The Picower Madoff settlement: A $7.2 Billion Whitewash
John Graham
On Friday the astonishing news broke that the estate of Jeffrey M. Picower had agreed to cough up $7.2 billion to the liquidator of the Bernard Madoff fraud and the Federal Government. (See Zachary A. Goldfarb, “Madoff investor’s widow to return money,” The Washington Post, Dec. 18, 2010.)
This news was astonishing because the amount – said to be “the largest single forfeiture in American judicial history” – represents a considerable 35% of the amount thought to have been paid into the Madoff Ponzi scheme, raising the prospect of material compensation to some of the victims. And also because the Picower lawyer had been freely telling the press earlier this year he expected to settle for only $2 billion. All apparently was not well on the Picower legal front in 2010.
What was not astonishing was the rush to present what was in fact proof that Picower was a huge looter of the Madoff victims as evidence of noblesse oblige on the part of his widow, and to cover up what actually happened. CNN reports that
Picower withdrew $7.8 billion from Madoff’s investment firm since the 1970s, even though he only deposited $619 million, according to the trustee.
In our essay “Is the Madoff Scandal Paradigmatic?,” Kevin MacDonald and I asserted
- The Madoff affair was an immense transfer of wealth to Jews from non-Jews (often European).
- The SEC was amply informed of the fraudulent nature of the operation, but was afraid to act for fear of the Jewish Establishment.
- Several Jewish families besides the Madoffs were tremendous winners from the fraud, but that their complicity would never be appropriately exposed.
This last point is now proving true. The Washington Post reports fulsome praise:
“Barbara Picower has done the right thing,” said Preet Bharara, the top federal prosecutor in Manhattan, who is investigating Madoff accomplices.
and allows Picower’s widow (Jeffrey Picower himself had the good taste to die in October 2009) to strike a saintly pose:
“We will return every penny received from almost 35 years of investing with Bernard Madoff,” Picower said in a statement. “I am deeply saddened by the tragic impact it continues to have on the lives of its victims. It is my hope that this settlement will ease that suffering.”
(Why did it take Barbara Picower two years to reach this conclusion?)
Contemptibly, Trustee Irving Picard folded, saying
that while he had earlier suspected that Jeffry Picower “might have or should have known of Mr. Madoff’s fraud,” he had concluded that “there is no basis to pursue the complaint.”
This involves an incredible recantation of the facts laid out in his May 2009 suit, summarized by Propublica:
Although Madoff ostensibly produced eerily consistent 10–12 percent annual returns for his clients, the returns he provided Picower were otherworldly:
- In 14 instances between 1996 and 2007, a group of Picower trading accounts experienced annual returns of more than 100 percent. On 25 occasions, the annual return exceeded 50 percent. During this same period, the biggest annual gain in either the Dow Jones Industrial Average or the S&P 500 was 31 percent, for the S&P in 1997. The S&P 50082;s annual average for that period was slightly under 9 percent.
- The annual rate of return for two of Picower’s regular trading accounts in the four years between 1996 and 1999 ranged from about 120 percent to more than 550 percent annually.
- In 1999, one account earned 950 percent.
(Subsequently Propublica raised its estimate of the Picower take to an apparently accurate $7.2 billion.)
There was worse. Erin Arvedlund’s book recounts (pp. 236-7):
Finally, Picower even went so far as to ask for fake trades to be made in one of his accounts – dated back to before the account was even open… In April 2006, Picower opened a sixth account, Decision Inc #6, with a wire transfer of $125 million… By the end of April…Picower’s account showed a value of $164 million – a gain of $39 million, or a return of more than 30 percent, in less than two weeks trading. The reason for this massive gain [was] fifty-seven purported purchases of securities between January 10 and January 24, 2006, almost three months before the account was opened or funded.
The Wall Street Journal’s account, “Widow to Return $7.2 Billion” by Michael Rothfeld and Chad Bray (Dec. 18, 2009), reports Picard as saying “we have arrived at a business solution instead.” The article quotes Mrs. Picower crowing:
I am absolutely confident that my husband Jeffry was in no way complicit in Madoff’s fraud and want to underscore the fact that neither the Trustee nor the U.S. Attorney has charged him with any illegal conduct.
In reality, even after parting with $7.2 Billion, the Picowers have benefited hugely from their Madoff relationship. Jeffrey Picower was not a vegetating retiree but an extremely active investor. The WSJ reports:
On Friday, Mrs. Picower’s representatives shared a letter they had solicited from Goldman Sachs Group Inc., dated Tuesday, in which a managing director, Eric S. Lane, said that Jeffry Picower had been a “valued client” of the bank’s investment division for three decades in an account for a charitable foundation he ran. He generated returns of more than $2 billion “through primarily self-directed investments,” the letter said.
The Financial Times account, “Picower Left Legacy of Praise and Scrutiny” by Justin Baer, Kara Scannell and Shannon Bond (Dec. 17 2010), reveals Picower
gained renown in the 1980s as the largest individual investor in Mr Boesky’s biggest arbitrage fund, according to Den of Thieves, James B Stewart’s account of the Wall Street scandals involving Mr Boesky and Michael Milken. Reid Nagle, Mr Boesky’s chief financial officer, considered Picower “one of the most mysterious” investors, according to the book.
“Nagle had no idea where Picower’s money came from”…
At the time of his death, Picower’s Goldman account held $4.5bn in unrealised gains, including $2.2bn in Apple stock.
The Trustee in this settlement has permitted the Picower estate to keep the fruits of a huge interest-free margin loan to this apparently very astute investor, as well as tolerated the pretence of innocence.
There are a large number of Madoff victims who unknowingly became beneficiaries of the fraud, because the passage of time and the effect of the alleged compounding of the accounts allowed them to withdraw more than they invested. To these the Trustee has been merciless. As example has been Hadassah. The Jerusalem Post has reported
Hadassah: The Women’s Zionist Organization of America will pay back $45 million of the money it made in the Bernard Madoff scam; it was announced on Thursday… The organization, which began investing with Bernard Madoff Securities in 1988 with a $7 million gift, deposited a total of $40 million in its Madoff accounts, and by April 2007 had withdrawn $137 million. The last account statement showed approximately $90 million at the time the fraud was discovered. (“Hadassah to pay back $45 million of Madoff gains,” Dec. 10, 2010)
The Picower estate is being allowed to masquerade as one of these unfortunates.
Somewhat overshadowed by the Picower development has been the news that the Carl Shapiro family settled with the Trustee. (See “Carl Shapiro, family agree to return $625m in Madoff funds” (Boston.com, Dec. 7, 2010).
This transforms the image of the 97-year old Shapiro, who has cut a great figure as a Massachusetts philanthropist for 40 years. Formerly he has appeared as one of Madoff’s most piquant victims, grubstaking the young Madoff’s brokerage career with a $100,000 account in 1960 (Kirtzman, p. 43) and putting $250 million back into the firm at Madoff’s urgent request in the closing days, bringing the family exposure up to $545 Million (Arvedlund, p. 264) .
But the fact that the Shapiros were forced to disgorge $625 mm of funds from other accounts suggests the Trustee had something deadly on them. “Carl Shapiro Could Still Go To Jail Over Madoff Ponzi” by Nathan Vardi, in Forbes (Dec. 7, 2010) claims this is in excess of Shapiro and his wife’s net worth — which I doubt — but suggests the massive scale of the transfers. I also doubt we will see prosecutions, with the easy excuses of age and charitable activity to hand.
Vardi intelligently notes that
there has been some evidence that Madoff relied on a core group of investors who provided Madoff with cash in key moments during the multi-decade Ponzi scheme to solve liquidity issues. There has been speculation that those investors received special treatment with higher returns.
This explains why the large beneficiaries had any investment in Madoff, previously a puzzling point. Shapiro’s last $250 million could well have been an attempt to preserve the oasis.
Bernie Madoff was not a lone wolf. In fact, to coin a phrase, the fraud appears to have been a Jewish conspiracy. One which, on the evidence of the Picower settlement, the authorities continue to have no intention of investigating.
