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Madoff Trustee Targets Accountants Avellino and Bienes Next

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Frank Avellino and Michael Bienes, who steered investors to Bernard Madoff and helped him evade the SEC in 1992, are going to be sued by Irving Picard, almost certainly for hundreds of millions of dollars.

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Two accountants who helped Bernie Madoff prevent detection of his fraud in 1992 by the Securities & Exchange Commission are about to take a turn under the investigative spotlight of Madoff bankruptcy trustee Irving Picard.

Frank Avellino and Michael Bienes, who grew rich steering investors to Madoff while promising steady returns of 10% or more, are going to be sued by Picard's legal team from Baker & Hostetler, almost certainly for hundreds of millions of dollars.

The next big question is whether the civil suit turns up so much dirt about Avellino and Bienes that Justice Department prosecutors will be forced to charge them criminally as Madoff conspiracy accomplices or simply as tax cheats.

Picard is chasing money that Bienes infamously labeled "easy peasy" in a television interview with Martin Smith on PBS's Frontline not long after Madoff was arrested. Much of the loot was earned by the firm of Avellino & Bienes before the SEC shut it down in 1993, although investigators suspect both men had ongoing dealings with Madoff that were concealed from regulators. During their SEC interviews in 1992, Avellino and Bienes each parroted Madoff's phony rap about stock trading strategy.

Searching far and wide with subpoenas and discovery interviews, the Picard team may well unveil facts that could prove Bernie's investment business was crooked from the very beginning, even as he legitimately made hundreds of millions of dollars handling stock trades for other brokerages.

Avellino, who now has multi-million dollar homes in Palm Beach, Nantucket, and London, joined forces with Madoff in 1962 as a young accountant at a firm run by Saul Alpern, the father of Ruth Madoff, Bernie's wife. The firm was Alpern & Heller until Heller departed, when the name changed to Alpern & Avellino. Another junior accountant, Michael Bienes, then had his name put on the door and the firm morphed again into Avellino & Bienes as Saul Alpern had decamped full time to Florida.

Avellino & Bienes operated from an office in midtown Manhattan where it offered investors promises of steady annual returns of 10% or more.

Certain circles of potential investors cultivated by the Madoffs, the Alperns, and others were steered to Avellino & Bienes as the inside track to investing with Bernie. (Madoff was busy on Wall Street making a name for himself as a proponent of computerized trading and Nasdaq, and cultivating the mystique that investing with him was a privilege, not a ticket to Ponzi hell.)

The neat trick of throwing the SEC off the scent the first time it failed to catch Bernie was engineered then with the help of Ira Lee Sorkin, a former SEC enforcement official who represented Avellino & Bienes and outwitted the investigators. Sorkin now is well known as the attorney for Bernard Madoff in the 2008 criminal case.

Sorkin helped cut a deal with the SEC for Avellino & Bienes to admit to being "unregistered investment advisors," pay hundreds of thousands in fines, quickly go out of business, and fully refund more than 1,000 investors $441 million. That neat trick enabled Sorkin to convince the SEC that no further discovery was necessary because no investor complained about losing money. The SEC apparently thought it was perfectly proper to allow the monies to be rolled back over into investment accounts with Madoff.

What everyone now realizes, of course, is that Madoff intervened with a "Rob Peter to Pay Paul" moment. He took or "borrowed" money from other investors and his securities broker-dealer firm to cover cash outflows from Avellino & Bienes long enough for the SEC to go away.

As the SEC's Inspector General Report put it in August 2009: "While the SEC ensured that all of Madoff's associate's customers received their money back, they took no steps to investigate Madoff. The SEC focused its investigation too narrowly and seemed not to have considered the possibility that Madoff could have taken the money that was used to pay back his associate's customers from other clients for which Madoff may have had held discretionary brokerage accounts." The report added that the SEC discovered "Madoff had complete control over all of Avellino & Bienes funds."

After this close brush with the law, Avellino and Bienes soon seemingly faded from business with Madoff and became big shot philanthropists in south Florida.

But did they? Avellino last February settled a lawsuit in federal court in Boston filed by his Bulgarian housekeeper from Nantucket who had entrusted him in 2006 to invest the life savings of $200,000 she and her then-husband had.

Without ever mentioning Madoff, Avellino told her the money was invested in Kenn Jordan Associates -- the very same firm Avellino allegedly managed and reported he used to handle his own foundation's money.

When the Bulgarian couple divorced in early 2008, Avellino split the account in two and cashed out her ex-husband. It was only in July 2008 when the housekeeper, Nevena Ivanova, began inquiring about withdrawing her share of the money that Avellino began stalling, telling her it was a bad time to withdraw. According to court documents, Avellino claimed she could not get her money until the end of the year. When Madoff was arrested on December 11, Avellino's wife, Nancy, informed the housekeeper that all the money had been lost in the Ponzi scheme because all the "Kenn Jordan" accounts actually were with Madoff.

Luckily for the housekeeper, her lawyer, Michael J. Wilson, got a state court attachment on the Avellino's $10 million estate on Nantucket's Cliff Road, beginning a process that left the housekeeper with a good settlement from Avellino, the man her lawyer calls "slippery."

Bienes lawyer Mark Raymond had no comment. Avellino's Florida lawyer, Gary Woodfield, told me by e-mail: "We do not have any statement at this time... Please do not attempt to contact my client."

The housekeeper was luckier than many Jewish charities that now face so-called "clawback" suits from Picard's team after being so-called "net winners." A raft of charities that had withdrawn more money from Madoff accounts over the years than was actually deposited have been sued in the last week by Picard.

Missing from those names were two major non-profits -- Hadassah and the American Jewish Congress. In documents filed Thursday, they agreed in court filings to waive the December 11, 2010 deadline for the bankruptcy trustee to file suit in order to allow deals to be reached by the charities' boards.

"We are in the final stages of hopefully reaching an agreement," Bruce Buechler, the Lowenstein Sandler attorney representing the American Jewish Congress and related boards, told Minyanville. "The reality is we have a deal in place with Picard's people," he continued. "Simply put, we just need a little more time to get our boards' approval."

Nancy Falchuk, the national president of Hadassah, the Women's Zionist Organization of America, said in a statement that the non-profit will pay back $45 million. Her letter states:

"Hadassah was introduced to Bernard Madoff Securities in 1988 by a French donor, through a $7 million gift. In addition to the gift, between 1988 and 1996, we deposited $33 million in our accounts, and by April 2007 had withdrawn $137 million. The last account statement showed approximately $90 million at the time the fraud was discovered."


Picard is essentially giving the non-profit a $0.46 on the dollar deal. As Falchuk put it: "As a direct result of the good faith cooperation of Irving Picard, the Madoff trustee, and his counsel, we arrived at an agreement, allowing us to continue our commitment to Israel."

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