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Madoff trustee wants $199 million back from brother, sons and niece

October 2, 2009 |  2:56 pm

Four Madoff family members who worked at Bernard L. Madoff’s investment firm may not have known about his epic Ponzi scheme -- but they certainly should have, according to a lawsuit filed today by the government-appointed trustee liquidating the convicted swindler’s assets.

The suit seeks to force Madoff’s brother, two sons and niece to repay almost $199 million 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, the brother; Andrew and Mark, the sons; and Shana, the niece -- of direct involvement in 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. At best, the suit says, they were "derelict" for failing to catch the wrongdoing; at worst, they were complicit.

Madoffcourt "Either they failed completely to carry out their required supervisory/compliance roles, or they knew about the fraud but covered it up," according to the suit filed by trustee Irving Picard.

The four worked in supervisory or compliance positions that required them to keep close tabs on the business.

"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," according to the suit.

Of Shana Madoff, the firm’s compliance officer, the suit says: "It would seem impossible for her to carry out her compliance duties, year in and year out, without questioning or wondering whether the company’s [investment] business was a fraud . . . she ignored every red flag of the massive fraud taking place right in front of her."

Instead, according to Picard, the Madoffs treated the business "as if it were the family piggy bank." The defendants were paid tens of millions of dollars and given cushy financing to buy apartments in Manhattan, vacation homes in Nantucket, boats and club memberships. Andrew used $300,000 to buy into a hair salon.

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 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.

Lawyers for the three men did not immediately return phone calls. A spokesman for Shana Madoff, who is married to a former Securities and Exchange Commission attorney, had no comment.

-- Walter Hamilton

Photo: Bernard L. Madoff leaves federal court in March. Credit: Louis Lanzano / Associated Press

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