Madoff: the $18bn hunt for justice continues

Six months after Bernard Madoff pleaded guilty to orchestrating the biggest financial fraud in history, his victims are still trying to recoup some of their losses from his family. Stephen Foley reports

The legal net is tightening around the Madoff family, and the closest relatives of Wall Street swindler Bernard Madoff could be bankrupted by a lawsuit expected to be announced this week.

Madoff's sons, Andrew and Mark, his brother, Peter, and niece Shana are all braced for the arrival of legal papers demanding that they compensate thousands of victims of their negligence and breaches of responsibility when they worked at the family firm.

When Bernard Madoff was running history's largest pyramid scheme, the rest of the family were living high on the hog and treating the Madoff business as a piggy bank to fund shopping trips, holidays and country club memberships, according to court papers.

Many of the victims of the fraud have long believed the Madoffs must have known that their patriarch was a crook; this week, the trustee trying to recover the money says he no longer cares whether they did or didn't, and that their failure to ask where the family fortune was coming from makes them just as culpable.

"Whether or not they have criminal problems, we will be pursuing them as far as we can pursue them," Irving Picard, the court-appointed trustee, said. "If it leads to bankrupting them, then that's what will happen."

Peter Madoff was his brother's de facto deputy at Bernard L Madoff Investment Securities, and also served as its chief compliance officer. Andrew and Mark had worked in their father's firm for most of their adult lives. Shana, Peter's daughter, also worked as a compliance lawyer, responsible for checking that the firm met its legal and regulatory obligations.

They have all vigorously defended their innocence, saying they worked exclusively on the share-trading side of the business, while Bernard Madoff orchestrated his sham investment business from a different floor. They are victims, not accomplices, they say. Indeed, Mark and Andrew say they are owed money by the business.

In the days after he confessed that his investment business was "one big lie" and that the $65bn he had said was in his clients' accounts was just a mirage, Bernard Madoff wrapped up and sent some of his most treasured possessions, such as expensive designer watches, to family members. He must have known then that his downfall would bring an end to their own lavish lifestyles, and perhaps he wanted to compensate them a little; nine months on, his downfall could be their absolute ruin.

Mr Picard says that Madoff's brother and sons alone were paid $80m in compensation over the seven years before the pyramid scheme came crashing down, and got millions more in expenses. The lawsuits due this week are going to demand the return of $198m that was paid out, loaned or spent by the four Madoffs.

Ruth Madoff, the fraudster's wife, is already being sued and has to report every item of expenditure valued at more than $100.

The reason? Mr Picard suspects that additional money has been squirreled away in offshore accounts and he wants to make sure that family members are not able to get access to such assets without him noticing.

Mrs Madoff moved out of the couple's Manhattan penthouse in July, an hour before it was seized by US marshals. Another family home, in Palm Beach, Florida, is also going under the hammer; a Montauk beach house was sold last week for more than the asking price of $8.75m.

Mr Picard is trying to raise as much money as possible for the victims' compensation fund, and although it is doomed to fall short of what is necessary, every little helps. When all the account statements that Madoff sent to his victims are added up, they total $64.8bn. But none of the investment returns that those statements showed, sometimes over more than two decades, was real, because Madoff had never invested a penny. He had simply used money coming in to the fund to pay clients cashing out.

Still, even the real loss – the amount of money that victims paid in, minus the amount they cashed out over the years – is $18bn. Even counting the sons' multiple homes, and Andrew's stakes in some New York businesses, the latest lawsuits will be small beer against that giant total.

The largest amount of money, the trustee believes, can be clawed back from big institutional and mega-rich investors who took billions out in the final years of the scheme, and which, according to earlier suits, had all sorts of irregular dealings with Madoff, such as discussing in advance what investment returns should be and back-dating some statements of trading activity.

Parked for a later date is the question of whether to pursue smaller investors who were lucky enough to cash out more than they put in to the Madoff black hole. Even those who had no suspicions at all that Madoff was a crook could be on the hook to give back their profits from the last six years, just to be fair to those who didn't cash in their fictional profits and have been left with less than they put in.

The lawsuits against family members are expected to lean heavily on the disclosures of how the Madoff family took millions out of the business in expenses. Peter Madoff once spent $441 on food from a gourmet deli called Tal Bagels on Manhattan's Upper East Side. Mark Madoff spent $8,400 on a single night's hotel bill early in 2008, as well as $2,166 in New York's Apple Store. His brother spent $2,395 on family clothing at Polo Ralph Lauren.

Bob Mintz, a former federal prosecutor who is now partner at the McCarter & English law firm in New Jersey, said that Mr Picard will have to prove that the four family members in his sights breached their duty to investors in the Madoff scheme. "What he may use is a broad-based allegation that, if they did not know about Bernard Madoff's fraudulent activities, they certainly should have, based on their knowledge of the way the operations were being run. Were there enough indications of some irregular activity that they should have made further inquiries?"

John Wing, a lawyer representing Peter Madoff, said that his client and Shana Madoff "are among the many victims of Bernard Madoff's alleged Ponzi scheme" and added that any suggestion Peter Madoff knew his brother was engaged in such a scheme scheme was "absurd".

Martin Flumenbaum, who represents Mark and Andrew Madoff, said they "strong disagree with the trustee's baseless claims". In a statement, the attorney said: "By immediately turning him in, the brothers saved the victims of the fraud more than $170m that their father was about to distribute.... They suffered substantial economic losses as a result of their father's crimes, and they continue to cooperate fully with the authorities in their ongoing investigations."

News of the impending lawsuit was reported on CBS Television's 60 Minutes, which interviewed Mr Picard and his chief counsel, David Sheehan, who was keen to get the case on to the offensive.

"If you were those sons, and you knew what you know today about where all that money came from, wouldn't you be embarrassed to keep that money?" Mr Sheehan asked. "They should give it all back, and if they don't give it all back, I think we have got an obligation to go get it and take it all back."

PROMOTED VIDEO
Arts and Entertainment
Sheeran arrives at the 56th annual Grammy Awards earlier this year
musicYes, that would be Ed Sheeran, according to the BBC
Arts and Entertainment
AKB48 perform during one of their daily concerts at Tokyo’s Akihabara theatre
musicJapan's AKB48 are one of the world’s most-successful pop acts
News
Ian Thorpe has thanked his supporters after the athlete said in an interview that he is gay
people
News
The headstone of jazz great Miles Davis at Woodlawn Cemetery in New York
news
Arts and Entertainment
Brendan O'Carroll has brought out his female alter-ego Agnes Brown for Mrs Brown's Boys D'Movie
filmComedy holds its place at top of the UK box office
News
newsBear sweltering in zoo that reaches temperatures of 40 degrees
Arts and Entertainment
Professor Kathy Willis will showcase plants from the Royal Botanic Gardens at Kew
radioPlants: From Roots to Riches has been two years in the making
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
TV The follow-up documentary that has got locals worried
Arts and Entertainment
Eminem's daughter Hailie has graduated from high school
music
Arts and Entertainment
Original Netflix series such as Orange Is The New Black are to benefit from a 'substantial' increase in investment
TVHoax announcement had caused outrage
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

News
One Direction star Harry Styles who says he has no plans to follow his pal Cara Delevingne down the catwalk.
peopleManagement confirms rumours singer is going it alone are false
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Information Security Manager (ISO 27001, Accreditation, ITIL)

£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Trade Desk Specialist (FIX, Linux, Windows, Network Security)

£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

Day In a Page

Super Mario crushes the Messi dream as Germany win the 2014 World Cup in Brazil

Super Mario crushes the Messi dream

Germany win the 2014 World Cup in Brazil
Saharan remains may be evidence of the first race war, 13,000 years ago

The first race war, 13,000 years ago?

Saharan remains may be evidence of oldest large-scale armed conflict
Scientists find early warning system for Alzheimer’s

Scientists find early warning system for Alzheimer’s

Researchers hope eye tests can spot ‘biomarkers’ of the disease
Sex, controversy and schoolgirl schtick

Meet Japan's AKB48

Pop, sex and schoolgirl schtick make for controversial success
In pictures: Breathtaking results of this weekend's 'supermoon'

Weekend's 'supermoon' in pictures

The moon appeared bigger and brighter at the weekend
Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

How Saudi Arabia helped Isis take over northern Iraq

A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

The evolution of Andy Serkis

First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

You thought 'Benefits Street' was controversial...

Follow-up documentary 'Immigrant Street' has got locals worried
Refugee children from Central America let down by Washington's high ideals

Refugee children let down by Washington's high ideals

Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
Children's books are too white, says Laureate

Children's books are too white, says Laureate

Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Blackest is the new black: Scientists have developed a material so dark that you can't see it...

Blackest is the new black

Scientists have developed a material so dark that you can't see it...
Matthew Barzun: America's diplomatic dude

Matthew Barzun: America's diplomatic dude

The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

Meet the 'Quantified Selfers'

From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

Five-star reviews are just the opening act for British theatre's first non-white artistic director

Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
Mrs Brown and her boys: are they having a laugh?

Mrs Brown and her boys: are they having a laugh?

When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor