a Wall Street figure who sailed close to the wind. He was said to be the biggest investor in Ivan Boesky—the 1980s poster boy for Insider Trading. Later, there were questions about whether Picower acted ethically while using access gained by charitable giving to learn inside information about medical research before investing in medical products companies.

Picower was trained as a certified public accountant and as a lawyer. Given those skills, it was especially hard for investigators to find any innocent explanation by Picower for repeated back-dating of trades and one year returns of more than 900 percent in a Madoff account. Records dug up by bankruptcy trustee Irving Picard and his squadron of Baker & Hostetler lawyers show Picower and his foundations received— through more than two dozen accounts—$7.2 billion more than he invested with Madoff. In just the last six years. Picower collected $2.6 billion from Madoff, the trustee’s law suit says.

Not surprisingly, the U.S. Attorney’s Office and civil investigators suspected Picower served as Madoff’s money-launderer-in-chief since he—at least on paper—got away with 30 times as much money as Bernie piled up in assets that have been seized. So what happens now that Picower, the man who may have known everything, has gone silent before being forced to talk?

The Palm Beach Police Department Monday confirmed that an autopsy showed Picower's death was accidental drowning caused by a heart attack. Having run the outer gate intercom button at the well-secured, gated, video-protected oceanfront mansion on South Ocean Drive, it always seemed clear to me that foul play would be ruled out.

Picower's death will be doubly difficult for his widow Barbara and their daughter as the resolution of his estate will be front and center of the probe by Picard's bankruptcy trustee team. My prediction is that neither Picower's widow nor their daughter will be subjected to a criminal investigation, although their financial security will be jeopardized as the trustee tries to collect billions of dollars.

Finally, investigators will ratchet up their pursuit of those who worked closely with Jeffry Picower, especially his right hand collaborator April Freilich, who helped administer a Picower entity called Decisions, Inc., which figured significantly in his transactions with Madoff.

Allan Dodds Frank is a business investigative correspondent who specializes in white collar crime. He also is President of the Overseas Press Club of America, one of the many journalism organizations that protests the arrests of journalists abroad and repression of freedom of speech.