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black hole into which Bernie Madoff pumped $7.9 billion
of other people’s grew even darker with the death
of Jeffry Picower and Stanley Chais, the only two available
witnesses to the laundering of these mystery funds. Both
men had been charged in separate fraud suits by the SEC
aimed at uncovering the myriad offshore and onshore accounts
into which this $7.9 had been ultimately channeled into
what the bankruptcy trustee describes as “ a labyrinth
of interrelated international funds, institutions, and entities
of almost unparalleled complexity and breadth.” It
was one of the greatest disappearance act in financial history
but neither case will ever come to trial. Picower died in
presumed swimming pool accident on October 25, 2009 in Florida
and Chais died of a rare blood disease on September 26,
2010.
Both men had been involved with Madoff since well before
he began his Ponzi scheme. And they both enjoyed special
access to Madoff’s operation. According to the SEC
complaint, Picower 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 to
accommodate this siphoning off, Madoff extended him so much
fictional credit that his accounts had , according to the
bankruptcy trustee’s analysis, a “negative net
cash balance of approximately $6 billion at the time of
Madoff’s arrest.” Picower collaborated in his
spectacular, if fictitious, profits by faxing Madoff back-dated
letters to support fabricated trades. In some of the faked
trades, Picower’s reported profits ran as high as
550% . As a result, the Picower was able to withdraw over
$2.4 billion just between 2002 and 2008.
Like Picower, Chais had a close working relation with Madoff
(so close that his name came up first on Madoff’s
office speed dial.) According to the SEC
complaint, Chais withdrew $1.15 billion from 60 accounts
for himself, family members,
corporations in which he held interests, funds into which
he consolidated his clients, and other
entities. Madoff enabled him to make such massive withdrawals
by giving him inexplicably high phantom profits, with rates
of returns in some accounts in excess of 300% a year.
According to the reckoning of the bankruptcy trustee, Picower
and Chais together withdrew a total of $7.9 billion between
1995 and 2008 from the phantom profits that Madoff allocated
to them. Why were such staggering notional profits systematically
credited to the Picower and Chais accounts and then systematically
and purposefully siphoned out of these accounts?
Were Picower and Chais following instructions in re-depositing
the billions that they withdrew? All Ponzi schemes need
an exit strategy. Unfortunately, with the death of Picower
and Chais, we may never unravel the secret of where that
money ended up..
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