The estates of Bernard Madoff's dead sons have reached an agreement with the U.S. government to hand over a combined $23 million to victims of his Ponzi scheme, resolving an eight-year legal battle over the remnants of fortunes they amassed at their father's bogus securities firm.
Mark Madoff committed suicide in 2010, and his younger brother, Andrew, died of cancer four years later. Their estates were sued by the company's court-appointed bankruptcy trustee, who accused the men of profiting from their father's fraud for years and squandering more than $150 million of client money on their lavish lifestyles.
Under the deal, the estates will transfer all cash, business entities, and business interests to the trustee, leaving Mark Madoff's family with $1.75 million and Andrew Madoff's family with $2 million, the trustee said Monday in a court filing in Manhattan. The estates will also withdraw their claims in the Madoff firm's bankruptcy case, which total nearly $100 million, according to the statement.
The accord also resolves an investigation by the U.S. attorney's office in Manhattan, which oversaw a criminal investigation that led to a 150-year prison sentence for Bernard Madoff and a 10-year term for his brother Peter. Both men pleaded guilty. Bernard Madoff's sons were never accused of a crime. A civil suit against their mother, Ruth Madoff, is pending.
The claims against the Madoff clan have been symbolically important for the trustee, Irving Picard, who is recouping cash for thousands of victims who lost $17.5 billion in principal when the fraud collapsed on Dec. 11, 2008. So far, he's recovered more than $11.5 billion, or almost 64 cents on the dollar, by suing banks and offshore funds that funneled cash into the scam. Picard has also sued investors who profited from the fraud by withdrawing more money than they deposited, including Madoff's billionaire friends.
Settlement talks between the Madoff brothers' estates and Picard hit a dead end last year, court records show. Picard had sued to recover tens of millions of dollars' worth of property from the estates, including a Manhattan apartment.
Madoff's sons have said that they didn't know about the Ponzi scheme and that they went to the authorities immediately after their father confessed to them. Madoff was arrested two days later. The brothers had led Madoff's market-making and proprietary-trading businesses for years, overseeing real trading activity that lent legitimacy to their father's bogus investment advisory unit at the heart of the scheme.
"I'm overly sensitive to anybody criticizing the side of the firm that my sons ran," Madoff said in April in a court-ordered deposition stemming from another lawsuit by the trustee.
Picard, a lawyer with Baker & Hostetler LLP in New York, never believed the brothers' claim that hadn't known about the fraud until Madoff confessed to it. He claimed the fraud at Madoff's investment advisory unit overlapped with the businesses overseen by his sons. And he rejected a claim by the brothers' lawyers that the men earned their money through their work and that their families deserved to keep it.
"The Madoff brothers knew, saw, and were simply too intelligent to plausibly feign ignorance about the fraud," the trustee said in a revised complaint against the men last year. Even the market-making and proprietary-trading business units they ran were propped up with stolen money, according to the complaint.
On the second anniversary of his father's arrest, Mark Madoff used a dog leash to hang himself from a pipe in the living room of his Manhattan apartment. Andrew Madoff died of cancer in 2014. Mark's ex-wife, Susan Elkin, and his widow, Stephanie Mack, were earlier dropped from Picard's suit under confidential terms, as was Andrew's ex-wife, Deborah West.
Peter Madoff, the brothers' uncle and a onetime compliance officer at the company, paid Picard $90 million after his guilty plea, while his daughter, Shana Madoff, another compliance officer at the firm, was dropped from the suit. Picard had accused them of spending client cash on credit card bills, vacations, and their own business ventures.
The brothers deleted emails to obstruct a 2005 U.S. Securities and Exchange Commission probe that could have exposed their father's fraud, according to testimony by Bernard Madoff's longtime finance chief, Frank DiPascali. They included messages between the sons and other employees in which they discussed altering trading account information being given to the SEC, as well as the company's true trading profits and losses, according to DiPascali, who pleaded guilty and testified against his former colleagues in the 2014 trial in a bid for leniency.
DiPascali died of lung cancer the next year.