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Madoff Bankruptcy Trustee's "Hit List" Keeps Growing

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MassMutual and UBS (again) are the latest to plunge into Irving Picard's pickle barrel. His team will file more than 1,000 suits by midnight Saturday, the deadline two years after Bernard Madoff was charged with engineering the biggest Ponzi scheme ever.

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With more than 200 lawyers on Irving Picard's Madoff Trustee team racing to meet a midnight December 11 deadline, the hail of lawsuits will continue all week, punctuated by news of settlements worth hundreds of millions of dollars.

Picard closed out Pearl Harbor Day (Tuesday) by hitting UBS (UBS) and MassMutual Holdings (MCI) with new lawsuits alleging they ignored all warning signs about Madoff's operations, while extracting hundreds of millions of dollars in profits from innocent investors.

The new $555 million 26-count complaint against UBS and a group of its hedge fund customers was on top of the 23-count $2 billion complaint Picard filed November 24 against the bank and other hedge funds.

The second major complaint filed Tuesday evening by Picard's team -- with the details under seal -- named MassMutual Holdings, Massachusetts Mutual Life Insurance Company, Oppenheimer Acquisition Corp., and Tremont Group Holdings as defendants. Tremont, a hedge fund group purchased by Oppenheimer in 2001 after being founded by co-defendant Sandra Manzke, lost more than $3 billion with Madoff. If Picard's other lawsuits are a guideline, the amount being sought from MassMutual could be in the billions of dollars.
In the $9 billion suit Sunday against HSBC Bank (HBC) and a labyrinth of feeder funds it serviced, the trustee said this batch of defendants account for 33% of the money invested with Madoff. The amended complaint says HSBC ignored numerous "red flags" about the fraud from its own staff and from the outside auditors from KPMG. The KPMG team twice warned HSBC about Madoff, his lack of transparency, and the numerous discrepancies about the stocks he claimed to be trading.

Oren Warshavsky, the Picard team member handling the HSBC complaint, tells Minyanville, "KPMG certainly identified a variety of risks [for HSBC] and, had anyone reacted with the appropriate amount of skepticism about Madoff or, frankly, with meaningful due diligence, then there would have been a very different outcome for some of these victims."

Picard's Baker & Hostetler team also announced two settlements totaling more than $1 billion this week. No doubt, Picard expects those numbers -- about 50% of what might have been sought -- to guide expectations for other settlements with banks and others threatened, including the Wilpon family, owners of Sterling Equities and the New York Mets baseball team.

(In a court filing last summer, Picard asserted the Wilpons had taken out nearly $48 million more from Madoff than they had invested.)

This week's filing, as the Major League Baseball meetings got underway in Florida with the Mets largely sitting on the sidelines, was sealed, since the Wilpons are "engaged in good faith negotiations," according to a press release statement from Picard's right-hand man, David J. Sheehan.

On Monday, a private Swiss bank, Union Bancaire Privée, and a Cayman Island affiliate it used only to funnel money to Madoff, coughed up nearly $500 million.

Tuesday, Picard followed with Carl Shapiro, a 97-year-old who is a onetime billionaire garment manufacturer and longtime Madoff buddy. Shapiro settled for $550 million to get his 19-member family out of the trustee's hands. That included $38 million to cover the sins of his son-in-law, Robert Jaffe, a dapper associate of Madoff's in Cohmad Securities, who diligently worked the golf clubs and charity events around Boston and Palm Beach, Florida, soliciting investors. The Shapiros also will pay as much as $75 million more to the Justice Department.

The US Attorney in Manhattan, Preet Bharara, said, "For almost 40 years, Carl Shapiro invested hundreds of millions of dollars with Bernie Madoff but withdrew far more. By requiring him to forfeit this money -- more than he is currently worth -- the government and the SIPA Trustee have sent an important message: Those who profited as a result of Bernard Madoff's fraud should disgorge those profits, which are rightfully other people's money."

While announcing the Shapiro settlement, Bharara appointed Picard as a special Justice Department Master who will administer the return of money to investors in concert with his role as bankruptcy trustee for SIPC (Securities Investors Protection Corporation.)

That Justice Department agreement with Picard sets the stage in the coming days for what is expected to be the trustee's and the government's single biggest recoupment: a settlement of more than $7 billion from the estate of Jeffry Picower, a longtime Madoff intimate who died at home in his Palm Beach swimming pool last year.
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