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What Was Jeffry Picower's Role in Bernie Madoff's Ponzi Scheme?

The biggest winner in Bernie Madoff's Ponzi scheme may not have been Madoff at all, but rather the late Jeffry Picower.

| Tue Jun. 23, 2009 6:58 PM EDT

Who is Jeffry Picower?

The Picowers' generosity to deserving charities, particularly in New York, Florida, and Massachusetts, has earned them admiration and respect. However, the image belies a more complex reality.

The Picowers gave to a host of worthy causes from the Children's Aid Society to the New York City Ballet, but Jeffry Picower's passion centered on health issues, particularly funding for medical research. On December 1, 2005, the couple made a rare public appearance at a ceremony at the Massachusetts Institute of Technology to dedicate a new center to study the brain, the Picower Institute for Learning and Memory. The Picowers' gift of $50 million, spread over five years, was the single largest in the school's history. In a video of the ceremony, Nobel Prize winning Japanese scientist Susumu Tonegawa told the crowd that without the Picowers there would be no institute. The Picowers stood by silently as Tonegawa unveiled a portrait of the couple to conclude the ceremony.

The Picowers' portrait, as it hangs in the Picower Institute for Learning and Memory at the
Massachusetts Institute of Technology. The Picower Foundation gave $50 million to MIT, the school's single largest gift from a private foundation. (Photo by Ryan Mark) The gift to MIT was the largest single donation to an outside entity the Picower Foundation had ever made, according to tax forms the foundation filed. Prior to late 1995, when Madoff trustee Picard's records start tracking Picower's Madoff activity, the Picower Foundation was relatively small in size and scope. At year's end in 1994, it had assets of just under $75 million and had donated $375,754. By 2007, it was reporting about $958 million in assets and about $23.4 million in donations for the year.

Picower's attention to cutting-edge medicine was the sole focus of a second foundation, The Picower Institute for Medical Research, created to find cures for human diseases. He launched the Institute in 1991 with a $10 million donation from the Picower Foundation. Madoff served as a trustee of the Institute.

In 2001, the St. Petersburg Times revealed that Picower used both his foundations and a private corporation called PharmaSciences, of which he was the majority shareholder, to gain control of a potentially lucrative medical discovery.  In 1999, Picower merged PharmaSciences with a for-profit spinoff of his institute called Cytokine Networks, essentially negotiating with himself. The merged company called Cytokine PharmaSciences had the rights to develop a new drug that could help minimize such illnesses as arthritis and multiple sclerosis. The newspaper raised the question of whether Picower had shortchanged his nonprofit in the deal.

An IRS audit concluded that the Picower Foundation had not jeopardized its tax status or incurred extra liability during the period in question. The Foundation's lawyer William Zabel provided ProPublica with a letter from the IRS dated September 2006 that he said "cleared the Foundation." Addressed to Barbara Picower, the letter is from the IRS' Office of Exempt Organizations and formally accepts the Foundation's tax returns.  Zabel also said that shares Picower received from the merger were given to other charitable organizations.   

The publicity-shy Picower is no stranger to lawsuits or regulators, a trip through several decades of legal and regulatory filings reveals. In 1984, the SEC cited him for a late disclosure over how much he owned in a company called Bradford National Corporation. The SEC filing alleged that Picower was part of a scheme to take over the company.

A year later Picower had to pay out a $21-million settlement when shareholders sued over the collapse of Physicians Computer Network. Picower controlled 45 percent of the stock and chaired the company before it went belly up. In 1989, Picower paid an undisclosed settlement over a questionable tax shelter he helped set up years earlier for a client. In 1990, it was Picower's turn to recover money – from a settlement involving infamous insider trader Ivan Boesky. Picower had been one of his investors.

Perhaps the most revealing case against Picower was a lawsuit filed for failure to pay for renovations on his New York office. Picower alleged that general contractor McHugh, DiVincent Alessi had done such a bad job on his office that the toilets didn't even flush properly, according to Jeremy Morley, the firm's lawyer at the time. Rather than take Picower at his word, the judge decided the jury members should see for themselves. Arriving by city bus from the courtroom, the judge, with jury in tow, made a surprise visit to Picower's office.

"The jury wandered around, looking at the office, testing the toilet," Morley said. "They quickly realized that the case was full of crap in more ways than one."

The judge awarded Morley's client what Picower owed them and some of their attorney fees, according to the lawyer.

Picower's legal and regulatory history was outlined in an article by Forbes Magazine. The 2002 article, which didn't mention Picower's activities with Madoff, said Picower was "worth at least $300 million." That same year, the trustee reports, Picower's quarterly withdrawals from Madoff totaled $895 million.  

ProPublica Research Director Lisa Schwartz and Kitty Bennett contributed to this report.

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