Work to unwind epic fraud continues despite death of financier at its center

Days after confession by Madoff, trustee hired to find funds for victims

NEW YORK — Epic Ponzi scheme mastermind Bernard Madoff is dead. But the effort to untangle his web of deceit lives on.

More than 12 years after Madoff confessed to running one of the biggest financial scam in Wall Street history, a team of lawyers is still at work on a sprawling effort to recover money for the thousands of victims of his fraud.

Their labors, which have already secured $14.5 billion of the estimated $17.5 billion investors put into Madoff ’s sham investment business, didn’t cease with the financier’s death in prison in April.

Ongoing litigation by Irving Picard, a court-appointed trustee for the liquidation of Bernard L. Madoff Investment Securities, and his chief counsel, David Sheehan, could potentially pull in billions of dollars more.

“You don’t like to see anyone die. But in this case, it wasn’t going to have any impact on what we’re doing,” Picard told the Associated Press. “Our work goes on.”

The process of trying to unwind Madoff ’s fraud began not long after the money manager’s arrest in December 2008.

His downfall came as a result of a national financial crisis in which banks that had made reckless bets on mortgage-backed securities collapsed and investors pulled money out of the stock market.

Spooked investors started making withdrawals from Madoff ’s investment fund, too, but he ran out of money to give them. While his books said his fund was worth $60 billion, most of that money didn’t exist. He’d never actually invested the cash clients gave him.

When clients cashed out fictitious profits, Madoff simply stole from other clients to cover withdrawals.

Picard was given the task of separating the “net losers” — Madoff clients who didn’t cash out of their accounts — from those who did.

Over time, net losers with approved claims have quietly seen an average of 70 percent of their investments returned. Net winners were subjected to so-called “clawbacks.” Not only did they lose money they thought they had in their accounts, they had to pay back profits they had withdrawn over the years.

“Those people felt as though, and rightfully so, that they had been damaged twice — first by Madoff and then by this trustee saying ‘give me your profit,’ ” Sheehan said.

The process was difficult for everyone. Some Madoff investors had retired early. Some had bought nice homes in expensive locales. Some had made large charitable donations, confident their nest egg was secure.

Gordon Bennett, thinking his account with Madoff was worth $3 million, did heavy renovations on a home in Marin County north of San Francisco.

When he learned Madoff was arrested, he told his wife, “Kate, we just lost the house.”

The financial shock worsened months later when he learned that 25 years of annual withdrawals of up to 10 percent meant he’d taken out more than he’d put in.

Picard’s collectors wanted his profits. Suddenly, Bennett was in danger of being added to the bucket of wealthy individuals and institutions the trustee was suing, claiming they knew or should have known their returns were fraudulent.

“That was quite scary,” he said. “We eventually worked out an arrangement with the trustee and we sent him all our documents and said: ‘Look, you know, we don’t have any money.’ So he eventually said: ‘OK, I’ll go after bigger fish.’ ”

And Picard did, with some help from federal prosecutors. The biggest single chunk came in late 2010 when the widow of a Florida philanthropist agreed to return a staggering $7.2 billion that her husband, businessman Jeffry Picower, had pocketed. Months later, another $1 billion was secured from one of the many feeder funds that the trustee accused of ignoring red flags about Madoff.

These days, Bennett, 74, finds solace in the same home after a friend bought it and rented it back to him.

“So we don’t have $3 million dollars now, but you know what, we don’t need $3 million dollars,” he said.