"Officer, Arrest that Bank Account!" and Other Interesting Picower Settlement Details

Even after two years, the Madoff scandal continues to fascinate. Following close on the heels of last week's news of Mark Madoff's tragic suicide is the absolutely arresting news of Jeffry Picower's estate's $7.2 billion settlement with the U.S. government - to be specific, the precise amount of the settlement is $7,206,157,717, according to the Southern District of New York U.S. Attorney's December 17, 2010 press release.

According to the press release, the settlement amount represents "all the profits Picower withdrew over the years." Picower apparently first invested with Madoff in the late 70's, and withdrew billions over time. After Madoff's scheme was exposed "it became clear" that Picower had "profited at the expense of more recent [Madoff] investors."

One aspect of the settlement, and apparently a critical condition on which Picower's widow had insisted, is the provision that "neither Picower nor any of the related entities participating in the settlement had any involvement in, or knowledge of, Madoff's fraud."

This settlement will not leave Picower's widow destitute. Most of this money had been intended for a philanthropic foundation, not for Picower's heirs. According to the Washington Post (here), Picower's widow will retain $200 million and his daughter will retain $25 million, the funds for all of which reportedly derived from sources other than Madoff-related profits.

Those readers who are curious to know exactly how a $7.2 billion civil forfeiture works will want to take a look at the U.S. Attorney's December 17, 2010 forfeiture complaint. The complaint, which can be found here, is styled as an action by the United States against the "Defendant in rem" - specifically, "$7,206,157,717 on Deposit at J.P. Morgan Chase Bank, N.A.." 

Among other interesting tidbits, the complaint reveals that, in order to generate those $7.2 billion in profits, the total amount that Picower had invested with Madoff's investment advisory services was $617,456,578 - which by my calculation means that Picower's investment with Madoff had supposedly generated lifetime returns of over 1,100%)

The estate's December 17, 2010 stipulation of settlement with the government, which can be found here, represents in effect the estate's agreement to forfeit the Defendant in rem to the government, to be effected, the stipulation recites, by the Clerk of Court's issuance of "a warrant for the arrest of the Defendant in rem."

Southern District of New York Judge Thomas Greisa approved the forfeiture case settlement. The settlement remains subject to the bankruptcy court's approval.

This dual judicial approval is required because the settlement actually represents two different funds to be paid in settlement of two different matters. One fund, in the amount of $5 billion, is to be paid in settlement of the adversary proceeding the SIPC Trustee Irving Picard had filed against Picower in the bankruptcy court. The remaining $2.2 billion is actually in settlement of the civil forfeiture proceeding itself. Picard is to administer both funds for the benefit of the Madoff victims according to the detailed procedural specifications in the settlement stipulation.

 The New York Times speculates that as a result of this and other recoveries, those who lost the amount of their principal investment by investing with Madoff may recover as much as 50 percent of their losses.

Read the article in its entirety at the D&O Diary, a blog by Kevin LaCroix.