Ruth Madoff must show independent sources of wealthBY

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Ruth Madoff must show independent sources of wealthBY ANTHONY M. DESTEFANO | anthony.destefano@newsday.com
10:21 PM EDT, June 16, 2009

Ruth Madoff / A $3M oceanfront home in Montauk owned by Bernard and Ruth Madoff. (AP File Photos)



As lawyers for Ruth Madoff fight to keep her private fortune out of the hands of the government, documents examined by Newsday show that inheritance was an unlikely source of the tens of millions of dollars and substantial property holdings she has accumulated.

With her husband Bernard Madoff scheduled to be sentenced on June 29, it is crucial for Ruth Madoff to show either independent sources of her wealth - $62 million in accounts, plus properties - or that she and Bernard acquired their millions before he started the estimated $65-billion Ponzi scheme, legal experts said. Otherwise, prosecutors can confiscate as crime proceeds most or all of what Ruth Madoff said she owns. She has not been implicated or accused in her husband's Ponzi scheme.

"The issue creates a need to sort out what property came from herself and from her own family," said Michael O'Hear, a law professor at Marquette University who has co-authored a treatise on federal forfeiture.

Small estates from parents



Complete coverage: Bernard Madoff fraud case Florida probate records examined by Newsday indicate that the estates of her parents Saul and Sara Alpern were relatively small. Saul Alpern died in December 1999 with a modest probate estate valued under $60,000. Other court records show Ruth Madoff and her sister, Joan Roman of Florida, equally split $1.2 million in trusts left by their mother.

Legal sources stress that Ruth Madoff's parents created revocable trusts, which generated income. The parents also made substantial gifts over their lifetimes, said the sources. Ruth and Joan are listed in court documents as trustees for both parents.

Details on Saul Alpern's trust are not contained in the probate file. So, it isn't clear what his estate bequeathed Ruth Madoff beyond what's in his probate file. In addition, it is unclear what gifts, if any, Saul Alpern gave his kids over his lifetime. Bernard Madoff has said his father-in-law gave his daughter Ruth millions of dollars in bonds, said one of the legal sources who didn't want to be named.

However, Sara Alpern's estate documents showed she transferred $2.1 million into her trust in the form of securities and bequeathed $1.6 million to Saul. At Sara Alpern's death in 1996, funds in the revocable trust were placed in three separate trusts, all of which provided her husband with life income, the records show.

After Saul Alpern died, the three trusts in Sara's estate were split up: two totaling $1 million went to his grandchildren while the rest, perhaps as much as $1.2 million, went to Ruth and her sister, according to court records.

Alpern trusts under Madoff

The customer list of Bernard Madoff indicated the trusts of Saul and Sara Alpern were among his clients, although it isn't clear for how long. Madoff touted annual returns of around 13 percent. But according to Jerome Reisman, an attorney representing several cheated Madoff investors, that rate wouldn't have increased what Ruth Madoff was entitled to from her father and mother's estates - about $600,000 or so - to the tens of millions she has accumulated.

When Bernard Madoff pleaded guilty to the fraud in March, prosecutors indicated they didn't believe Ruth Madoff, 68, had her own wealth when they said they intended to forfeit $62 million she had in bank and brokerage accounts, as well as her interests in homes in Montauk, Manhattan and elsewhere.

Negotiations between prosecutors and Ruth Madoff's attorneys are intense, but cordial, said legal sources familiar with the Madoff investigation but who didn't want to be identified because of the sensitivity of the case.

"You should assume the government is taking very aggressive positions [in negotiations]," said one of the sources.

In a case filled with thousands of angry victims, federal prosecutors want Ruth Madoff to forfeit not only her homes but $2.6 million in jewelry, as well as a grand piano, silverware, cars and various business interests.

"The government is under pressure to strip her and send her out of the house with nothing," said one of the legal sources.

But if Ruth Madoff can show she independently came into money from inheritance or some other source, her lawyers would be in a better position to argue her fortune shouldn't be seized, O'Hear said.

"If you inherit a chunk of money and keep it separate, that money is not prone to government forfeiture," explained former federal prosecutor Steven Frankel.

Peter Chavkin, who is representing Ruth Madoff, declined to comment for this story. Ira Sorkin, the attorney for Bernard Madoff, declined to comment but has said in court documents that Ruth Madoff insists her bank accounts contain her own assets.

"She wants enough to live on the rest of her life in peace," said one of the legal sources who didn't want to be named.

Investor wants lost money

But investor Burt Ross of New Jersey, who lost $5 million in Madoff's scheme, said, "I could care less what she wants."

"I certainly hope they (prosecutors) get as much as they can for Elie Weisel, Brandeis University," said Ross, citing other victims.

The further back in time Madoff started the scheme the stronger the government argument that Ruth's property involves dirty money from his fraud, said legal experts. But if property was acquired before any crime was committed, it isn't subject to forfeiture, noted O'Hear.

"The start date is critical and everybody agrees to that," said a legal source familiar with the negotiations.

When he pleaded guilty, Madoff said his crimes started in the early 1990s. If that is true, then the Manhattan apartment acquired in 1984 and the Montauk house, bought in 1979, might stay with Ruth Madoff.

But prosecutors have stated they believe his fraud commenced in the 1980s. For its part, the Securities and Exchange Commission said in court papers filed in December that Madoff started his scheme at some "indeterminate time."