Marc O. Litt, who was one of the lead prosecutors in the Bernard Madoff case, is leaving the Manhattan U.S. Attorney’s office.
Litt, an Assistant U.S. Attorney who worked in the office for eight years, will join Baker & McKenzie LLP, the Wall Street Journal reported. He had stopped working on the Madoff probe in May to avoid conflicts during his job search, the Journal reported.
Litt and fellow Madoff prosecutor Lisa Baroni were often out-gunned in the sprawling probe of Madoff’s massive Ponzi scheme. They labored to sift through what the Associated Press called a “massive blob of amorphous evidence,” and went up against lawyers from seemingly every high-priced law firm in New York. Their offices were shabby, and they didn’t have an army of assistants.
While Madoff is behind bars and several employees of Bernard L. Madoff Investment Securities LLC are under indictment or have pleaded guilty, prosecutors haven’t succeeded yet in bringing criminal charges against any of the allegedly most culpable big fish.
Instead, attention has been on the court-appointed bankruptcy trustee Irving Picard of Baker & Hostetler LLP, who has filed a blizzard of civil lawsuits to recover funds for the victims.
He’s made allegations against the banks (UBS, HSBC, J.P. Morgan Chase and other institutions) that he says helped funnel investors into the scheme or turned a blind eye.
He’s all but accused other wealthy individuals of being partners in the Madoff crime. (“In Sonja Kohn, Madoff found a criminal soul mate, whose greed and dishonest inventiveness equaled his own,” says a complaint against the Austrian banker whom Picard said received at least $62 million, and probably “far more,” from the Ponzi scheme.)
And Picard has been trying for more than a year to settle with the estate of Madoff pal Jeffry Picower, who died last year while swimming in his Palm Beach pool after allegedly taking $7 billion from the scheme. (Picower’s long-time personal lawyer is William Zabel, father of SDNY Criminal Chief Richard Zabel, who recused himself from the case).
Criminal cases, with their higher standards of proof, are harder to bring than civil allegations. But none of the alleged major beneficiaries of the scheme as outlined in Picard’s civil lawsuits have been charged.
Assistant U.S. Attorney Julian Moore is now assisting Baroni as lead prosecutor on the case.
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Investor and philanthropist Jeffry Picower, who was reportedly under criminal investigation in connection with the Bernard Madoff Ponzi scheme before his death in October, drowned accidentally, a final autopsy report has concluded, according to The Palm Beach Daily News.
Picower was found dead at the bottom of his pool at his mansion in Palm Beach, Fla., on Oct. 25. The Palm Beach County Medical Examiner’s office initially ruled that Picower had drowned after suffering a massive heart attack.
Newly released results of toxicology reports confirmed the initial finding, according to The Daily News. The reports found caffeine and a sleep aid in Picower’s body at the time of his death, The Daily News said. The autopsy report said Picower had no substance abuse issues and that he had been “upbeat and exhibited no signs of depression or changes in sleeping, eating, or drinking patterns.”
The Palm Beach billionaire had a history of heart disease, the autopsy report said, according to The Daily News. A spokesperson for the medical examiner’s office told Main Justice the autopsy report is “complete” but would not discuss its details.
Picower was alleged to have taken more than $7 billion from the Madoff scheme, according to a civil lawsuit filed by Irving Picard, the court-appointed bankruptcy trustee seeking to recover assets for the Madoff victims. The lawsuit says Picower was the “biggest beneficiary of Madoff’s scheme.” The Wall Street Journal reported in May that Picower was under criminal investigation in the matter in the Southern District of New York.
In October, the SDNY’s criminal chief, Richard Zabel, recused himself from the Madoff investigation because his father, New York estate lawyer William D. Zabel, was Picower’s long-time attorney and close advisor. Read our previous report here.
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Carmen Ortiz, the new U.S. Attorney for Massachusetts, on Wednesday said she will step up efforts to prosecute financial fraud, the Associated Press reports.
The 53-year-old Ortiz was confirmed by the Senate Nov. 5 and sworn in three weeks ago. She replaced Michael J. Sullivan, who resigned April 19 to join the Ashcroft Group after eight years in the U.S. Attorney’s post.
Ortiz had worked as an assistant U.S. attorney in Boston for the last 12 years, mainly prosecuting economic crimes, including embezzlement, tax evasion, investment fraud and telemarketing schemes.
During a meeting with reporters, Ortiz said her efforts to root out financial fraud — in part by reaching out to government agencies and business — will help prevent another financial situation like the one caused by Bernie Madoff’s Ponzi scheme, according to the AP. “What happened with Bernie Madoff, we should make every single effort to prevent that from happening again,” Ortiz told reporters, adding, “Victims should know that we’re open for business.”
She said another priority will be catching long-sought fugitive James “Whitey” Bulger, who is the alleged leader of the Winter Hill Gang, a crime family in Boston, The AP reports. He has been charged in connection with 19 murders and is on the FBI’s “Ten Most Wanted” list.
Ortiz said she plans to meet with the FBI and other law enforcement agencies and hopes to come up with “creative ways” to generate publicity and aid the search for Bulger, now 80.
“If he is present in people’s minds, then perhaps it could be that one tip that … could lead to his capture,” she said.
The Worcester Telegram and Gazette reports that Ortiz also told reporters she plans to expand the U.S. Attorney’s office’s presence in Worcester, increasing the number of assistant U.S. Attorneys in the office from two to four. “There is a lot of business” in Central Massachusetts, Ortiz told reporters
The Worcester newspaper also reported that Ortiz did not back off the office’s commitment to continue prosecuting gun and gang violence cases even though they could also be prosecuted in state courts, where sentences are usually less severe. “Not all of those cases belong in federal court,” but “we do have an impact on the communities that are suffering due to gun and gang violence,” she said. “We make a real effort to select the cases that belong in federal court,” she said. However, with some people disagreeing, she said, the policy will be reviewed.
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Forbes magazine last week released its list of the top 10 CEOs who “showed enough greed, hubris and chutzpah” to give confessed Ponzi schemer Bernard Madoff “a run for his (stolen) money.”
We’ve added some information that Forbes left off its list — the top federal prosecutors who get to go after these alleged financial fraudsters, even though some of the investigations began before their time.
Winning a conviction in a high-profile financial case adds a notch to a U.S. Attorney’s belt. A prosecutor might even get to step out at a news conference or two, as Southern District of New York U.S. Attorney Preet Bharara did on Nov. 5 when announcing insider trading arrests related to the Galleon hedge fund run by billionaire Raj Rajaratnam.
To be sure, not everyone on the Forbes list is accused of an actual crime. With that caveat, we present Forbes’s “Biggest CEO Outrages of 2009″ list:
1. Lloyd Blankfein. The chairman and CEO made $73 million in 2007 and $25 million in 2008, as the economy entered a deep recession. Although his salary is not a legal offense, Forbes deemed it practically criminal.
2. John Thain. The former CEO of Merrill Lynch approved $3.62 billion in bonuses for his executives last December as the company was being taken over by Bank of America and reporting a fourth-quarter loss of $15.3 billion.
3. Raj Rajaratnam. The founder of the hedge fund Galleon Group was charged with insider trading which allegedly helped him earn more than $33 million in illicit profits. He is being prosecuted in Manhattan by Bharara’s office.
4. Byrraju Ramalinga Raju. The founder of the Indian outsourcing company Satyam Computer Services in January confessed to overstating the company’s profits and fabricating its cash balance of more than $1 billion. He hasn’t been charged.
5. Thomas Petters. The former CEO and chairman of Petters Group Worldwide was charged with orchestrating a $3.5 billion pyramid scheme fraud. He is being prosecuted by the office of Minnesota U.S. Attorney B. Todd Jones.
6. Edward M. Liddy. The former CEO of American International Group (AIG) faced criticism this year for high salaries and bonuses in addition to expensive retreats the company funded after receiving a considerable sum as part of the bank bailout of 2008.
7. Danny Pang. The founder of Private Equity Management Group was accused of running a Ponzi scheme that defrauded his investors of hundreds of millions of dollars. Pangdied of an apparent suicide in September at age 42. Had he lived, he would have been prosecuted by the U.S. Attorney’s office in Los Angeles, currently headed by acting U.S. Attorney George S. Cardona.
8. R. Allen Stanford. The Texas financier allegedly sold $7 billion worth of certificates of deposit through his Stanford International Bank and misappropriated most of the money. He is being prosecuted by the U.S. Attorney’s Office for the Southern District of Texas, currently headed by interim U.S. Attorney Tim Johnson. UPDATE: Stanford also is being prosecuted by the fraud section of DOJ’s criminal division.
9. David Rubin. The head of CDR Financial Products was indicted in October on charges of conspiracy and fraud related to rigging auctions to help determine which banks would assist governments in raising money. He will be prosecuted by Bharara’s office in Manhattan.
10. Robert Moran. The CEO of Moran Yacht & Ship pleaded guilty to tax fraud to avoid indictment. He also promised to pay back taxes and penalties and cooperate with the Internal Revenue Service. He was prosecuted by the office of R. Alexander Acosta, then-U.S. Attorney for the Southern District of Florida.
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Lev Dassin, the former acting U.S. Attorney for the Southern District of New York, is going into private practice. The career prosecutor will join Cleary Gottlieb Steen & Hamilton LLP as a partner, the law firm announced today.
Dassin was deputy to former U.S. Attorney Michael Garcia, an appointee of President George W. Bush who stepped down in December. Dassin served as acting U.S. Attorney from January until August, when new U.S. Attorney Preet Bharara was confirmed.
Dassin ran the Manhattan office during the most intense period of the financial industry crisis, overseeing fraud cases against Bernie Madoff and Marc Dreier and federal interests before the Chrysler and General Motors bankruptcy proceedings.
Dassin served as Deputy U.S. Attorney in 2008 and chief of the criminal division from September 2005 to January 2008. He was an Assistant U.S. Attorney in SDNY from 1992 to 1998, leading the prosecution of Ramzi Yousef, who was convicted in connection with the 1993 World Trade Center bombing.
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Two weeks ago Richard Zabel, the new criminal chief of the Southern District of New York U.S. Attorney’s office, recused himself from the Bernard Madoff investigation because his father represented an investor accused of being the biggest beneficiary of the $65 billion fraud.
On Sunday, William D. Zabel’s client was found dead at the bottom of his pool at his mansion in Palm Beach, Fla. Investor Jeffry Picower, who was 67, drowned after suffering a massive heart attack, the Florida medical examiner who conducted the autopsy said. Dr. Michael Bell told ABC News he is still awaiting the results of a toxicology report, which is expected to take 10 weeks.
The sudden death of this alleged key figure in the Madoff scheme underscores some potentially thorny management issues for the new U.S. Attorney in Manhattan, Preet Bharara. Bharara named Zabel his criminal chief on Oct. 6, calling the former Akin Gump criminal defense attorney a “legal All-Star.” Zabel also served eight years as an SDNY prosecutor in the 1990s.
Although Bharara’s pick for criminal chief quickly recused himself from all Madoff-related matters, line prosecutors now may have little choice but to attempt to seek information from his father, insofar as attorney-client privilege allows.
That’s because the elder Zabel wasn’t just Picower’s representative in the Madoff matter. An estate attorney and name partner in the New York firm Schulte, Roth & Zabel, William Zabel helped set up and oversee the Picower Foundation, a closely held charity accused in a civil complaint of reporting tens of millions of dollars in fabricated and backdated gains from its Madoff accounts.
The complaint, filed by Irving Picard of Baker & Hostetler, the court-appointed bankruptcy trustee seeking to recover money for the victims, said that Picower “knew, or should have known,” his gains in his Madoff-managed accounts were fraudulent. The Wall Street Journal reported in May that Picower was under criminal investigation by the SDNY in the Madoff scheme.
William Zabel is also listed in Securities and Exchange Commission records as the administrative contact for a Picower business accused in the fraud. And he served alongside Picower and Madoff on the board of the now-defunct Picower Institute for Medical Research, another charity accused in the civil lawsuit of having benefited from the Ponzi scheme.
In an interview before Picower’s death, Zabel told Main Justice he wasn’t aware of any fraud involving his client. “I had no knowledge of any of the allegations until after” the trustee’s complaint was filed, Zabel said.
Picower controlled businesses, trusts and charities that received $7.2 billion from the Madoff Ponzi scheme, according to the bankruptcy trustee’s complaint.
Through William Zabel, Picower issued statements and court filings denying the allegations.
“Rather than recognizing Mr. Picower and the other Defendants as victims of Madoff’s fraud, the Trustee instead casts them as villains in history’s largest Ponzi scheme,” a July court filing by Zabel said. Madoff had “callously betrayed” Picower’s trust, the filing said.
“Nothing could be further from the truth,” the Baker & Hostetler lawyers countered in a Sept. 30 court filing. “Many investors were damaged by the [Madoff] fraud, but Picower was not one of them. Based upon the Trustee’s investigation to date, Picower was instead the biggest beneficiary of Madoff’s scheme.”
“We will pursue the litigation with the same vigor irrespective of Mr. Picower’s passing,” David Sheehan, a Baker & Hostetler attorney working with Picard, said in a statement to the Wall Street Journal on Sunday. Jerry Reisman, an attorney representing about 26 victims, told The Associated Press that Picower’s death means, “We won’t be able to hear from his own words whether he was complicit.”
Rich Zabel did not return a phone call placed two weeks ago seeking comment. A spokeswoman for the SDNY, Rebekah Carmichael, said two weeks ago the office would have no comment. William Zabel is not accused of any wrongdoing, and the elder Zabel said in an interview before Picower’s death that he had no knowledge of any alleged fraud.
‘They’re in a mess’
On Dec. 1, 2008, shortly after Democrat Barack Obama was elected president, Republican-appointee Michael Garcia resigned as the U.S. Attorney in Manhattan. On Dec. 11, Madoff was arrested and charged in a giant Ponzi scheme that collapsed as clients panicked by the financial industry meltdown tried to pull their money out, exposing the $65 billion fraud.
The Madoff case mesmerized the public and came to symbolize, in some part, the idea that rampant greed and fraud on Wall Street had risked plunging the economy into depression.
But for the first nine months of the probe, there was no Senate-confirmed U.S. Attorney in Manhattan to oversee it. (Bharara was confirmed on Aug. 7). And in that time period — during which Madoff pleaded guilty, claiming to have acted alone — the Madoff prosecution seemed, outwardly at least, to be in some disarray.
- The government initially negotiated a bail package, allowing Madoff to remain under house arrest in his luxurious Manhattan apartment. The fact that Madoff wasn’t immediately thrown in the slammer outraged victims.
- Then, Madoff on Christmas Eve mailed $1 million worth of jewelry to his sons in what victim’s lawyers said was evidence he was trying to distribute frozen assets to his family. The revelation sparked more public outrage, and the government went to court to try to revoke Madoff’s bail, but couldn’t convince the Magistrate Judge Richard Ellis he was a flight risk.
- On Aug. 10, Madoff accountant Frank DiPascali pleaded guilty to 10 felony counts, including conspiracy and tax evasion. He’s apparently a cooperating witness now, and prosecutors pushed hard for his release on bail – but U.S. District Judge Richard J. Sullivan refused the government request.
- On Aug. 16, Lucinda Franks in The Daily Beast reported that more indictments, possibly of Madoff family members, were expected soon after Labor Day. But Labor Day passed with no indictments. “They’re in a mess over there. They really don’t know what they’re doing,” Franks quoted an “FBI source” about the SDNY prosecutors.
It’s logical that Zabel’s marching orders included getting a handle on the Madoff investigation and fixing the reported “mess.” But a week later, Zabel recused himself from all matters related to the Madoff investigation.
In Madoff’s orbit
While the SDNY won’t discuss Zabel’s recusal, public records show his father had deep ties to Picower and other charities caught up in the Madoff fraud.
In 1989, William Zabel submitted to the Internal Revenue Service the application for tax exemption for the Picower Foundation. View the document here and here. Then, he served for the next 20 years as a trustee of the Picower Foundation while it allegedly reported phantom gains from the Madoff scheme.
The Picower Foundation board was a friends and family affair. There were usually not more than six trustees reported on the foundation’s tax returns – including both Jeffry Picower and his wife, Barbara, who was president of the foundation.
Zabel is also listed in Securities and Exchange Commission records as an administrative contact for Picower’s main investment vehicle, a company called Decisions Incorporated. The SEC records also list a Picower employee named April Freilich as president of Decisions Incorporated.
And Freilich, according to the bankruptcy trustee, worked closely with Bernard L. Madoff Investment Securities to falsify and back-date trading records that reported phantom gains for Picower. (Freilich was not named as a defendant in the civil suit, possibly suggesting that she is a cooperating witness).
The civil complaint describes Freilich’s participation in one alleged fraud involving Picower Foundation accounts:
On May 18, 2007, Freilich indicated the Foundation needed “$20 mil in gains” for January and February and “want[ed] 18% for year 07 appreciation,” but that she had to check the numbers “with Jeff.” On information and belief, “Jeff” is Defendant Jeffry Picower. Five days later, on May 23, Freilich told BLMIS that the numbers she had provided earlier were wrong, and the Foundation “needs only $12.3 mil [in gains] for” January and February 2007
Accordingly, the Picower Foundation’s May 2007 statement reflected millions of dollars in securities transactions for the months of January and February 2007 that collectively resulted in a purported gain to the account of $12.6 million.
But those transactions had never appeared on the foundation’s January or February 2007 statements, the complaint says. The result was an apparent $54.6 million increase in Picower Foundation assets, to $765.9 million in May 2007 “because the May 2007 statement was (and subsequent statements were) based on an entirely different account history: one in which various trades had taken place more than 15 months earlier, resulting in entirely different positions and values,” the complaint says.
(Click here to see an example of one of the allegedly fradulent “portfolio appraisals” the Picower Foundation filed to the IRS with its tax return).
The complaint adds:
The mysterious appearance of securities transactions months after the purported trades settled … was not credible and would have raised questions by an account holder who was not complicit in the manipulation.
Zabel said in an interview he did not set up Decisions Incorporated. He said he is likely listed in SEC records as the company’s administrative contact because he was Picower’s “personal lawyer.” But he said Picower had other lawyers who handled his corporate matters.
“I am his personal lawyer for his personal matters and foundations matters,” Zabel said, speaking before Picower’s death.
But Zabel, through his work for Picower, was in Madoff’s close orbit. The trustee’s complaint said “Picower has been closely associated with Madoff on both a business and social level for the last 30 years.”
Zabel, Madoff and Picower served together on the board of the Picower Institute for Medical Research, which closed in 2002 after I published this story in the St. Petersburg Times questioning whether money from Picower’s charitable entities had been used to help him gain personal control of a pharmaceutical company. See a copy of the Picower Institute board membership here.
(Zabel said the IRS investigated and cleared the Picower Foundation in the matter.)
‘In Pursuit of Justice’
William Zabel is the trustee and legal advisor for another charity caught up in the Madoff fraud. Last Dec. 15, the JEHT Foundation – a major funder of liberal causes, especially involving reform of the juvenile justice system and human rights — announced it would close its doors. Its founders’ money had been managed by Madoff, and they had lost everything.
The JEHT Foundation was run by Jeanne Levy-Church, whose father – a New York real estate magnate named Norman Levy – had been Madoff’s close friend. Norman Levy died in 2005, and Madoff became the executor of his estate, according to Vanity Fair magazine.
Public records show that after Levy’s death, $217 million from a Levy trust was donated to The Betty and Norman F. Levy Foundation, whose money was managed by Madoff. The Levy Foundation, in turn, donated heavily to the JEHT Foundation, for which Zabel served as a trustee.
The JEHT Foundation is not accused of any fraud. But it – along with the Picower Foundation – made contributions that totaled about 10 percent of the annual budget of an advocacy group called Human Rights First, whose board director is William Zabel.
Human Rights First also published a report last year co-authored by Rich Zabel called “In Pursuit of Justice, Prosecuting Terrorism Cases in the Federal Courts.”
The report, widely cited by news organizations and other non-profit groups, helped burnish Rich Zabel’s national security credentials after a decade in private practice.
In May 2008, Rich Zabel and his co-author held a news conference at the National Press Club in Washington to discuss the report’s findings. And last November, William and Rich Zabel appeared on stage at Human Rights First’s 30th anniversary celebration in New York to discuss the report. The gala dinner was hosted by actress Sigourney Weaver and featured entertainment from country-folk star Mary Chapin Carpenter.
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Attorneys General rarely venture out of Washington to attend swearing-in ceremonies for new U.S. Attorneys, according to former Justice Department officials. But Eric Holder has done so three times — deploying the power of his office to anoint rising stars or draw subtle contrasts with the Bush administration.
So far this year, Holder has attended the ceremonial investitures for U.S. Attorneys Joyce Vance in the Northern District of Alabama, B. Todd Jones in Minnesota and Preet Bharara in the Southern District of New York. Both Vance and Jones run offices that were in turmoil during the Bush administration, and Holder — who has said he wants to restore professionalism to the Justice Department — emphasized the department’s new direction by attending the ceremonies.
At the same time, Jones is also an old friend of Holder, while Vance is a respected veteran who is considered an up-and-comer in the department.
And in Manhattan, Bharara heads the largest and most prestigious U.S. Attorney office outside Washington, which prosecutes high-profile financial fraud and national security cases. Bharara is also close to an important Democratic ally on the Hill, Senate Judiciary Committee member Sen. Charles Schumer (D-N.Y.). Bharara was Schumer’s chief counsel before he was confirmed as U.S. Attorney.
Holder’s visits show his willingness to deploy the authority of his office for public relations purposes and to build internal morale. But it remains fairly unusual for an Attorney General to attend swearing-in ceremonies, according to ex-U.S. Attorneys.
The Justice Department doesn’t keep formal count, according to a DOJ spokesperson. It’s unclear how many — if any — ceremonies President George W. Bush’s first AG John Ashcroft attended. Ashcroft told Main Justice in that he couldn’t recall. Also, many of the federal prosecutors who were sworn in under Ashcroft arrived not long after the 9/11 terrorist attacks — not a time for pomp and circumstance. Still, Bush’s first AG commended Holder for attending investitures.
“The more you attend, the better,” Ashcroft said, adding that during his four years of service, he eventually visited about half of the U.S. Attorneys offices.
Ron Woods, National Association of Former U.S. Attorneys executive director, told Main Justice that Attorneys General have attended investitures for the District of Columbia U.S. Attorney in the past. But he said their appearances at swearing-in ceremonies outside of Washington are “fairly rare.”
“Our members recall the Attorney General making office visits during their term, but not individual investitures,” said Woods, who served as U.S. Attorney for the Southern District of Texas from 1990 to 1993. “Keep in mind that there are 93 U. S. Attorneys and most of the investitures will occur within a few months of each other. That would be a significant commitment of time and travel by the Attorney General.”
Holder developed close relationships with the federal prosecutorial community while serving President Bill Clinton as District of Columbia U.S. Attorney and later as Deputy Attorney General, former prosecutors interviewed by Main Justice said. Only three of the last 10 Attorneys General worked as federal prosecutors before becoming the nation’s top cop.
One of the prosecutors Holder got to know was Jones, who was the Minnesota U.S. Attorney during the Clinton administration. Shortly after Jones returned as U.S. Attorney in August, Holder named him chair of the Attorney General’s Advisory Committee, an influential policy-making and advisory body that serves as the voice of the U.S. Attorneys in Washington.
But an Attorney General does not show up to an investiture just to say hello to an old friend, according to former DOJ officials. The nation’s top federal prosecutor also attends swearing-in ceremonies for political and public relations reasons.
An official trip to a U.S. Attorney’s office by an Attorney General for an investiture or another event will often attract the media, which will draw attention to the office. It is also an opportunity to energize prosecutors in the field. ”When the Attorney General shows up, it shows the importance of the work being done,” Ashcroft told Main Justice.
A Justice Department spokesperson told Main Justice in August that Holder’s first trip to a U.S. Attorney investiture was part of ongoing effort by the Attorney General to reach out to the 94 U.S. Attorneys’ offices.
“The Attorney General is making it a priority to visit U.S. Attorneys’ offices around the country to personally meet with prosecutors and other staff to hear firsthand about the cases they’re working on, the issues they face, and ways in which he can help them do their jobs,” spokesperson Hannah August said this summer. “The visit to the Northern District of Alabama was made to coincide with U.S. Attorney Vance’s swearing-in.”
Regardless of the Attorney’s General reasons behind a trip to a U.S. Attorney’s office, former prosecutors told Main Justice that a visit by the nation’s top federal prosecutor has a major impact on the office. ”It is very meaningful when the Attorney General visits,” said John Richter, who served as the U.S. Attorney for the Western District of Oklahoma from 2005 to 2009.
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This seems to be a pretty big misstep for new Southern District of New York U.S. Attorney Preet Bharara. His newly announced choice to head the office’s criminal division, Richard B. Zabel, has already had to recuse himself from the Bernie Madoff case. That’s because Zabel’s father is the lawyer for a potential prosecution target in Madoff’s massive financial fraud, ABC News reported.
William D. Zabel is the long-time counselor to Palm Beach billionaire Jeffry Picower, who was Madoff’s close friend. Picower is alleged to have taken more than $7 billion from the $65 billion Ponzi scheme that Madoff admitted running, according to this lawsuit filed by Irving Picard, the court-appointed bankruptcy trustee seeking to recover assets for the Madoff victims. The lawsuit says Picower was the “biggest beneficiary of Madoff’s scheme.”
See, the problem for Bharara is this: Zabel’s father isn’t just Picower’s long-time lawyer. The elder Zabel actually helped set up and oversee one of the charities now alleged to be at the center of the fraud. That would be the now-infamous Picower Foundation, which I first exposed here in this 2001 investigation for the St. Petersburg Times.
William Zabel and Madoff served together as trustees on the Picower Foundation board, according to public records. And the foundation was a major part of a network of interlocking businesses, charities and trusts that Picower is alleged to have used to make transactions in his Madoff accounts that he knew, or should have known, were fraudulent, the Picard lawsuit says.
Zabel has been an energetic defender of his long-time client. “Trustee continues to make false and outrageous claims about Mr. Picower based on a misreading of the purported ‘facts.’ When the true facts are known, the Court will see that Mr. Picower was deceived by Bernard L. Madoff,” Zabel said in a recent statement, as reported by Pro-Publica.
The Picard lawsuit, however, says Picower was not a victim. “Picower was instead the biggest beneficiary of Madoff’s scheme, having withdrawn either directly or through the entities he controlled more than $7.2 billion of other investors’ money,” the lawsuit said. Read the lawsuit here.
We were unable to reach William Zabel on Friday evening. We left a message on his voice mail and will update this story if we hear from him. But he told ABC News his son’s decision to recuse himself ”is entirely appropriate, because of the appearance of a conflict of interest.”
The U.S. Attorney’s office declined to say whether Picower is a potential prosecution target, ABC News reported. Picower has denied any wrongdoing.
The younger Zabel was most recently the litigation chief at the Akin Gump Strauss Hauer & Feld law firm, which he joined in 1999 after serving eight years as a prosecutor in the Southern District.
Click here to read my earlier story about how regulators repeatedly shrugged at the red flags waving around Picower.
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Marc Dreier — the other Bernie Madoff - who pleaded guilty to defrauding hedge funds of more than $400 million, thinks his sins warrant a prison term of as little as 10 years. Prosecutors are asking for 145-year sentence. Bloomberg has the story on the sentencing memos filed today in federal court in Manhattan.
Dreier is scheduled to be sentenced on July 13. (Click here for a copy of Dreier’s memo and here for a copy of the government’s.)
The disgraced lawyer called his crimes “inexcusable” in a letter attached to the memo, but his lawyer asked U.S. District Judge Jed Rakoff to give Dreier a break.
“In seeking some measure of leniency we appeal not to sympathy but to reason,” defense attorney Gerald Shargel wrote in his legal brief. “As colossal frauds capture national headlines, sentences for white-collar offenders must not become disproportionately long.”
If Rakoff doesn’t sentence Dreier to 145 years, he should impose a sentence that keeps Dreier socked away for the rest of his life, the government argued in its filing.
“This defendant, an officer of the court, engaged in a more than $740 million series of frauds over a seven-year period largely to finance a personal life of extraordinary lavishness,” wrote Assistant U.S. Attorney Jonathan Streeter.
Dreier used investors’ money to prop up his money-losing, 250- attorney law firm, Dreier LLP. He paid off some of the victims of the scam, but he also spoiled himself with toys, like a 121-foot yacht, vacation homes in the Hamptons, and a $39 million art collection.
Last week, Madoff was sentenced to 150 years in prison for orchestrating a decades-long Ponzi scheme that cheated investors out of billions of dollars.
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At long last, despite attempts by whistleblowers over the years to get federal regulators and prosecutors to do their job, Palm Beach billionaire Jeffry Picower is finally under criminal investigation.
Picower is a familiar name to me: Eight years ago, I published an expose of his highly questionable “charitable” activities for the St. Petersburg Times of Florida. One of the people on the board of his very irregular medical research foundation was an investor whose name didn’t ring a bell to me at the time.
But now we all know who Bernie Madoff is.
Today the Wall Street Journal reported that Picower is under criminal investigation in connection with the Madoff scheme. Last week, Irving Picard, the bankruptcy trustee unraveling Madoff’s $65 billion ponzi scheme, filed a lawsuit against Picower, his wife, his charities and various business entities seeking return of $5.1 billion in allegedly phantom gains in his Madoff accounts that the trustee says Picower should have known were fraudulent. Picower associated with Madoff “on a business and social level for the last 30 years,” Picard’s lawsuit claims.
As you can see by reading my 2001 stories here and here, there were red flags waving around Picower for years. And sadly, as usual, government watchdogs including the Securities and Exchange Commission and the Internal Revenue Service ignored them.
In 2001 I was in the Washington bureau of the St. Pete Times assigned to cover tax exempt organizations. I ran a search of top foundations in Florida and discovered one of the biggest was an obscure organization called the Picower Foundation.
Here’s the part that really should shame our government: It took me about 30 minutes looking at public records to figure out that Picower was likely engaged in massive self-dealing, in possible violation of tax-exempt organization and possibly securities laws.
The Picower Foundation owned a private pharmaceutical development company called Cytokine Pharmasciences. That unusual arrangement piqued my interest. The story I eventually published found that Picower — through a series of complex financial maneuvers and tax-deductible donations to a related charity called the Picower Institute for Medical Research, on whose board Bernie Madoff sat - wound up owning about $67 million in stock in the for-profit pharmaceutical company.
Putting two and two together, it seems possible that Madoff’s scheme funded Picower charitable donations, which in turn helped Picower win control of the pharmaceutical company. And all along, Picower was probably paying virtually no taxes, as Picard alleges Madoff helped the Palm Beach investor post faked losses to offset gains. Moreover, Picower would have been eligible for tax-deductions on the millions he donated to his charities.
Some exerpts from my 2001 investigation:
Over the next 10 years, as the assets of the Jeffry M. and Barbara Picower Foundation swelled to $658-million, making it the second largest foundation in Florida, its benefactor was spinning an unusual web of business relationships between it, the Picower Institute for Medical Research and two for-profit pharmaceutical companies.
When the spinning was over, a for-profit drug company owned largely by Picower was left holding license to many of the most important discoveries of the Picower Institute.
Humankind, it seems, would not be the only beneficiary of the spending and investments of the non-profit Jeffry M. and Barbara Picower.
Jeffry M. Picower would, too.
But behind the velvet drape of Picower’s philanthropy is a story different from the usual script. The backstage is cluttered with angry lawsuits, cowed scientists and bitter former business partners. It is the turmoil left behind when one man plays all the leading parts in and directs his own charitable production:
Picower runs the Picower Foundation.
Picower runs the Picower Institute.
The Picower Foundation funds the Picower Institute.
Researchers at the Picower Institute discover a drug that they hope will alleviate the suffering of a whole universe of people: victims of arthritis, multiple sclerosis, stroke and inflammatory bowel disease.
A deal is cut. A merger creates a for-profit pharmaceutical company that gets the license to develop this potential blockbuster drug and other promising Picower Institute discoveries.
This company’s largest shareholder? Jeffry M. Picower.
A lawyer for Picower, William Zabel (who, it should be noted, helped set up and run the “charitable” foundations now accused of benefitting from the Madoff scheme) told the Journal that Picower was “totally shocked” by the Madoff revelations and wasn’t complicit in the fraud.
Picower is extremely litigious and, as I documented in the St. Pete Times, has used lawsuits to intimidate business partners who get in his way. But the web of complex relationships I described in 2001 closely mirrors the Picard complaint.
For example, millions in donations to Picower’s charities also came from a trust set up for the benefit of his daughter, Gabrielle H. Picower, tax documents show. The trust address was in “care of” a company named Decisions Incorporated. That trust donations were then funneled into the related Picower medical charity on whose board Madoff sat.
Now let’s take a look at the defendants in Picard’s lawsuit. They include: the Gabrielle H. Picower Trust; Decisions Incorporation; Picower (individually and as trustee for the Picower Foundation); his wife Barbara Picower (individually and as trustee for Picower Foundation and the daughter’s trust); the Picower Foundation and the Picower Institute for Medical Research, on whose board Madoff sat. Hmmmm….
After I published my story, a whistleblower whose name I won’t disclose without his permission, contacted me. He sent me a meticulously detailed dossier he’d compiled on Picower and his questionable trading. He’d titled it, “The Anatomy of a Stock Play,” and had lovingly — or obsessively? — illustrated the cover with a picture of the Colorado Potato Beetle, a virulent crop pest that is resistant to pesticide.
Picower had already been slapped once by the SEC in an unrelated transaction. The whistleblower thought more investigation was merited, and told me he’d circulated his dossier to the SEC.
The SEC had never followed up.
Likewise, I sent my St. Pete Times story to the head of the IRS’s tax-exempt organizations.
Apparently, the IRS also never followed up.