For most of their lives Jeffry and Barbara Picower, childhood sweethearts, were rarely apart--right up until the end, last Oct. 25. Barbara was reading by the swimming pool at their Palm Beach mansion while her husband was drowning beside her. She later told the medical examiner it was only when she looked up from her reading that she saw her husband lying on the bottom of the pool.
Jeffry Picower had a lot on his mind that day. At 67 he suffered from advanced heart problems and Parkinson's disease. He had a bad tremor, could not hold a cup of coffee and occasionally tripped. He was, however, mentally sharp. According to what his longtime doctor told the medical examiner, Picower had a history of depression because he had been "internalizing a lot," and now he was also accused of being the largest beneficiary of the biggest financial crime in U.S. history and reportedly under government investigation.
With the help of her housekeeper, Barbara retrieved Picower from the bottom of the pool. While on-scene police corroborated all her statements, a month later Barbara got her lawyer on the phone with a Palm Beach medical examiner because Barbara remained concerned she "misspoke" or "gave information inaccurately" immediately after Jeffry died.
Picower's death was ruled an accidental drowning in which heart disease played a contributing factor, a bizarre coda to a deeply mysterious life. Picower died one of the richest men in America--the assets of his estate, filed in New York state court, are listed as between $1 billion and "undetermined." But were they legit?
Just weeks before Picower's death Irving Picard, the court-appointed trustee in the Madoff case, filed court documents claiming Picower and entities he controlled took out a staggering $7.2 billion of other investors' money during two-plus decades from Bernard L. Madoff Investment Securities. William Zabel, Picower's longtime lawyer, says it is reasonable to assume his client died with a net worth of as much as $7 billion. But it may have been even larger. A source close to the situation says that when Picower died his personal trading accounts had more than $3 billion in unrealized gains.
A lot of people want to get their hands on that stash. What happens to Picower's treasure is the single most important factor in the success or failure of Picard's effort to recover funds for some of Bernie Madoff's victims. Picower was a longtime prominent philanthropist; a lot of causes, especially in the scientific community, stand to gain.
Picower's role in the Madoff scheme is still a vexing riddle: Was he a sucker--or swindler? Some, like Madoff biographer Erin Arvedlund, have speculated that Picower may have been the mastermind behind the scheme, since he withdrew more than any other Madoff customer or, indeed, Madoff himself (whose effective net worth was $126 million when he pleaded guilty to all counts). Others wonder if Picower, who once was a tax shelter promoter, squirreled away assets offshore on Madoff's behalf. "I can't imagine that Madoff put his whole family and life at risk to enrich Jeffry Picower and acquire $100 million," says Helen Chaitman, a lawyer representing some Madoff victims. Picard's allegations make Picower look like a Madoff coconspirator; Picower and his lawyers maintained he was a victim who knew nothing about the fraud and felt betrayed by Madoff. Prior to his death Picower pointed to the $500 million his wife, daughter and foundation lost in the Madoff collapse as proof of his innocence. Picard's "villainous portrayal of Mr. Picower is unsupported by facts," says a court document filed by Picower's lawyers.
Now Barbara Picower is offering to write a check for one of the largest settlements ever paid by an individual--for at least some $2 billion. That's the amount Zabel all but concedes Picard has the right to collect under New York State and federal bankruptcy law clawbacks, because it is what Picower took out in the six-year period prior to Picard's suit. Zabel says Barbara is willing to settle for even more to avoid years of litigation. If that deal comes, the Picower camp will try to explain that Picower simply used Madoff like a bank. But standing in the way of a settlement: federal prosecutors, who may want the Picower estate to cough up more, and Zabel's insistence that he get a permanent injunction on lawsuits from any Madoff victims.
In legal papers Picard seeks every last dime of the $7.2 billion in allegedly fictitious profits that Picower took out over the years. He bases his claim on the "stark evidence of fraud" that occurred in Picower's Madoff accounts, suggesting that Picower "knew or should have known" he was profiting from a swindle and implausible rates of return--some as high as 950% annually--which should have sent up red flags. Picard claims these exceptionally high returns were "a form of compensation by Madoff to Picower for perpetuating the Ponzi scheme by investing and maintaining millions of dollars in [it]." Prior to his death Picower insisted that his huge withdrawals over the years showed he played no role in the fraud, since his pulling so much out placed strain on the scheme. The other alleged red flags in Picower's accounts include trade backdating and Madoff's inability to meet Picower's redemption requests. Picard also claims that Madoff records show April Freilich, Picower's longtime assistant, requesting changes in trading activity to generate additional gains.
Picower is the biggest catch, by far, for Picard, a partner at Baker Hostetler, the law firm he hired to assist him. To date the practice has earned $85 million in fees doing Madoff work but has pitifully little to show for it. Picard recovered the nearly $1 billion that was sitting in the Madoff business accounts in his early days on the job, and since then he has grabbed another $500 million.
Who was Jeffry Picower? Few people, including his closest associates and friends, know much about him. Zabel, Picower's lawyer and self-described friend for 22 years, says he has few details about Picower's life. "He just lived his life very privately," Zabel explains. "His major interest was making money." Born in the Bronx, Picower grew up solidly middle class, says his sister, Emily Cohen. Their father immigrated to the U.S. from Russia and spent his working life as a milliner in midtown Manhattan. When Picower was still young the family headed to the suburbs in Long Beach, N.Y., where Picower attended the same public high school as Barbara before heading to Penn State University.
A lawyer and accountant, Picower had his first brush with scandal in 1976, when he handed $616,000 to Adela Holzer. A prominent Broadway producer who backed hits like Hair, Holzer was also a Ponzi schemer who lured New York investors into fake business deals abroad with promised returns of 50%. By March 1977 Holzer reported Picower had profits of $253,000, but he was able to get back only $67,000 before the scheme imploded. Holzer was convicted in 1979 of seven counts of grand larceny and spent the rest of her life in and out of jail.
At around the same time Picower was dealing with Holzer, he made his first Madoff investments. It's unclear how that relationship started, but until the early 1970s Picower's older sister, Emily, was married to Michael Bienes, who also grew up in Long Beach and worked in the 1960s as an accountant for Saul Alpern, Madoff's father-in-law. At the time of his sister's divorce, Picower was working as a manager at an accountancy, while Bienes and his partner, Frank Avellino, had taken over Alpern's accounting firm and helped transform it into an early Madoff feeder fund.
While Madoff's investment firm took off, Picower dabbled in health care investments and sold dubious tax shelters involving computer leases that were challenged by the IRS. As FORBES reported (Oct. 14, 2002), the Securities & Exchange Commission rebuked Picower in 1983 for being late in disclosing that he had exceeded a 5% position in a financial services firm. Picower was also one of Ivan Boesky's biggest investors, placing a reported $28 million in his main arbitrage fund before Boesky pleaded guilty to insider trading in 1986. (Picower was also an investor in a perfectly licit enterprise--Alaris Medical Systems, a maker of intravenous drug pumps--whose $2 billion sale to
In 1989 Picower became a philanthropist, starting an eponymous foundation with $2 million. Barbara ran it, carefully doling out contributions to Jewish charities, medical researchers and the New York Public Library. One of the many listed recipients: Ruth Madoff at the Queens College Foundation, which raises money for the City University of New York. The Picower Foundation's assets were parked with Madoff. According to incomplete IRS records, the foundation over the years received $64 million, most of that in 2007, when Picower wrote a $40 million check. In that same year the foundation reported assets with a fair market value of $958 million. The records suggest that much of what the Picower Foundation contributed came from other Madoff investors. According to court filings, the foundation withdrew $290 million from the Ponzi scheme between 1995 and 2008, and made $160 million in charitable grants in the six years before Madoff's arrest.
One big beneficiary: the Picower Institute for Medical Research, run by noted biologists in Manhasset, N.Y. With $10 million from the foundation in 1991, Picower sought to find cures for a variety of diseases; his mother had died at a young age from diabetes. Perhaps there were other motives: The St. Petersburg Times pointed out in 2001 that control of a potential arthritis drug discovered at the Picower Institute had wound up at a company mostly owned by Picower. One of the institute's trustees was Bernie Madoff.
Just ten days before his death Picower tried to distance himself further from his onetime close associate by changing his will and cutting out Madoff, who had been listed as an executor. Who gets what? In his will Picower provides cash disbursements and trusts. His wife, Barbara, inherits $200 million; $25 million goes to Gabrielle, his only child; his sister, Emily, receives zilch, though her disabled daughter, whom Picower supported, will get $200,000. Picower left $13.5 million to his business assistant, April Freilich, along with his good-luck bracelet and coffee table. Another big individual beneficiary is a 37-year-old gelato entrepreneur in Dallas whose family became friends with Picower. He lands $3 million.
But the bulk of the estate--everything in excess of $250 million--is slated for a new and as yet unnamed tax-exempt foundation that is supposed to allocate half of the funds for medical research and the rest for charitable purposes. Barbara, 67, is named chairwoman. Depending on how much Madoff money she can hang on to in a settlement with Picard, the new foundation could become one of the nation's largest.
One big winner is MIT, home to the Picower Institute for Learning & Memory. The Picower Foundation funded the neurological research center with $50 million of Madoff money after Nobel laureate Susumu Tonegawa met with Picower in New York in 2002. A large portrait of Picower and Barbara currently hangs at the institute, and in his will Picower requested that his new foundation in its first year give the Picower Institute $25 million. "We need to do research, secure funding and teach," says Li-Huei Tsai, the institute's director, in explaining that she has not had discussions about the $25 million, taking down the portrait or giving back previous contributions. "My day is so packed I hardly have time to think about anything else."
A consortium of labs focused on Parkinson's and headed by Nobel laureate Paul Greengard had no clue that the $5 million they got annually from the Picower Foundation had been withdrawn from Madoff's firm. The group met at least once a year in New York, spending the day with Picower and Barbara discussing their achievements and setbacks, then retiring for dinner. The funding was so generous that neuroscientists like Timothy Greenamyre at the University of Pittsburgh abandoned government grants until the Picower Foundation abruptly closed after the Madoff fraud was exposed.
Four of those labs will continue to get seeded at $1 million apiece, at least through the new foundation's first year. "We spend a lot of our lives trying to raise money," says Greengard. "I can't think of any reason why I wouldn't accept it. I am sure I would accept it."
Maybe one of those research groups will hit clinical paydirt and come up with a cure for Parkinson's or diabetes. That might be some compensation to the thousands of people ruined by Bernie Madoff.
