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4 Madoff relatives are sued by trustee for nearly $200 million

The official liquidating the swindler's assets says Bernard Madoff's brother, two sons and a niece knew about the Ponzi scheme or should have known about it. He seeks to recover money for victims.

October 03, 2009|Walter Hamilton

NEW YORK — 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.


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