Judge Freezes Assets of Madoff's Brother

A Brooklyn Law School student whose family was close to Bernard Madoff has filed suit against Madoff's brother, Peter, claiming Peter Madoff squandered a trust fund of nearly $500,000 in his brother's massive Ponzi scheme. In response to the suit by Andrew Samuels claiming that his trust fund was depleted by the payment of "fictitious returns" to other Madoff investors, a New York judge has temporarily frozen Peter B. Madoff's assets.

Vesselin Mitev

New York Law Journal

2009-03-26 12:00:00 AM

A Brooklyn Law School student whose family was close to Bernard L. Madoff has filed suit against Madoff's brother, Peter, claiming Peter Madoff squandered a trust fund of nearly $500,000 in his brother's massive Ponzi scheme.

In response to the suit by Andrew Samuels claiming that his trust fund was depleted by the payment of "fictitious returns" to other Madoff investors, a state judge in Nassau County has temporarily frozen Peter B. Madoff's assets.

Peter Madoff, of Old Westbury, served as the senior managing director and chief compliance officer for Bernard L. Madoff Investment Securities, and according to the complaint, Samuels v. Madoff, 09-5534, had "full knowledge that it was a fraudulent Ponzi-scheme and nothing more than an unprecedented fraud."

Justice Stephen A. Bucaria of Nassau County Wednesday ordered that Peter Madoff be "prohibited and restrained from removing any funds" from any of his accounts, pending an April 3 hearing.

Bucaria's order also requires that Peter Madoff "disclose the location of all assets he has secreted to date" and account for whether any assets were disposed of, transferred or sold.

The judge did not address any of the lawsuit's merits.

According to the complaint of Samuels, 22, Peter Madoff was the sole trustee of a trust fund established for him in 1997 by his grandfather, Martin Joel. After Joel's 2003 death, Peter Madoff became the sole trustee.

Howard Samuels, a Central Islip attorney and Andrew's father, said his father-in-law, Joel, a stockbroker, had known Bernard Madoff for 50 years.

"Bernie Madoff gave the eulogy at my father-in-law's funeral," said Howard Samuels. He added that his wife "used to babysit Bernie's kids."

Samuels' complaint alleges that by virtue of his position with Bernard L. Madoff Investment Securities, Peter Madoff "had full knowledge that it was a fraudulent Ponzi scheme and nothing more than an unprecedented fraud."

Nevertheless, it claims he invested the entire corpus of the trust with his brother's firm while "falsely claim[ing] ... he was actively managing and administering" the trust.

The lawsuit also claims that Peter Madoff failed to inform Andrew Samuels that he had the option to terminate the trust upon turning 21. Rather than doing so, Peter Madoff, who resigned as trustee in May 2008, continued to deplete the fund through payment of "fictitious returns" to other investors, the complaint states.

At the time of Peter Madoff's resignation as trustee, statements Andrew Samuels had received reported there was $478,009 in the trust.

Now "there is zero money," said Steven R. Schlesinger, of Jaspan Schlesinger in Garden City, who is representing Andrew Samuels.

In an interview, Schlesinger said that when news of the Ponzi scheme surfaced, his client began inquiring as to the status of the trust fund. After repeated queries to the investment firm went unanswered, there was no choice but to file suit to recoup the money, he said.

The suit, which seeks unspecified damages, claims that Peter Madoff breached his fiduciary duty to the trust. It alleges that his "consistent failure to exercise good faith, reasonable care, diligence and prudence" with respect to the trust "led to the inevitable loss of its assets."

Schlesinger also represents other members of the Samuels family, but no other suits have been filed on their behalf.

John R. Wing of Lankler Siffert & Wohl in Manhattan, who represents Peter Madoff, did not return calls for comment. Wing told Newsday that he was aware of the Nassau County action but declined further comment.

Reuters reported after Bernard Madoff's guilty plea earlier this month that his brother, in a statement issued on his behalf, said that "any suggestion that Peter Madoff knew that his brother was engaged in the Ponzi scheme is absurd."

Last week, a unanimous panel of the 2nd U.S. Circuit Court of Appeals denied Bernard Madoff's plea to be bailed out from the Metropolitan Correctional Center until his June 16 sentencing.

Southern District Judge Denny Chin ordered Bernard Madoff to jail after his March 12 guilty plea to 11 felonies. He faces a maximum of 20 years in prison on each of the six top charges and will most likely spend the rest of his life behind bars.

Earlier this month, the firm's longtime accountant, David G. Friehling of New City, N.Y., was charged with securities fraud for failing to properly audit the business.

Ira Sorkin of Dickstein Shapiro, who represents Bernard Madoff, could not be reached for comment.

Howard Samuels said that while his family had lost a "significant amount" of money in the scheme, the depletion of his son's account struck a deeper chord.

"My father-in-law would be turning over in his grave right now," he said. "It's one thing to hurt me but you can't hurt my kids."

For more coverage of the Bernard Madoff case, see the Law.com Madoff Watch page.

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