But nearly three years into the probe, Madoff’s brother, son and niece have avoided criminal charges, raising the possibility that they could get off entirely.
People with knowledge of the case say federal investigators turned over potential criminal evidence against Peter, Andrew and Shana Madoff to prosecutors in the spring with expectations that a decision on whether to prosecute them would be made by the end of summer.
The US attorney’s office in Manhattan hasn’t taken any action, suggesting any potential criminal evidence gleaned from a massive paper trail and the testimony of cooperators isn’t strong enough to conclusively prove that the three knew that Madoff spent decades orchestrating the largest Ponzi scheme in history, said the people, who spoke on condition of anonymity because a final decision hasn’t been announced. All three family members have denied any wrongdoing.
Prosecutors already had decided not to charge Madoff’s wife, Ruth. His son Mark, another former executive who was under scrutiny, committed suicide last year.
The FBI’s New York City office on Friday called the probe “an open and active investigation,” but it declined to comment further. The federal prosecutor’s office declined to comment.
In a statement, defense attorney Martin Flumenbaum repeated that Andrew Madoff “had no prior knowledge of Bernard Madoff’s crimes” and “continues to cooperate fully with the authorities in their ongoing investigations.”
There was no response to phone and e-mail messages left for the attorneys for Peter Madoff and Shana Madoff.
Bernard Madoff, 73, has always insisted that his family was in the dark about a multibillion-dollar fraud that wiped out the life savings of thousands of investors — an assertion that’s been met with skepticism from investigators and the victims alike. The former Nasdaq chairman is serving a 150-year prison term after pleading guilty to securities fraud in 2009.
A decision not to pursue Madoff’s family would essentially mark the end of an investigation that began in dramatic fashion in December 2008 when he confessed to his sons that his business was “one big lie.” After the meeting, a lawyer for the family contacted regulators, who alerted federal prosecutors and the FBI.
The probe so far has resulted in eight arrests beside Madoff. Three former employees and associates have pleaded guilty and are cooperating. Five others, including Madoff’s former operating chief, have pleaded not guilty and appear headed to trial. No arrests have occurred in the case since two back-office employees were charged last November.
Even if they escape criminal prosecution, Andrew Madoff, Peter Madoff and Shana Madoff — and also the estate of Mark Madoff — must still contend with a lawsuit brought by a court-appointed trustee who is aggressively trying to recover funds and distribute them to jilted investors.
Trustee Irving Picard has sued the Madoff relatives for nearly $200 million, claiming they used Bernard L. Madoff Investment Securities LLC as “the family piggy bank” to pay for vacation homes, cars, boats and even a stake in a beauty parlor.
The pending lawsuit alleges over the years, Peter Madoff — who worked with his brother since 1965 — his daughter and nephews “withdrew millions more than they invested” in private investment accounts they had with the firm.
Peter Madoff “ignored obvious red flags that the profits reflected in account statements could not have been earned legitimately, to the detriment of BLMIS and its other customers,” the lawsuit says.
It says about $13 million was “fraudulently diverted” to Andrew Madoff, which he used to buy a $4.4 million Manhattan apartment, for a $30,000 investment in the hair salon and to put $12,000 down on a boat.
In all, Picard has filed more than 1,000 civil lawsuits to recover money from investors who were paid fictitious profits by Madoff above the amount they invested. Picard and the government have combined so far to recover about $10 billion, mostly through deals with those who profited from Madoff’s investment business.
Picard has said he would like to recover $17.3 billion of the $19.5 billion that was put in Madoff’s accounts by investors.
An initial distribution of $272 million that was to be paid to 1,224 investor accounts on Friday was delayed indefinitely while lawyers decide how a recent court ruling might affect payouts. A lawyer for Picard said first payments that were to average about $222,000 will definitely go out by the end of the year.
