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The Death of a Witness and the Silencing of the Scam

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On Sunday, October 25th 2009, Jeffry Picower drowned in the swimming pool of his Palm Beach mansion, the victim of an apparent heart attack. His untimely death left in limbo, if not totally silenced, crucial questions about the role he played in what may be the greatest disappearance act in the annals of financial history.

Picower was the main (though not the only) conduit through which most of the stolen money in the Madoff Ponzi scheme was systematically siphoned out of the accounts of other investors. As Irving Picard, the court-appointed Trustee, notes in complaint, Picower got "either directly or through the entities he controlled, more than $7.2 billion of other investors' money." He did not get this money by his good luck, fortunate timing, or random chance. He made regular quarterly withdrawals of the putative profits credited to his accounts. Nor did his profits proceed from his acumen at picking stocks since, as we know by now, all the profits Madoff reported were the result of his invention, not his trading.

Picower, a long time associate of Madoff's, had special access to Madoff's operation. According to the Trustee's complaint, he must have been aware that what was going on was highly-irregular since his accounts reported "profitable trading before they were opened or funded; execution of trading instructions that hadn't yet been given; inexplicable changes in account positions; and -- at Picower's direction -- the accomplishment of investment results over time periods that already had expired." In other words, his trades were invented afterwards and back-dated. Unlike other investors, he was advised in advance of Madoff's monthly profit "targets," or the amounts with which Madoff planned to pad Picower's accounts, and, through this knowledge, he or his assistant could request higher or lower "profits" for various accounts.

Moreover, to amplify Picower's fictional profits, Madoff extended him so much fictional credit that his accounts had, as the Trustee reports, a "negative net cash balance of approximately $6 billion at the time of Madoff's arrest." Picower even collaborated in his spectacular, if fictitious, trading success by, as the Trustee notes in the complaint, as he had " specifically directed such fictitious activity." For example, at one point, he faxed Madoff back-dated letters to support fabricated trades. In some of the faked trades, Picower's reported "profit"s ran as high as 550%. As a result, the Picower was able to withdraw over $2.4 billion just between 2002 and 2008.

Why were such staggering notional profits systematically credited to the Picower accounts? Unless Madoff was channeling a large part of the money he stole to Picower for reasons of friendship or charity, the multi-billion dollar skim must have been part of the scheme itself. If so, was Picower following Madoff's instructions in re-depositing the $7.2 billion he withdrew? And, if this was part of the exit strategy -- and all Ponzi schemes need an exit strategy -- where is that money today? Unfortunately, the answer to these crucial question may have died in the drowning pool along with Picower.