On
Sunday, October 25th 2009, Jeffry Picower drowned in the
swimming pool of his Palm Beach mansion, the victim of an
apparent heart attack. His untimely death left in limbo,
if not totally silenced, crucial questions about the role
he played in what may be the greatest disappearance act
in the annals of financial history. Picower was the main
(though not the only) conduit through which most of the
stolen money in the Madoff Ponzi scheme was systematically
siphoned out of the accounts of other investors. As Irving
Picard, the court-appointed Trustee, notes in complaint,
Picower got “either directly or through the entities
he controlled, more than $7.2 billion of other investors’
money.” He did not get this money by his good luck,
fortunate timing, or random chance. He made regular quarterly
withdrawals of the putative profits credited to his accounts.
Nor did his profits proceed from his acumen at picking stocks
since, as we know by now, all the profits Madoff reported
were the result of his invention, not his trading. Picower,
a long time associate of Madoff’s, had special access
to Madoff’s operation. According to the Trustee’s
complaint, he must have been aware that what was going on
was highly-irregular since his accounts reported “profitable
trading before they were opened or funded; execution of
trading instructions that hadn’t yet been given; inexplicable
changes in account positions; and – at Picower’s
direction – the accomplishment of investment results
over time periods that already had expired.” In other
words, his trades were invented afterwards and back-dated.
Unlike other investors, he was advised in advance of Madoff’s
monthly profit “targets,” or the amounts with
which Madoff planned to pad Picower’s accounts, and,
through this knowledge, he or his assistant could request
higher or lower “profits” for various accounts.
Moreover, to amplify Picower’s fictional profits,
Madoff extended him so much fictional credit that his accounts
had, as the Trustee reports, a “negative net cash
balance of approximately $6 billion at the time of Madoff’s
arrest.” Picower even collaborated in his spectacular,
if fictitious, trading success by, as the Trustee notes
in the complaint, as he had “ specifically directed
such fictitious activity.” For example, at one point,
he faxed Madoff back-dated letters to support fabricated
trades. In some of the faked trades, Picower’s reported
“profit”s ran as high as 550% . As a result,
the Picower was able to withdraw over $2.4 billion just
between 2002 and 2008.
Why were such staggering notional profits systematically
credited to the Picower accounts? Unless Madoff was channeling
a large part of the money he stole to Picower for reasons
of friendship or charity, the multi-billion dollar skim
must have been part of the scheme itself. If so, was Picower
following Madoff’s instructions in re-depositing the
$7.2 billion he withdrew? And, if this was part of the exit
strategy– and all Ponzi schemes need an exit strategy--
where is that money today? Unfortunately, the answer to
these crucial question may have died in the drowning pool
along with Picower.
***
|