Madoff Took $10 Million 6 Days Before Arrest

Madoff Accepted $10 Million Six Days Before Arrest
Bloomberg News by Christopher Scinta, David Glovin and Erik Larson - January 2, 2009

Jan. 2 (Bloomberg) -- Just six days before he was charged with running a $50 billion Ponzi scheme, Bernard Madoff allegedly agreed to invest $10 million for a family that had turned an ice delivery business into one of the largest independent heating oil distributors in New York City. Rosenman Family LLC, managed by Martin Rosenman, president of Bronx-based Stuyvesant Fuel Service Corp., sued Irving Picard, the trustee appointed to supervise the unwinding of Madoff’s business. He is seeking a ruling that Picard has no claim to the $10 million. Rosenman, who hadn’t previously invested with Bernard L. Madoff Investment Securities LLC, said he spoke by phone with Madoff Dec. 3 about investing the money, according to a complaint filed yesterday in bankruptcy court in Manhattan. “Madoff stated that the fund was closed until Jan. 1, 2009, but that Mr. Rosenman could wire money” before that date into a Madoff account, “where it would be held until the fund opened after the new year,” according to the complaint. Rosenman’s lawyers said Madoff was reputed to be “safe and reliable.” Madoff’s firm collapsed last month after he told his sons it was a fraud, according to a criminal complaint by the FBI. The firm is liquidating under the Securities Investor Protection Corp., whose funds cover securities and cash claims of as much as $500,000 per customer, including as much as $100,000 in cash.

Launched in 1934

Stuyvesant, acquired by Hess Corp. last year, was launched in 1934 by Rosenman’s grandfather as an ice delivery firm and evolved into a coal supplier. The company owns a 22-million gallon deep-water oil terminal in the Bronx and a natural gas business called Stuyvesant Energy. Unlike the midtown Manhattan skyscraper housing Madoff Securities, Stuyvesant’s headquarters on Southern Boulevard in the Bronx is located among a mixture of bleak apartment blocks, delis and storefront churches. A two-story, brick building painted red with no windows, Stuyvesant takes up a third of a city block and is situated between the Cathedral of Deliverance and the Citizens Advice Bureau. A woman who answered the intercom at the building’s entrance, a black-painted metal door, said Rosenman wasn’t there today and repeatedly declined further comment. In his lawsuit, Rosenman said he received a fax from Madoff Securities employee Jodi Crupi on Dec. 5 instructing him to transfer the $10 million to a JPMorgan Chase & Co. account, which he did.

Four Days Later

Four days later, Rosenman received a confirmation from Madoff Securities telling him he’d sold short $10 million in U.S. Treasury bills, a transaction he “never authorized,” according to the court filing. “The confirmation contains a CUSIP number (an identification number) for the transaction,” Rosenman said in his complaint. “Multiple electronic searches for securities under this number have shown that it does not exist. In other words, BMIS never transacted a trade of U.S. Treasury Bills,” on Rosenman’s behalf, according to the suit. Rosenman declined to comment, said attorney David Yeger of New York-based Wachtel & Masyr. Messages left at his homes in Great Neck, New York, and Palm Beach Gardens, Florida, weren’t returned. Crupi didn’t return a call seeking comment. The day after Rosenman allegedly received the trade confirmation, Madoff revealed the fraud to his sons, saying no more than $300 million was left in his accounts, according to the FBI. The next day, Madoff, 70, was arrested and charged by federal prosecutors with a count of securities fraud. He faces as much as 10 years in prison and a $5 million fine if convicted.

$10 Million

“Like many of the victims, word spread through the community that investments with the Madoff firm were safe and reliable,” Howard Kleinhendler, another lawyer for Rosenman, told Bloomberg Television. “Madoff was planning on distributing between $200 million and $300 million to his friends, family and loyal” employees, Kleinhelder said. “This was part of the collection process to increase the amount to distribute.” Kleinhelder added that “we feel pretty good that our money we wired to Chase bank is still there.” Picard said the $10 million claimed by Rosenman is property of the firm’s estate, according to court papers. Rosenman Family LLC is seeking an order from U.S. Bankruptcy Judge Burton Lifland requiring New York-based JPMorgan to turn over the funds. CNBC reported that Picard has set aside $10 million for Rosenman.

Maximizing Assets

Picard, tasked with maximizing assets for the firm, reached a deal with Bank of New York Mellon Corp. to access about $28 million of Madoff Securities’ funds to pay for the liquidation process. On Dec. 31, Picard filed a motion seeking subpoena power to “conduct a broad investigation” of the firm’s property, liabilities and conduct. Madoff filed a list of his remaining assets with the U.S. Securities and Exchange Commission on Dec. 31, according to the SEC. George Stamboulidis, an attorney at Baker & Hostetler who represents Picard, didn’t return a call seeking comment. JPMorgan spokesman Joseph Evangelisti and Ira Sorkin, Madoff’s personal defense attorney, declined to comment. Picard will mail claim forms to customers and creditors of Madoff Securities by Jan. 9, the SIPC has said. Madoff’s firm was the 23rd-largest market maker on Nasdaq in October, handling an average of about 50 million shares a day, according to exchange data. It took orders from online brokers for some of the largest U.S. companies, including General Electric Co. and Citigroup Inc.

Securities Fraud

Madoff, who hasn’t formally responded to the securities fraud charge, is due in court Jan. 12, unless he is indicted before then. Prosecutors and defense lawyers may also agree to postpone the court date. Sorkin has said previously Madoff’s company is cooperating with the government. Jon Pepper, a spokesman for New York-based Hess Corp., the fifth-biggest U.S. oil producer, said his company purchased Stuyvesant last summer. “Stuyvesant was a good fit for our energy marketing business, which sells fuel oil, gas and electricity to commercial and industrial customers in the eastern U.S.,” Pepper said. The case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). To contact the reporter on this story: Christopher Scinta in New York bankruptcy court at cscinta@bloomberg.net;  David Glovin in New York federal court at dglovin@bloomberg.net; Erik Larson in the Bronx, New York, at elarson4@bloomberg.net.