Bernie Madoff friend’s estate agrees to pay $277 million to end lawsuit

The estate of one of Bernard Madoff’s oldest friends agreed to pay the con man’s victims $277 million to settle claims that the Beverly Hills money manager, who died in 2010, got rich from Madoff’s fraud at the expense of thousands of investors, including his own clients.

Stanley Chais, who was well-known in the U.S. and Israel for his donations to Jewish charities, was also one of Madoff’s earliest investors. But after the Ponzi scheme collapsed in 2008, Chais denied knowing about it, insisting he’d been duped along with everyone else. That didn’t stop the lawsuits against him, which his estate has been battling for years.

Now, the estate is ready to move on. It will pay more than $262 million to Irving Picard, the New York-based trustee liquidating Madoff’s firm and another $15 million to California’s attorney general to resolve a related class-action lawsuit, Picard said Friday in a statement.

The deal “underscores the tenacity of the teams who continue to deliver additional recoveries for Madoff’s victims,” Tracy Cole, Picard’s lead lawyer on the Chaise case with Baker & Hostetler in New York, said in the statement.

A hearing to approve the settlement is scheduled for Nov. 22 in Manhattan federal bankruptcy court.

Picard has so far recovered more than $11.2 billion, or about 64 cents on the dollar, by suing the banks and offshore funds that funneled money into the scam and investors who profited from the fraud by withdrawing more money than they deposited.

Picard claimed in a 2009 lawsuit that Chais, his wife, Pamela, and entities they controlled, reaped about $1 billion in profit from fake securities transactions at Madoff’s firm. Chais also made hundreds of millions of dollars more in his role as a money manager, earning fees for directing money from his own customers into Madoff’s firm, according to the suit.

The SEC also sued Chais in 2009, saying that since the early 1970s he steered assets from three investment funds to Madoff, “despite having clear indications” Madoff was engaged in fraud. The agency also accused Chais of lying to his clients by telling them he made the decisions about how to invest their money, when in reality he was just sending it to Madoff.

The claims were similar to those filed against another wealthy Madoff customer, Jeffry Picower, who made billions of dollars by investing with the con man for decades. Picower died in 2009 after suffering a heart attack in a swimming pool at his home in Palm Beach, Florida. The next year, his widow agreed to pay $7.2 billion to settle Picard’s claims against her husband’s estate.

According to Picard’s lawsuit against Chais, the philanthropist withdrew $35 million from Madoff’s New York-based firm before the Ponzi scheme collapsed. And just days before Madoff’s arrest, the con man wired $200 million to Chais, prosecutors have said. Similar last-ditch transfers were made to other Madoff insiders, court records show.

Chais was never charged with wrongdoing, though he was investigated by federal prosecutors. At the 2014 criminal trial of five of Madoff’s top aides, however, prosecutors said Chais “rescued” Madoff more than once when he was short on cash, allowing the Ponzi scheme to survive and grow in exchange for special treatment.

Both Chais and Picower “extracted a price” from Madoff for their help, profiting from the fraud “at the expense of smaller customers,” prosecutor John Zach said at the trial. Annette Bongiorno, the longtime Madoff aide who managed their accounts, “used smoke and mirrors” to mask the loans, while Daniel Bonventre, Madoff’s former operations director who joined the firm in the 1960s, used their contributions to fraudulently secure bank loans, according to the prosecutor.

Bongiorno, who testified in her own defense, told the jury that Chais and Picower allowed Madoff to add backdated losses to their accounts whenever the profit was too high. The billionaires even returned old statements so Bongiorno could alter them, she said.

Attempts to get at Chais’s money led to a conflict between Picard and California Attorney General, Kamala D. Harris. Picard was in talks for years with Harris over the state’s $270 million lawsuit against Chais. Picard even sued Harris in 2012, alleging her lawsuit interfered with the collection of assets needed to help compensate victims.

Early in the case, before Chais died, he clashed with Picard repeatedly in court, including after the trustee allegedly threatened Goldman Sachs to get the bank to block access to his personal bank account. Picard then told a judge that Chais, who claimed to be broke, should sell his Fifth Avenue apartment in New York to pay legal fees.

Madoff pleaded guilty and is serving a 150-year prison sentence. At the time of his arrest in December 2008, his account statements reflected 4,900 accounts with stated balances of about $65 billion, the vast majority of which was fake profit from trades in securities that didn’t exist.

Chais died of a blood disorder in September 2010 while receiving treatment in New York. The charities he funded all closed as a result of the fraud.