Legal News

Feds Turning up Heat on Big Madoff Investors

By Ashby Jones

All those who started tuning out of the Madoff matter after Bernie pleaded guilty back in March might want to reconsider: things could get very interesting very soon.

The latest: the WSJ’s Amir Efrati reports today that the criminal investigation into who knew about Bernie’s fraud has expanded to include some of his highest-profile investors, including Jeffry Picower and Stanley Chais, two philanthropists who invested heavily with Madoff, and Carl Shapiro (pictured) one of Bernie’s oldest friends. The group — along with at least five others — are being scrutinized by federal prosecutors in Manhattan.

Federal investigators have gathered evidence they think will show that Picower and Chais told Madoff how much in returns they wanted and that their accounts soon would reflect those amounts.

Prosecutors haven’t charged any Madoff investors with criminal wrongdoing. A lawyer for Picower, 67 years old, said his client wasn’t complicit in the fraud and suffered losses in the billions. A lawyer for Chais, 82, a money manager who channeled West Coast clients to Madoff’s firm, said he was unaware of a criminal probe of Chais and his client didn’t have knowledge of Madoff’s Ponzi scheme. Chais “has cooperated fully” with investigators, the lawyer said. A representative for Shapiro, 96, said Shapiro had no knowledge of the fraud.

Picower and Chais already have been accused of seeking fictitious gains in civil lawsuits brought against them by the trustee of Bernie’s firm. As part of his effort to recover assets for Madoff’s victims, Picard alleged that the trio sought — and then received — better returns than thousands of other Madoff investors.

In some cases, their returns reached 300% or 950% a year, Picard has alleged. The two men made withdrawals from Mr. Madoff’s firm of more than $6 billion in supposed profits above and beyond the principal they deposited for themselves, family members and foundations, the lawsuits allege.

It’s unclear why Madoff would allegedly have given some investors such high returns and why some investors allegedly made requests for specific gains. Picard’s lawsuit against Picower and Chais doesn’t speak to possible motive, only alleging that the defendants knew or should have known they were “reaping the benefits” of “manipulated purported returns, false documents and fictitious reports.”

Full post as published by Law Blog - WSJ.com on May 18, 2009 (boomark / email).