Did Bernie Madoff Get a Billion-Dollar Kickback?

A lawyer for Madoff victims tells The Daily Beast’s Allan Dodds Frank that she believes the Ponzi king had a sweetheart deal with his biggest investor. Inside the mysterious $5 billion profit.

Jeffry Picower, a seldom-seen philanthropist, investor and confidant of Bernard Madoff, stands accused by the Madoff bankruptcy trustee of extracting $5.1 billion from Madoff’s enterprises during the last two decades. Now a lawyer representing 100 Madoff victims suggests it was no accident that Picower was one of the few Madoff customers who made a substantial profit.

Helen Davis Chaitman, a lawyer with Phillips Nizer and a Madoff loser herself, tells The Daily Beast she believes Picower was splitting the profits with Madoff and laundering them through his various trust accounts.

Picower may have deposited $1.6 billion with Madoff, while withdrawing as “profit” more than $6.7 billion, for a net profit of $5.1 billion “of other peoples’ money.”

“Bernie Madoff stole from his family, friends, and employees. Why do you think he would allow Jeffry Picower to get away with $5 billion?” asks Chaitman. “Bernie Madoff is not a generous guy. I assume most of that $5 billion came back to Madoff in one form or another.”

Picower and his wife Barbara live in lavish multimillion dollar estates in Palm Beach, Fla., and Fairfield, Conn., which still accounts for only a fraction of their wealth. The couple has known Madoff for at least three decades and for the last 20 years or so, the Picowers have cut a wide, deep and not especially well-publicized swath through the private word of charitable giving through several foundations.

At one time, their main vehicle, the Picower Foundation, claimed assets of nearly $1 billion, all invested with Madoff. When Bernie was arrested December 11, the Picowers were portrayed as the biggest single victims of Madoff’s treachery, yet they remained curiously quiet even as an estimated 400 charitable organizations that had benefited from Picower donations suffered.

Last month, bankruptcy trustee Irving Picard sued the Picowers and 16 related entitites in a 40-page complaint, with an attachment of a 17-page exhibit of money transfers moving through nearly two-dozen Picower bank accounts. Picard said “Jeffry Picower was a beneficiary of this Ponzi scheme for more than 20 years,” and Picower “knew or should have known” Madoff was a fraud. Picard said over the years Picower may have deposited $1.6 billion with Madoff, while withdrawing as “profit” more than $6.7 billion, for a net profit of $5.1 billion “of other peoples’ money.”

Chaitman predicts that Picard—and other investigators—will discover that Madoff may have raked off as much as half of the $5 billion cash surplus allegedly collected by Picower.

Ironically, Picard, in his role as the lawyer for the Securities Investor Protection Corp., often faces Chaitman as an adversary. The Picower complaint, Chaitman says, is a worthy use of Picard’s time.

The language in Picard’s complaint practically invites prosecutors to join in the Picower probe. And, as Chaitman puts it, “Picower has about 30 different accounts. Until the government analyzes where all the money went, we will not know who actually got the funds, how much of it was used for Madoff or where it went at his direction.”

William Zabel, a lawyer representing the Picowers, declined to comment on Picard’s lawsuit, Chaitman’s comments, or on Madoff’s relationship with the Picowers and their foundation. A call to the Picower Foundation offices in New York also resulted in a “no comment.”

Neither Picard nor the U.S. Attorney’s Office would comment.

Get The Beast In Your Inbox!

Daily Digest

Start and finish your day with the top stories from The Daily Beast.

Cheat Sheet

A speedy, smart summary of all the news you need to know (and nothing you don't).

By clicking “Subscribe,” you agree to have read the Terms of Use and Privacy Policy
Thank You!
You are now subscribed to the Daily Digest and Cheat Sheet. We will not share your email with anyone for any reason.

One possible scenario, if one compares the Picower case to other complaints filed by Picard involving recruiters for Madoff, is that the billions paid by Madoff to Picower were never categorized as commissions. Even at its most inflated height, the Madoff Ponzi scheme only approached $65 billion, so it seems unlikely that Picower could have recruited nearly 10 percent of the capital that was fleeced by Madoff and he has never been accused of being a hand-maiden of Bernie.

Picower, unlike the other dapper, public feeders of Madoff, has not been mentioned heretofore as an agent who plied golf courses for garment-industry bigwigs willing to invest their fortunes in schemes that might fly below the radar of the Internal Revenue Service and the Securities & Exchange Commission.

Unlike many of the more than 8,000 victims of Madoff, Picower is regarded as a sophisticated investor who is a lawyer, CPA, and tax-shelter promoter. He also once had $28 million invested with arbitrageur Ivan Boesky, the famous and convicted insider-trading figure of the 1980s who was fictionalized as Gordon Gekko in the movie Wall Street.

While coverage of Picower has been scant, on various occasions, The St. Petersburg Times, Forbes, and most recently Pro Publica have raised the question of whether he used his charities to mine information—especially about the medical developments—that he then used in chasing deals. He was the biggest shareholder in Alaris Medical Systems and collected more than $1 billion when it was bought by Cardinal Health in 2004.

So far, Jeffry Picower has not been charged with any crime. That should be little comfort to him because the facts now publicly available suggest that he may have made more on Bernie’s skulduggery than even Bernie did. Certainly, after reading Picard's complaint, investigators will be asking more questions about whether Picower was taking—or giving—orders from Bernie.

Allan Dodds Frank is a business investigative correspondent who specializes in white-collar crime.