Bankruptcy trustee sues Ruth Madoff

By Carol Eisenberg

July 30, 2009 at 10:56am

Ruth Madoff may never be prosecuted in connection with her husband’s decades-long Ponzi scheme, but her days living “a life of splendor” could be over.

On Wednesday, the trustee charged with liquidating Bernard Madoff’s company on behalf of bilked investors filed a $44.8 million suit against her in U.S. Bankruptcy Court in Manhattan.

The trustee, Irving Picard, did not accuse her of taking part in the fraud. But in a press release he said that “while Madoff’s crimes have left many investors impoverished and some charities decimated, Mrs. Madoff remains a person of substantial means.”

Three days before Bernard Madoff confessed to defrauding thousands of customers, Ruth Madoff transferred $11 million from the bank account of Bernard L. Madoff Investment Securities to a real estate partnership in which she owned a stake, according to the complaint.

“Ruth Madoff was never an employee” of the firm, “yet millions of dollars” belonging to the firm and its customers “found their way into her personal accounts and investments without any legitimate business purpose or any value” to the firm solely because of her marital relationship, the complaint states.

Ruth Madoff’s attorney, Peter Chavkin, told The New York Times that he was “perplexed” by the suit,” saying she had not been implicated in the fraud.

“Ruth already forfeited to the United States attorney’s office almost all of the assets named in this complaint,” Chavkin said in a statement. “We believe the trustee’s action is wrong as a matter of law and fairness,” he said.

After her husband was sentenced to 150 years in prison June 29, Ruth Madoff released her first statement, expressing sorrow for the victims and her own sense of shock and betrayal. “I am embarrassed and ashamed. Like everyone else, I feel betrayed and confused,” she said.

The couple forfeited more than $80 million to prosecutors, including their penthouse on New York’s Upper East Side and homes in Palm Beach, Montauk and the south of France. But in an agreement with prosecutors, Ruth Madoff got to keep $2.5 million.

Under federal bankruptcy law, however, Picard can seek to recover assets withdrawn from the company up to six years before it filed for bankruptcy. At the end of June, he had already recovered a little more than $1 billion in assets.

In the complaint, Picard identifies several payments from the company’s London office to Ruth Madoff, including a $2.08 million transfer to her account at Wachovia Bank about two weeks before her husband was arrested. He also found payments made to investment partnerships partly owned by her, including the private equity firm Sterling Equities and the Delta Fund, according to the complaint.

In addition, the complaint said that she received more than $3 million from the business over the last six years to pay personal expenses.

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