Feds investigate some Madoff victims

Federal investigators of the Madoff ponzi scheme expanded their criminal investigations to include some high profile investors who may have known about Bernie Madoff's massive fraud. Two philanthropists who invested heavily with Madoff, Jeffry Picower and Stanley Chais, are among the investors now being scrutinized by the U.S. attorney's office in Manhattan, according to a report in The Wall Street Journal this morning. Also on the investigative list is Carl Shapiro one of Madoff's oldest friends.

Prosecutors have not charged anyone with criminal activity. A lawyer for Picower said he wasn't complicit in the fraud and that he lost billions. A lawyer for Chais told the Journal that Chais "has cooperated fully" with investigators. A representative for Shapiro says he had no knowledge of the fraud.

Irving Picard, the bankruptcy trustee handling the Madoff case, already accused Picower and Chais of seeking fictitious gains in civil lawsuits. Picard says Picower and Chais sought and received better returns than thousands of other Madoff investors, according to the Journal report. Picard says in some cases their returns reach 300 percent or 950 percent in a year. According to the lawsuit filed by Picard, the two men made withdrawals from Madoff's firm of more than $6 billion in supposed profits above and beyond the principal deposited for themselves, family members and foundations. Lawyers for Picard and Chais denied the claims.

In the lawsuit Picard alleges that the defendants knew or should have known they were "reaping the benefits" of "manipulated purported returns, false documents and fictitious reports."

Chais was a money manager in Beverly Hills, CA, who invested substantial client funds with Madoff. Picower, who lives in Palm Beach, FL. and Manhattan, is a lawyer, accountant and investor who led buyouts of health care and technology companies. Picower and his wife, Barbara, had two dozen accounts with Madoff and received annual returns of 100 percent in 14 instances, reaching as high as 950 percent, according to the lawsuit filed by Picard.

Investigators believe that correspondence between Picower and one of his employees with the Madoff firm suggests complicity, according to Picard. For example, in May 2007 foundation employee April Freilich requested gains on Picower's behalf. Madoff then recorded trades in the account to get those gains.

In response to Picard's allegations, William Zabel, an attorney for Picower, his wife and his foundation, said they were "totally shocked" by Madoff's fraud and "were in no way complicit in it." The Picower foundations are now closed and they lost billions of dollars.

Prosecutors are now looking into whether evidence cited in the civil lawsuits rise to the level of criminal activity. They are reviewing records to see if longtime investors had special access to Madoff or got specific returns in a manner that suggests they knew the returns were a fraud.

In addition to Picower, Chais, and Shapiro, others whose records are being scrutinized by federal investigators include Frank Avellino, a Florida accountant who ran an investment fund that channeled money to Madoff; Noel Levine, a real estate investor who works out of a office next to Madoff; and Palm Beach investor Robert Jaffe, a son-in-law of Shapiro who referred potential investors to Madoff. None of these people have been charged with a crime.

Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies.
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