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December 17, 2010 11:28 AM

Record-Setting Madoff Settlement Announced with Picower Estate

Posted by Brian Baxter

UPDATE: 12/17/10, 12:45 p.m. This post has been updated with new information from Picower, Picard, and the U.S. attorney's office following a press conference at noon.

The trustee for Bernard L. Madoff Investment Securities (BLMIS) and the U.S. attorney's office in Manhattan have announced a settlement with the estate of Jeffry Picower, the philanthropist and Madoff investor who died in October 2009. The New York Times reports that the settlement will be the largest civil forfeiture payment in U.S. history.

The value of the settlement is $7.2 billion, according to The Wall Street Journal--a substantial sum of money that will be added to the coffers used to repay victims of Madoff's $20 billion Ponzi scheme.

Baker & Hostetler partner Irving Picard, the liquidating trustee for BLMIS, claimed that Picower and his Florida-based Picower Foundation reaped more than $7 billion in Madoff-related profits when he sued both entities in May 2009. Picower benefited more than anyone else, Picard claimed, from Madoff's massive fraud.

At the time of Picower's death from a heart attack last year--he was found dead in the pool at his home in Palm Beach--lawyers for Picard at Baker & Hostetler said publicly that settlement talks were ongoing. (The Times has more on the relationship between Madoff and Picard, who before his death joined the annual Forbes list of 400 richest Americans.)

The settlement concludes the Picower case and all related civil suits. In a statement, Picard and his counsel from Baker & Hostetler claim that they have recovered $5 billion from Picower, who will forfeit an additional $2.2 billion to the federal government. Every penny will be returned to BLMIS investors, Picard said, adding that more than $7.5 billion will have been recovered for victims when taking into account the $1 billion in settlements secured last week from the family of Boston-based philanthropist Carl Shapiro and Swiss private bank Union Bancaire PrivĂ©e.

"[That's] more than one-third of the total principal we currently estimate was lost in the Ponzi scheme," Picard said in his statement. "As soon as is practicable after the settlement is approved by the bankruptcy court, we will ask the court to approve an initial distribution from the Customer Fund to BLMIS customers with allowed claims."

Picard singled out Baker & Hostetler partners David Sheehan, Oren Warshavsky, Lauren Resnick, Tracy Cole, and Marc Hirschfield for their assistance in helping reach a settlement, along with associates Seanna Brown and Amy Vanderwal.

Those taking part in the press conference announcing Friday's agreement, according to an alert issued early Friday by the U.S. attorney's office, were Picard, SIPC chairman and Saul Ewing partner Orlan Johnson, and U.S. attorney for the Southern District of New York Preet Bharara.

A call to Schulte Roth & Zabel founding partner William Zabel, who represents Picower's estate and Picower's widow, Barbara, was forwarded to an outside spokeswoman. In a statement, the complete version of which can be read here, Barbara Picower said that she and her late husband "will return every penny received from almost 35 years of investing" with Madoff.

"Although it is my understanding that the estate's legal liability may not have exceeded $2.4 billion, I believe that this settlement honors what Jeffry would have wanted, which is to return this money so that it can go directly to the victims of Madoff," she said. "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."

Schulte Roth partners Marcy Harris, Gary Stein, and Susan Frunzi assisted Zabel in reaching the agreement with prosecutors and the trustee, along with special counsel Harry Sandick and associate Frank LaSalle. Zabel said in a statement of his own the Jeffry Picower's wills over the past two decades directed that the bulk of his wealth be given to charity following his death. Barbara Picower has said she will establish a new foundation to continue the couple's charitable legacy.

News of the landmark settlement comes amid reports that hedge funds and other distressed investors have been reaching out to Madoff victims to buy their claims at a discount, hoping for big payouts down the road.

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Is it just coincidental that hedge funds started offering buyouts to Madoff victims prior to this announcement?

I don't think so, there has to be a connection there.

well, it is somewhat disconcerting that Schulte counsel brokered the Picower deal, and their biggest client base is the hedge funds.

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