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Madoff son’s death adds new complication for victims

The death of Bernie Madoff's son Andrew after a long battle with cancer adds yet another layer to an epic tragedy.

For victims of Madoff's unprecedented Ponzi scheme, it could add new complications to efforts to recover billions in losses.

Andrew Madoff died Wednesday at New York's Memorial Sloan Kettering Cancer Center "surrounded by his loving family," his attorney Martin Flumenbaum said in a statement. He was 48 and had been battling mantle cell lymphoma, a relatively rare blood cancer that most often strikes men over 60. His older brother, Mark, committed suicide in 2010 at age 46, on the second anniversary of their father's arrest.

While the Madoff brothers turned their father in to authorities after he confessed to them in December 2008, speculation about their involvement—which they denied—has swirled around them from the start.

In July, bankruptcy trustee Irving Picard, who is rounding up funds for the victims, filed the latest in a series of complaints against Andrew and against Mark's estate. The complaint alleged the brothers knew or should have known what their father was up to, and that they accepted millions of dollars in illicit proceeds from the scam.

Read MoreBernard Madoff's son Andrew dies of cancer, age 48

The new complaint, which seeks more than $150 million, added allegations that the brothers helped obstruct a Securities and Exchange Commission audit of Madoff's investment advisory business, which was at the heart of the fraud. At the time, attorney Flumenbaum called the allegations "unfounded."

"Neither Andrew or Mark knew of or knowingly participated in their father's criminal conduct," Flumenbaum said.

A spokeswoman for Picard declined to comment on how Andrew's death would affect the litigation.

"The SIPA Trustee and his team were very sorry to learn of Andrew Madoff's death and they extend their sympathies to his family," Amanda Remus said in a statement, adding there would be no further comments Wednesday.

Following Mark Madoff's suicide, it took about four months for the court to substitute his estate as a defendant, with Andrew listed as executor. Andrew's death will likely trigger a similar process, though it is unclear how long it will take.

Last month, the judge overseeing the case agreed to delay until Nov. 19 a hearing that had been scheduled for this month. However, there was no indication in court filings that the delay had anything to do with Andrew's condition.

Attorneys for the brothers have argued Picard is trying to "reinvent" previous allegations that were dismissed in a related case in a British court last year. Picard had amended the case in July to include new information developed during the trial of five former Madoff employees, who were convicted earlier this year for their role in covering up the scam.

That trial fueled speculation that Andrew was again in the cross hairs of federal prosecutors, with a potential criminal trial opening another avenue for victims to recover funds. His death puts an end to that prospect, once and for all.

Read MoreMadoff still trying to control the story

Bernie Madoff, now 76, is serving a 150-year sentence at a medium security federal prison in Butner, North Carolina. He has not responded to a request for a comment.

A Bureau of Prisons spokesman would not discuss Madoff specifically, but said inmates are typically informed of a family member's death by the prison chaplain if the family requests it. Inmates can ask for leave to attend a relative's funeral, and the spokesman said those requests are considered on a case-by-case basis. Madoff did not ask to attend Mark's funeral.

Sources said Andrew was particularly adamant in insisting that family members have no contact with his father after the scam came to light. That included Ruth Madoff, who appeared with her son in a series of interviews to promote a book about the scandal in 2011. Nonetheless, sources said, Ruth Madoff has had sporadic contact with her husband to discuss major family issues, including their son's failing health.

So far more than $9.8 billion from the Ponzi scheme has been recovered, with more than $5.25 billion returned to customers.

Correction: This article has been updated to reflect the correct year for Ruth Madoff's TV interviews.

—By CNBC's Scott Cohn

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