Client's $5.1 billion take said to be six times bigger than Madoff's

When the Madoff Ponzi scheme first came to light last December, I guessed that it had taken a village to pull it off. A lawyer suing Madoff on behalf of a trust has uncovered some of those village idiots.

As I posted, Madoff had eight clients who would tell him how much money they wanted each year and Madoff would manufacture the fake documents needed to give them that money and to spare them from paying taxes on it.

Now it looks like one of those clients, Jeffry Picower, got $5.1 billion -- six times Madoff's confessed net worth of $823 million. Before getting into the details of how Picower pulled it off, if these allegations are true then it's likely that the Madoff Eight who ordered up their annual checks were getting the money from Madoff via all the other clients who were not in on the scheme. And those Madoff Eight could end up forking over that cash to the less fortunate Madoff clients.

Here's how Picower reportedly got his billions. At the beginning of each quarter, he received checks that grew from an annual total of $330 million in 1996 to $1 billion in 2003. These withdrawals were divided into odd numbers spread over various accounts. Added together, they usually equaled large even sums. For example, on January 2, 2003, Picower allegedly withdrew $1,378,852 from his Jln Partnership account. Yet when withdrawals across all accounts were totaled for that day, they equaled exactly $250 million.

Still a mystery to me is why Madoff was willing to make these payments to these Eight. Perhaps they played a crucial role in helping to bring in new clients that fueled the Ponzi scheme. Or maybe they were the only ones who knew the truth about Madoff and the price of keeping his secret was massive annual checks.

Regardless, the revelations about Picower raise important questions for MIT, which got $50 million to fund its Picower Institute for Learning and Memory -- the single largest contribution in MIT's history. In a video of the ceremony, Nobel Prize-winning Japanese scientist Susumu Tonegawa told the crowd that without the Picowers there would be no institute.

Tonegawa is a controversial figure who has been linked to allegations of discrimination against women scientists. And the revelations about Picower's apparent source of cash are further tainting this MIT Institute.

This seems to be just another example of the saying that behind every great fortune is a great crime.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book isYou Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing.

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