Mild-mannered yet tough lawyer was charged with undoing what Madoff did
By Claude Solnik
The Daily Record Newswire
LONG ISLAND, NY -- When Irving H. Picard, the trustee charged with recovering money that Bernie Madoff misappropriated, arrived at the fallen financier’s Midtown office time in 2008, he was greeted by an almost unimaginable view.
Picard went into the 34-story Lipstick building and reached the office overlooking New York, where so much had been overlooked.
“Behind Mr. Madoff’s desk was a four-foot screw,” Picard said. “It was a piece of sculpture made by a well-known American sculptor, Claes Oldenburg. Its name is ‘The Soft Screw.’ You can’t make these things up.”
You probably couldn’t make up Madoff, if you had to. But the same may be true of Picard, the anti-Madoff and the man charged with reassembling the billions that Madoff moved around so easily.
A mild-mannered yet tough lawyer who walked into Madoff’s world seven years ago, Picard has yet to leave. The man charged with undoing what Madoff did has defied expectations and proved a match for Madoff.
He has turned the effort to salvage money from Bernard L. Madoff Investment Securities into what many see as a success story, while others accuse him of victimizing them again – by clawing back cash.
The trustee’s office has recovered or entered into agreements to recover $10.895 billion, distributed nearly $8 billion and filed about 1,000 lawsuits in more than a dozen nations along the way.
“At the very beginning of the case, many people anticipated if we were lucky, like in a typical case, we might get five or 10 cents back on the dollar,” Picard said. “Today I can say without question, we’ve done a hell of a lot better. We still haven’t finished. And we still have a ways to go.”
Money for nothing
If Madoff was the magician who made money disappear only to disappear himself into Butner Medium federal prison in North Carolina after being sentenced to 150 years, Picard is the magician charged with making the money reappear.
“The last seven years have been deeply challenging,” Picard said at a joint meeting of the Long Island chapters of the Turnaround Management Association and the Association of Certified Fraud Examiners at the Woodbury Country Club last week. “We had to put these cases together ourselves. We’ve done the best job we could under the given circumstances.”
Picard’s team has handled 16,519 claims made by the statutory date of July 2, 2009 and allowed 2,560 claims for more than $14.8 billion. Anybody owed up to $925,000 has recovered that in full, he said.
He denied about 2,700 claims from investors and another 11,000 claims from third-party or indirect investors. And he has locked horns with everyone from the Wilpons to the Blumenfelds over whether and how much they had to return.
“We bumped up against legal boundaries that ultimately wouldn’t give,” Picard said, noting he has won and lost some battles. “But we always operated in the interest of receiving the maximum recovery of who suffered at Madoff’s hands.”
It’s probably appropriate that a huge amount of misinformation surrounds Madoff, whose investment firm was a castle built on clouds.
Madoff’s client statements indicate more than $65 billion, but that is just a fantasy filled with fictitious profits. Picard's office received about $17.5 billion in claims. He estimates another $2.5 billion in claims that could have been filed, even as investors sought to recover paper profits that the wizard of Wall Street had invented.
Once he figured how much money was there, Picard began trying to recover it, which often meant asking investors to surrender illusory money.
“The losses were distributed unevenly,” Picard said. “Some of the customers deposited more than they got back. Many got more than they put in.”
Others who have worked on bankruptcies (which is what the Madoff case is) say Picard has recovered a massive amount.
“He has been getting great results,” said Gerard Luckman, a partner at Silverman Acampora, a law firm based in Jericho. “It seems like he’s doing everything he needs to do to maximize the recovery. It’s been a difficult case.”
Adding insult to injury
Picard recovered money without charging Madoff’s victims a penny, a nice piece of magic. That’s because the fees are paid out of assessments on brokerages through the Securities Investor Protection Corp., rather than recovered funds, as with most bankruptcies. SIPC through March 31 had paid $1.112 billion in the effort to recover money.
But some have faulted Picard as treating investors as if they’re criminals rather than victims bilked by a con man with connections (Madoff’s brother Peter was a high-ranking Securities and Exchange Commission enforcement official).
Congress members Peter King, Carolyn McCarthy, Scott Garrett and Ileana Ros-Lehtinen took Picard to task in a 2011 letter to Gene Dodaro, then comptroller general of the United States, “regarding the trustee’s use of the so-called ‘net investment method’” to determine who was owed and who owed money.
They referred to Picard as “suing innocent investors for so-called claw backs…in direct conflict with the SEC’s mission to protect investors.”
They said investors must be able to rely on “their statements issued by regulated firms.” If they’re unable to do so, “this will certainly impact on investors’ confidence in our financial markets.”
They questioned why Picard, a partner at BakerHostetler, was using net investment rather than final statements, which they called “the traditional” way of calculating equity. They noted this was far more “lawyer intensive.”
“We are dealing with people who got other people’s money,” Picard said of the need to recover funds paid out inappropriately.
Picard argued that the numbers on financial statements were fantasy and illusion – irrelevant to investment.
“Any claimants, especially those with more than they put in, the net winners, contend that I should have used the fictitious numbers from the statements,” Picard said. “The sad truth is that a Ponzi scheme is at best a zero sum game.”
The U.S. Supreme Court on June 25, 2012 denied two petitions that sought to treat the financial statements as real.
“That has allowed the legal team to litigate against net winners who continue to hold funds,” Picard said.
The man who unmade Madoff
A man in his 70s, Picard does not look like a crusader. He is balding, wears glasses, talks slowly and wore a gold-colored tie with blue slanted lines and a blue shirt when he spoke on Long Island last week.
“This has been a forensic effort of tremendous scope,” he said. “We pursue and continue to pursue actions globally.”
Picard’s family has seen what evil can do, especially when nobody fights back. That could be one reason he has made a profession out of standing up for victims of financial fraud.
His parents fled Nazi Germany in 1938 after his father, a doctor, had to give up his medical practice due to a law barring non-Jewish patients from seeing Jewish doctors.
Picard graduated from the Wharton School of Business at the University of Pennsylvania in 1963, from Boston University School of Law in 1966 and from the New York University School of Law with a masters in law in 1967.
He took a job at the SEC, leading attorneys working on bankruptcy cases. Picard in 1979 was appointed a trustee in a U.S. Department of Justice program, overseeing corporate bankruptcies.
He went out on his own in 1982, building a practice collecting money from failed investment firms and brokerages, laying the ground work for his role in cleaning up the Madoff mess.
Picard soon developed a reputation for being able to recover funds where others might fail, recovering money related to Park South Securities, Klein Maus & Shire, Hanover, Sterling & Co., Investors Center, Norbay Securities and Jay W. Kaufmann & Co.
Family matters
He recovered $6.7 million (nearly half the missing money) after art collector David Bloom used millions to buy art masterpieces, even though he was hired to invest in stock, according to the Huffington Post. He sued Bloom’s parents and a couple who had obtained “fictitious profits.”
In the case of Park South Securities, a brokerage led by Todd Eberhard, Picard pursued what he viewed as net winners.
He went after property Eberhard’s mother insisted was hers and a portion of Eberhard’s administrative assistant’s salary that, he argued, was inflated.
After Picard was done, Park South investors got back nearly all the missing $7.4 million.
When U.S. District Judge Louis Stanton in 2008 wanted someone to recover Madoff’s missing money, Picard was a natural choice.
BakerHostetler, where he works, describes him as someone whose specialties include “seeking to recover property, and issues pertaining to substantive consolidation and preference and fraudulent transfers.”
While some saw Picard as trying to raise the Titanic, he sees himself as having a simple task: Get back money that went out, so it can be redistributed, finding the fairest solution to an unfair situation.
“Everything goes into the customer fund,” Picard said. “There’s nothing we can do for the general creditors.
Walking the wreckage
It’s difficult to imagine what Picard found when he arrived at Madoff’s offices just days before the holiday season. BLMS had roughly 100 employees, including the vast majority who were victims in their own right.
“We were careful in how we treated these folks,” Picard said. “We had to determine who was necessary to keep.”
He let employees go gradually, which meant dealing with HIPAA issues, the WARN Act and even 401(k) plans.
“We decided we had to move the plan as quickly as we could,” Picard said of the 401(K)s.
The FBI arrived, taking over the premises, including the computers, books, records and warehouse.
“This was a crime scene,” Picard said.
Madoff admitted to regulators in December 2008 that he had been operating a Ponzi scheme. But following Madoff’s maze would prove anything but simple, in part because the scheme had been going on for so long.
“We think it began at least in the 1980s,” Picard said. “Along the way, Mr. Madoff and some of his cohorts also lined their pockets.”
Why did Madoff admit that the emperor, in this case, had no clothes? After the stock market crashed, the “bubble burst in December 2008,” Picard said.
In the 12 months leading up to December 2008, over $12 billion went out the door to various customers, vendors and employees, Picard said.
“Mr. Madoff finally reached the point where he couldn’t keep up his façade any longer,” Picard said of unusually high requests for redemptions.
Taking from Picower to pay Paul
Although Picard scored many victories, the biggest was against the Picower estate, which settled for $7.2 billion, including $5 billion that went to Picard’s fund, and $2.2 billion that went to the government, as part of a separate fund.
U.S. Attorney Preet Bharara described that settlement as a “game changer” and the largest amount ever returned through a forfeiture proceeding.
Even that came under untimely circumstances after Jeffrey Picower drowned following a heart attack. His widow, Mary, helped obtain the settlement out of what Picard called her view that there was “a need to correct.”
“She got to move on as well,” Picard said.
JPMorgan Chase agreed to pay Picard $325 million as well as $218 million to resolve two related class-action suits he helped prepare. The federal government obtained $1.7 billion in civil forfeitures from JPMorgan Chase based on Picard’s complaint.
But Picard racked up some losses, including a court decision that he didn’t have standing to bring actions against financial institutions that he believed had enabled and prolonged the fraud.
The courts also ruled that, even though there were no securities trades, money was protected by stock brokerage safe harbors beyond two years rather than six years, under
state law.
“The ruling has spurred a lot of settlements, because people now know they have strict liability for the two-year number,” Picard said. “We have been settling a lot of two-year cases over the last couple of months.”
Attorneys argue that some inter-account transfers should be exempt and that customers are entitled to damages in the form of interest based on how long they left money with Madoff.
“That would mean taking money from people who were in for less time,” Picard said. “In my view, that shouldn’t come into play until everybody’s paid 100 percent.”
The issue of interest has yet to be fully litigated with a Sept. 29 conference scheduled to help resolve the problem.
“We’re hopeful that early in October, that petition will be denied,” Picard said. “Then we’ll be in a position to distribute over $900 million, which we’ve been holding in reserve.”
Hard times, tough decisions
Picard came under fire for denying claims from individuals who invested in feeder funds. He says he can only respond directly to account holders. Feeder funds file claims and then distribute money.
Then there are the people who lost, if not everything, nearly everything to Madoff, sometimes facing medical problems and bills.
“This is not a typical Chapter 11 case,” Picard conceded. “We’re dealing with a lot of elderly people who had their retirement money here. It was their only source of income.”
Picard was criticized for going after people with disabilities and medical problems. He says he has listened by creating a hardship program.
“The idea was to try to get money out to people who should get money, the net losers, as quickly as possible,” he said.
Investors submitted information (tax returns weren’t required) to give Picard “a feel for what the issue was and the financial problems.”
About 250 people were paid out early and another 250 net winners have not been sued, since they were found not to be in a position to pay, although hundreds of others’ claims were denied.
“In a case like this, you have to think out of the box and be creative in dealing with people,” Picard said. “These are individuals. We’re not dealing with the president of a company who built an expense into his budget.”
He’s not, however, sympathetic to investors trying to retain money because they moved it abroad out of U.S. jurisdiction.
“Our position is that the focus on bankruptcy court is on the domestic debtor, not where transfers are made,” Picard said of that issue still being litigated. “The location of the illegal transfer should be deemed irrelevant.”
Lessons unlearned
While Picard’s job includes unraveling the Madoff fraud, he sees his efforts as possibly making such frauds a little more difficult.
“We hope some of our due diligence will help stop future Ponzi schemes,” Picard said.
He doesn’t believe he’s near the end of the road in terms of recoveries, but a lot has happened: The last criminal trials for people facing charges ended.
“Now the warehouse is no longer a crime scene,” Picard said. “We can come and go as we need to.”
Many of Madoff’s possessions have been sold at auction, including Claes Oldenburg’s Slow Screw that once rose and spun (yes, it actually did turn), at Sotheby’s in spring 2014 for $37,500. A steal, some might say. If there ever is a Madoff museum or a museum of financial fraud, this could prove a centerpiece.
“It had a few nicks in it,” Picard said. “We sold it.”
A lot of other pieces of art on Madoff’s walls have been sold. While some specialize in the art of the deal, Madoff specialized in the art of the steal. And that is an art that, unfortunately, thrives on investors eager to believe the best.
“There were a lot of bulls, no bears. There were little statues, artwork, a Lichtenstein panel of six bulls. We also sold that at auction,” Picard said. “When you look back over the years, it was clear why we only found bulls. That’s what Bernie dealt in.”
