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Madoff client to return $625m

Philanthropist’s assets fall sharply; Payment to victims is largest one so far

By Beth Healy and Todd Wallack
Globe Staff / December 8, 2010

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Nearly two years after Bernard Madoff’s swindle became public, one of his most enduring clients and friends, Boston philanthropist Carl J. Shapiro, has agreed to return $625 million that Madoff stole from other people and paid to him over four decades.

The legal settlement, announced yesterday, is the largest so far in the Madoff case and resolves the government’s civil claims against Shapiro and his extended family.

The sum includes $38 million to be paid by Robert M. Jaffe — Shapiro’s son-in-law and a former broker for Madoff — as well as millions from trusts for Shapiro’s children and grandchildren. The settlement is less than the $1 billion the trustee in the Madoff bankruptcy case had originally sought from the Shapiros.

Shapiro, 97, admitted no wrongdoing in yesterday’s settlement. He is among Boston’s most generous philanthropists, with many buildings bearing his name — Beth Israel Deaconess Medical Center, Brandeis University, and the Museum of Fine Arts among them.

Now, with less money for the family to give away, some worry the Shapiros will disappear from the scene. That would be “bad news for the world of philanthropy in Boston,’’ said Paul S. Grogan, chief of the Boston Foundation.

“Boston has a lot of wealth, but it doesn’t have many large foundations, particularly foundations like Shapiro, that have regularly made seven-figure gifts to major cultural, higher-ed, and medical institutions,’’ Grogan said. “These are institutions that are vitally important to Boston’s identity and quality of life.’’

Just a few weeks ago, Shapiro family members attended the opening of the new Americas wing at the Museum of Fine Arts in Boston, with its gleaming atrium named for them. Carl and Ruth Shapiro put off departure for Palm Beach, Fla., to attend.

The family attorney, Stephen Fishbein, said in a statement that the Shapiros were pleased to conclude the dispute.

“The settlement will allow substantial funds to be distributed to those hurt most by Madoff’s fraud,’’ Fishbein said. “The Shapiros have worked closely with the authorities on this matter and appreciate the efforts of both the Department of Justice and the Trustee.’’

For Carl Shapiro, the announcement concluded an excruciating period during which he endured questions about how much he knew about Madoff’s scheme. Throughout the ordeal, Shapiro has insisted he, too, was duped by Madoff.

Known as much for his fastidious attention to detail as for his kindness to friends and family, Shapiro built a fortune by selling his Kay Windsor dress business for $21 million in 1971 and entrusting the money to Madoff, who had already been managing his money for a decade. His accounts with Madoff grew to be sizable over time.

“Carl Shapiro invested hundreds of millions of dollars with Bernie Madoff but withdrew far more,’’ the US attorney in Manhattan, Preet Bharara, said yesterday.

Just before Madoff confessed to his swindle in December 2008, he asked Shapiro for $250 million more to invest, and Shapiro gave it to him. All told, the Shapiros said $545 million they thought they had with Madoff vanished.

Through more than a year of negotiations with Irving Picard, the trustee in the Madoff bankruptcy case charged with recouping funds for victims, the Shapiro camp has seemed alternately shell-shocked and in denial. Shapiro’s daughters have continued to run the family foundation, with a scaled-down budget. There have been family celebrations, including the 70th wedding anniversary dinner for the Shapiros.

While the Shapiros will hardly be poor after this settlement, the lion’s share of their fortune will probably be gone. According to the US attorney, Carl and Ruth’s net worth as a couple is less than the $625 million the entire family and their trusts will pay — $550 million to Picard and $75 million to the Department of Justice.

It also appears the settlement will claim money from the Carl and Ruth Shapiro Family Foundation. According to documents filed yesterday, the “remaining assets’’ of the foundation, which had $112 million in 2008, its most recent available tax filing, will go to the Madoff trustee and to donations it has already pledged. Funds also can be used to pay off loans the foundation apparently took out to make good on charitable commitments.

A spokeswoman for the foundation declined to comment.

US Bankruptcy Court must still approve the settlement. A 65-page document details payment schedules. The payments will be funded in part by tax refunds — on taxes paid on what are now fictitious profits.

The settlement covers Jaffe and his wife; Shapiro daughter Ellen Shapiro Jaffe; daughter Rhonda Shapiro Zinner, who runs the family foundation; her husband Michael Zinner, chief of surgery at Brigham and Women’s Hospital; a third daughter, Linda Shapiro Waintrup; and her husband, Daniel I. Waintrup.

The settlement brings to $2.6 billion the amount Picard has recovered for victims. While investors such as Shapiro, Jaffe, and New York Mets owner Fred Wilpon, whom Picard sued yesterday, received millions in fictitious profits, thousands of others lost $20 billion in principal amounts. They thought, and many still vehemently believe, they lost much more, because their fake account statements indicated they collectively had as much as $65 billion.

Madoff was sentenced to 150 years in prison.

The Securities and Exchange Commission failed to prove its original fraud charges against Robert Jaffe, a Boston broker for Cohmad Securities Corp. who introduced 160 investors to Madoff. Jaffe, who has homes in Weston and Palm Beach, last month settled lesser charges that he was merely “reckless’’ and did not knowingly mislead people.

Jaffe withdrew more than $35 million from Madoff accounts after originally investing only $300,000, the SEC alleged, and was able to order up compensation at will from an account he should have known was fake.

A lawyer on Picard’s team at Baker & Hostetler, Oren Warchavsky, called the Jaffe payment “particularly gratifying.’’ He said Jaffe “distinguished himself from the other officers and directors of Cohmad, who have yet to recognize any culpability.’’

The US attorney said the Shapiro settlement does not release anyone from criminal liability. Carl Shapiro is not a target of the criminal investigation, said a person briefed on his status in the probe, who spoke on condition of anonymity. A spokesman for Jaffe declined to comment.

Bharara, the US Attorney, said the settlement is meant to be a message from the government that others like Shapiro “should disgorge those profits, which are rightfully other people’s money.’’

Beth Healy can be reached at bhealy@globe.com. Todd Wallack can be reached at twallack@globe.com.