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http://dealbook.nytimes.com/2010/12/17/big-settlement-with-madoff-investor-near/

$7 Billion Settlement Said Near With Madoff Investor

Federal prosecutors and the trustee liquidating the estate of Bernard L. Madoff, the convicted swindler, have reached a civil settlement that will add at least $7 billion to the cash available to compensate victims of Mr. Madoff’s global Ponzi scheme, according to several people briefed on the negotiations.

An announcement is expected at a news conference scheduled at noon.

The settlement will conclude the trustee’s case against the estate of Jeffry M. Picower, a Palm Beach philanthropist and longtime Madoff investor who died in October 2009. The figure represents the difference between the cash that Mr. Picower put into his Madoff account and the amount that he withdrew over the life of the fraud, according to litigation filed last year by the Madoff trustee.

Prosecutors declined to comment Friday morning on the settlement, but people briefed on the negotiations say that it will be the largest civil forfeiture payment in American judicial history.

Lawyers for Mr. Picower’s estate have confirmed in the past that settlement talks were under way but declined on Thursday to confirm or deny the $7 billion figure, which will greatly expand the $2.3 billion sum that the trustee has collected through asset sales and other settlements.

But the enormous figure is certainly plausible: a confidential letter from Goldman Sachs, requested as part of the protracted settlement talks, confirmed that Mr. Picower had been “a valued client of our Investment Management Division for nearly three decades,” and that during that time, he had generated legitimate investment returns “in excess of $2 billion,” primarily through “self-directed investments in public securities.”

A person with knowledge of the Goldman Sachs research said that there were $4.5 billion in “unrealized gains” in Mr. Picower’s account at the firm at the time of his death.

For such a formidable investor, Mr. Picower had long flown beneath Wall Street’s radar. Before he appeared as one of the largest clients of Mr. Madoff’s fraudulent investment advisory business, he was known in financial circles primarily for his medical technology investments. In 2004, a few years after he took control of Alaris Medical Systems with a stake of roughly $86 million, he sold the company to Cardinal Health for more than $1 billion.

The complaint filed against him last year by the Madoff bankruptcy trustee, Irving H. Picard, asserted that the profits on his investments with Mr. Madoff were equally stellar — but totally bogus. The complaint, which contended that a sophisticated investor like Mr. Picower should have recognized that Mr. Madoff was operating a fraud, sought the return of $7.2 billion — the amount by which Mr. Picower’s withdrawals from his Madoff accounts exceeded the funds he paid in over the life of the fraud.

Mr. Picard, the trustee, has reported that the cash losses in the scheme apparently total about $20 billion. If that figure holds, the addition of the Picower billions would mean that eligible investors — those who took less from their Madoff accounts than they put in — could recover almost half their losses.

Settlement talks were already under way when Mr. Picower, who had suffered from Parkinson’s disease and had a history of heart ailments, was found dead in the swimming pool of his oceanfront Palm Beach mansion on Oct. 25, 2009.

The complicated negotiations involved lawyers for Mr. Picard, federal prosecutors working for the United States attorney in Manhattan, Preet Bharata, and lawyers at the firm of Schulte Roth & Zabel, representing Mr. Picower’s estate and his widow, Barbara Picower.


Eric D. Schwerin
Rosemont Seneca Partners, LLC
1010 Wisconsin Ave., NW
Suite 705
Washington, DC 20007
(202) 333-1880
eschwerin@rosemontseneca.com
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