Why Are the Madoffs Still Free?

A year after Bernie Madoff pleaded guilty, bankruptcy trustee Irving Picard has collected $1.5 billion—but can he find the rest? Allan Dodds Frank talks to Picard, Damages star Glenn Close, and other Madoff sources about the search and why prosecutors still haven’t charged the Madoff family.

The search for Bernie Madoff’s missing billions is so murky a year after his guilty plea that even Glenn Close, who stars as the bankruptcy trustee chasing a fictional Madoff on the television show Damages, does not know how the hunt will end.

The show still has a week left to shoot its Season 3 finale, and Close told The Daily Beast, “I don’t know how it is going to come out; the [writers] keep coming up with new stuff.” Right now, her version of the Madoff saga swirls around trying to crack open a secret bank account in Antigua.

“Remember,” says one former assistant U.S. attorney, “It took five years to make a case in Enron, and those guys were guilty as f---.”

As for the convicted swindler’s real-life bankruptcy trustee, Irving Picard, his team is digging around the Caribbean and elsewhere, although he is loath to talk about his investigation. Madoff victims have filed thousands of claims to recover their missing billions, but almost a year into his 150-year sentence, the disgraced financier is not talking—and the U.S. Attorney’s Office has failed to press charges against any of his family members.

Picard told The Daily Beast that so far he has recovered about $1.5 billion from Madoff’s Ponzi scheme.

He dismissed the first anniversary of Madoff’s plea as meaningless, saying: “A lot of these things always take time. I never put a time frame on anything. It is the press that does.”

Picard added: “Conversations and negotiations are ongoing. I am not publicly disclosing any kind of settlement negotiations.”

Asked if he’s satisfied that Madoff told him everything, Picard hesitated. “You’re assuming we’re finished with Bernie Madoff,” he said. “You don’t know whether we started or are finished… We are doing what we have to do and we are not making it public for a lot of reasons.”

When Madoff was sentenced to 150 years in prison by U.S. District Judge Denny Chin last June 29, Picard filed a letter saying Madoff had provided no meaningful cooperation. But at the sentencing, Madoff lawyer Ira Lee Sorkin told the judge: “We have provided the government with what we believe to be the assets Mr. Madoff has gathered over the years.”

Privy to that conversation, sources say, were federal prosecutors and Securities & Exchange Commission lawyers, who were wary that the bankruptcy trustee’s team from Baker & Hostetler could botch the criminal case while in hot pursuit of the money.

That theme of antagonism between the government and the trustee runs through the Damages plot and appears to be playing out in real life, as well. However, the Baker & Hostetler team, while suing almost anyone named Madoff, has never interrogated Bernie Madoff or sought him out in jail, The Daily Beast has learned.

And what he has to say—if he is willing to say it—could be critical to the bankruptcy trustee’s recovery of billions of dollars from the major feeder funds, which passed investors’ money to Madoff. So far, to protect his family, he has stuck to his story, which almost no one believes, that he alone is the author of the fraud. (Faced with insurmountable losses, he has said, he suddenly confessed his crimes to his sons, who then turned him in to prosecutors.) In exchange, the cynics believe, the U.S. Attorney’s Office has not prosecuted the Madoff family. And while the feds won forfeiture of almost all of Madoff’s assets, they agreed to let his wife, Ruth, keep $2.5 million to live on. So why does the bankruptcy trustee still have a $44 million suit pending against her?

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One reason may be that the trustee team does not believe Madoff has disclosed all of his assets as part of the deal, which apparently precluded criminal charges against Ruth.

Still, if Madoff were to tell the trustee that all the feeder funds knew they were involved in his fraud, those multibillion-dollar lawsuits the trustee has filed against them to claw back money would look instantly stronger. So, for that matter, would the recently revealed federal criminal investigation into the feeder funds.

Likewise, the bankruptcy trustee probably wouldn’t be any worse off if Madoff said the funds were all unwitting suckers, as such a statement would seen as more of Madoff’s hardly believable “Lone Ranger” story—and there is likely no shortage of documents to prove that the lapses by the funds go way beyond the simple failure to do due diligence.

Whether Picard believes in anniversaries or not, there is no doubt that he would like to announce soon that he has more than doubled what he has recovered so far. Boosting the take by $2.5 billion or more overnight is within the realm of possibility and is being negotiated now by Picard’s team with lawyers for the estate of Jeffry Picower.

Picower is the Madoff associate who was found dead at the bottom of his swimming pool in Palm Beach last October, not long after Picard’s team sued him, claiming he had gotten $7.2 billion more out of Madoff than he had invested.

Around the anniversary of Madoff’s arrest, on Dec. 11, William Zabel, the lawyer representing Picower’s estate, foundations, and widow, told The Daily Beast that a settlement with Picard was being hammered out, although the two were believed to be billions of dollars apart. Zabel then predicted that the matter would be settled by the end of February by the bankruptcy trustee, the SEC, and the Internal Revenue Service. Zabel has not returned several phone calls from The Daily Beast in the last two weeks, and Picard and the SEC declined to comment on the matter.

Meanwhile, many Madoff victims are incensed by a court ruling won by Picard in bankruptcy court. Judge Burton Lifland ruled that investors seeking to recover money from Picard’s client, the Securities Investors Protection Corporation, can only be judged by how much money they invested with Madoff and how much they withdrew, not what their fraudulent statements showed as the value of their investments.

Close to $21 billion was invested over the years, while statements manufactured by Madoff valued investors’ accounts at more than $64 billion. As of March 11, Picard’s office said it has allowed 1,974 claims and denied 10,213 claims—a ratio of about 1 to 5 of winners to losers. And while the claims Picard has accepted total $5.3 billion, the SIPC is covering only $659 million of that, as the maximum the agency pays per account is $500,000.

No wonder, then, that many Madoff victims are still outraged by the failure, so far, of the U.S. Attorney’s Office to press criminal charges against Madoff’s sons, Andrew and Mark, his brother, Peter, or Peter’s daughter, Shana, who once was a compliance officer at Bernard Madoff Investment Securities Corp.

Picard says the Madoffs have been following court orders about tracking their expenditures, but that hardly mollifies anyone. The Madoff family, including its matriarch, Ruth, has been out of public view, aside from one recent incident, when Mark Madoff’s wife asked a court to change her last name and that of her two children from Madoff to Morgan.

The most significant move forward has been the recently unsealed criminal case brought against Daniel Bonventre, a longtime Madoff employee accused altering the financial accounts of the market-making and proprietary trading units of Madoff’s firm, the supposedly legitimate side that operated on the 19th floor of Madoff’s offices. That public part of the operation—where Madoff’s sons, brother, and niece worked—had been losing money for years and was kept alive by fraudulent transfers of hundreds of millions of dollars, say prosecutors.

While Bonventre’s lawyer, Andrew Frisch, called the charges “a prosecutorial Hail Mary,” other prominent defense lawyers wondered why Bonventre—the director of operations—had not sought a plea deal the moment Madoff was arrested.

Frank DiPascali Jr. made just such a rush for a plea deal. DiPascali is the man who doctored the financial records and faked all the $64 billion in investors' account statements at the heart of Madoff’s secret 17th-floor investment advisory business. Despite pleading guilty, DiPascali remains in his New Jersey home, thanks to the prosecutors’ appreciation for his explanations about how Madoff did it. Now defense lawyers familiar with the case say that should Bonventre cooperate, he could help prosecutors pin some criminal charges beyond tax filings on the Madoff family members.

The Bonventre criminal complaint says the Madoff market-making and stock-trading ventures were losing money by 2002, three years after the New York Stock Exchange converted trading from fractions to pennies.

That would square with what former New York Stock Exchange CEO Richard Grasso told The Daily Beast last year, when he said Madoff may have made $1 billion legitimately before beginning to lose money once the stock-trading margins shrank in 2000.

So all those victims who want to see Madoff family prosecutions should just be patient, several former prosecutors tell The Daily Beast. “Remember,” says one former assistant U.S. attorney, “It took five years to make a case in Enron, and those guys were guilty as f---.”

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.