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Four relatives of Bernard Madoff are sued by trustee for nearly $200 million after they extracted millions of dollars from investment accounts into which they had put little or even no money.

Irving Picard, the official liquidating the swindler's assets, says Madoff's brother, two sons and a niece knew about the Ponzi scheme or should have known about it.

10/03/09 - Four relatives of Bernard L. Madoff who worked at his investment firm either knew about his epic Ponzi scheme or should have known about it, according to a lawsuit filed Friday by the government-appointed trustee liquidating the swindler's assets.

The suit seeks to force Madoff's brother, two sons and niece to repay almost $200 million that they allegedly withdrew from the firm over the years to pay for luxury homes, swanky lifestyles and even a hair salon.

The suit doesn't accuse the four -- Peter Madoff, the brother; sons Andrew and Mark; and niece Shana Madoff -- of direct involvement in Bernard Madoff's scheme.

But it paints a damning picture of them, saying it's hard to imagine that they didn't detect what was going on.

The four family members worked in supervisory or compliance positions that required them to keep close tabs on the business, according to the suit.

At best, it says, the four were derelict for failing to catch the wrongdoing; at worst, the suit says, they were complicit.

"Either they failed completely to carry out their required supervisory/compliance roles, or they knew about the fraud but covered it up," says the suit, filed in U.S. Bankruptcy Court in New York by trustee Irving Picard, acting on behalf of the scheme's victims.

Of Shana Madoff, the firm's compliance officer, the suit says: "She ignored every red flag of the massive fraud taking place right in front of her."

"Simply put, if the family members had been doing their jobs -- honestly and faithfully -- the Madoff Ponzi scheme might never have succeeded, or continued for so long," the lawsuit says.

Instead, according to Picard, the Madoffs treated the business "as if it were the family piggy bank." They were paid tens of millions of dollars and given cushy financing to buy apartments in Manhattan, vacation homes in Nantucket, boats and club memberships, the trustee alleged. Andrew Madoff used $300,000 to buy into a hair salon, the suit says.

In some cases, family members extracted millions of dollars from investment accounts into which they had put little or even no money, according to the suit.

Peter Madoff, for example, invested only $32,146 in his multiple accounts -- including a mere $14 after December 1995 -- yet withdrew $16.2 million, the suit says.

One account into which he put no money was credited with an $8.7-million gain from trading in Microsoft Corp. shares. He took out $6 million.

Accounts for Andrew and Mark Madoff recorded purchases of thousands of shares of Dell Inc. a full 18 months before the accounts themselves were opened, the suit says.

A spokesman for Shana Madoff, who is married to a former Securities and Exchange Commission attorney, declined to comment. Lawyers for the three other defendants didn't return calls seeking comment.

http://www.latimes.com/business/la-fi-m ... 7725.story

10/02/09 - NEW YORK — The trustee pursuing Bernard Madoff's assets sued four more relatives of the Ponzi scheme architect Friday in a legal battle to recover at least $199 million on behalf of thousands of burned investors.

The U.S. Bankruptcy Court lawsuit filed by Irving Picard targeted Madoff's younger brother, Peter; Madoff's two sons, Andrew and Mark; and his niece, Shana. All had been senior executives at Madoff's investment business.

LAWSUIT: Read the bankruptcy court filing

While not accusing them of knowing participation in the scam, the lawsuit charged that they "were completely derelict" in carrying out the compliance and supervisory responsibilities required by their jobs at the firm.

"As a result they either failed to detect or failed to stop the fraud, thereby enabling and facilitating the Ponzi scheme," Picard alleged. "Simply put, if the family members had been doing their jobs — honestly and faithfully — the Madoff Ponzi scheme might never have succeeded, or continued for so long."

The lawsuit also charged that the four "took huge sums of money" from the Madoff business that "operated as if it were the family piggy bank."

The relatives used those funds for everything from multi-million dollar vacation homes to monthly credit card charges for restaurants, vacations and clothing, Picard alleged.

"The means of diverting those customer funds ranged from the simple (merely transferring money to the Family Defendants' own personal bank accounts) to the complex (fabricating the purchases of securities … and then cashing out of those positions,)" the lawsuit charged.

A lawyer for Madoff's brother did not immediately return a call seeking comment. Shana Madoff could not be reached. Martin Flumenbaum, a lawyer for Madoff's sons, said they "strongly disagree with the trustee's baseless claims."

"Mark and Andrew Madoff had no prior knowledge of Bernard Madoff's crimes and contacted the U.S. Department of Justice and the SEC (Securities and Exchange Commission) immediately after their father told them he had defrauded his investment advisory clients," Flumenbaum said in a statement. He added that both "suffered substantial economic losses as a result of their father's crimes, and we believe it is legally appropriate that these losses be taken into account in resolving the outstanding financial issues."

Madoff is now serving a 150-year prison term after pleading guilty in March to fraud and other charges for the multi-billion dollar scam that victimized thousands of charities, celebrities, financial funds and average investors worldwide. Claiming he ran the scheme for decades without accomplices, Madoff admitted he used money from new investors to pay earlier ones, and did none of the securities trades he touted to clients.

Despite the disgraced financier's claim, federal investigators have continued to search for any evidence that others had direct involvement in the scam. Picard has supplemented that effort while seeking Madoff's assets.

He previously filed a separate lawsuit in a bid to force Madoff's wife, Ruth, to return $44 million she received from the business. She, too, has said she had no knowledge or involvement in the scam.

PHOTO GALLERY: Bernard Madoff's Manhattan penthouse
PHOTO GALLERY: Palm Beach house
PHOTO GALLERY: Montauk house

The legal argument underlying Friday's lawsuit is that Madoff's relatives have no right to keep millions of dollars in assets largely funded by the scam, even if they didn't know about the financier's self-confessed criminal activity.

Additionally, the action focuses on the official job responsibilities of Madoff's brother, sons and niece. Although their positions required them to ensure the firm's compliance with securities regulations and the company's own protocols, Picard said he has been "unable to identify any evidence of meaningful compliance or supervisory activity."

"Had Peter, as the CCO (chief compliance officer) or Shana, as compliance counsel, done their jobs properly, the fraud might have been revealed years earlier," Picard alleged. "Either they failed completely to carry out their required supervisory/compliance roles, or they knew about the fraud and covered it up."

The lawsuit leveled the same allegations against Madoff's sons.

"Had they made even the slightest attempt to fulfill their supervisory responsibilities, they would have been aware that no actual securities transactions were taking place," Picard charged.

Yet the four family members actively received millions of dollars in Madoff business transfers carried out via paperwork that was "falsified, backdated or fabricated" to make it appear the transactions were legitimate, the lawsuit alleged.

For instance, Peter Madoff received at least $60.6 million from the business, Picard said. Although he invested just $32,146 in his two personal accounts at the firm, he redeemed $16,252,004, Picard alleged.

An investigation of Peter Madoff's accounts at the family firm found fabricated trades of Microsoft and Apple Computer stock that were used to justify purported gains — and payments — of more than $23 million, according to the lawsuit.

Like his uncle, Mark Madoff received millions of dollars from fictitious and backdated transactions in shares of Dell and Microsoft, the lawsuit charged. The Dell stock gains listed in one of his Madoff accounts came from stock purchases that purportedly occurred "more than 18 months before the account was opened," Picard alleged.

Additionally, the scam behind the family business allegedly "paid for all aspects" of Mark Madoff's lavish lifestyle, from expensive homes in Manhattan, Nantucket and Greenwich, Conn., "to the mattress and box spring he slept on, the television he watched in his home gym, and the outdoor shower in his home," the lawsuit charged.

Andrew Madoff, too, allegedly lived a high-end lifestyle funded by money that rightfully belonged to burned investors. He received more than $60 million from the company, including more than $31 million in salary and bonuses between 2001 and 2008, the lawsuit alleged.

Although he allegedly made only nominal investments in his personal accounts at the family business, Mark Madoff received millions of dollars in fabricated trades of stock in Microsoft, Dell and Lucent, Picard charged in the filing.

Additionally, Madoff's sons have filed court claims seeking more than $85 million in deferred compensation, even though there is no evidence to support their contentions, Picard alleged.

Shana Madoff received at least $10.6 million from the family business that she should be required to return to help repay investment victims, the lawsuit charged.

That total includes funds used to purchase a nearly $2.9 million home in East Hampton, $30,000 paid to an interior decorator, $241,958 to pay rent on an apartment and $379,342 in American Express charges for clothing, cosmetics and travel expenses, Picard alleged.

"Without regard to the extent to which they knew of Madoff's fraudulent scheme, or not, each of the family defendants knew or should have known that they were not entitled to these distributions of 'free' company money," the lawsuit charged.

http://www.usatoday.com/money/markets/2 ... sued_N.htm