By Jonathan Stempel
NEW YORK (Reuters) - Bernard Madoff's sons created accounts out of thin air and engineered sham loans to buy pricey Manhattan real estate as they diverted tens of millions of dollars of money from their father's firm, a court-appointed trustee said on Tuesday.
In an amended lawsuit against Andrew Madoff and the estate of Mark Madoff, Irving Picard, who is liquidating Bernard L. Madoff Investment Securities LLC, said the brothers' activity reflected their "sense of entitlement" to undeserved riches.
Citing testimony from Frank DiPascali, the firm's former finance chief who is cooperating with prosecutors, Picard also accused the brothers of deleting emails linking them to their father's Ponzi scheme, amid a 2005 U.S. Securities and Exchange Commission examination of the firm's finances.
The lawsuit, filed in U.S. Bankruptcy Court in Manhattan, alleges that Madoff's firm operated as a family piggy bank. Picard seeks to recoup $153.3 million from Andrew Madoff, the estate of Mark Madoff, and Mark's widow, Stephanie Mack.
Martin Flumenbaum, a lawyer for Andrew Madoff and Mark Madoff's estate, called the new allegations "unfounded," and said neither son "knew of, or knowingly participated in their father's criminal conduct. The trustee has forgotten that it was Andrew and Mark who turned their father in to the authorities."
Alan Levine, a lawyer for Mack, declined to comment.
Mark Madoff committed suicide on Dec. 11, 2010, the second anniversary of his father's arrest. Claims against four other Madoff family members were previously dismissed or resolved.
The amended lawsuit came after former Madoff accountant Paul Konigsberg on June 24 became the 15th person to plead guilty or be convicted over the fraud, which cost customers about $17.5 billion. Picard has recouped $9.82 billion.
People identified as "co-conspirators" in materials related to Konigsberg's plea are Madoff's sons, neither of whom was criminally charged, two people familiar with the case have said.
"DAD'S CALLING ME" Picard alleged that Andrew Madoff in 2003 got a statement showing a fictitious $17.7 million balance in an account that had been "dormant" since 1991, and $6.8 million from the Madoff firm but disguised as a "loan" from his mother to help buy a Manhattan apartment near Gracie Mansion, the official residence of the New York mayor.
Meanwhile, Picard said $14.7 million "magically appeared" in December 2003 and $16.3 million showed up in March 2005 on account statements used by Mark Madoff to buy two apartments in Manhattan's SoHo district, but disappeared once he submitted his condominium applications.
It was also in early 2005 that the brothers and other Madoff employees began deleting emails from servers, Picard said in the lawsuit.
According to the lawsuit, in one deleted email dated Jan. 18, 2005, Andrew Madoff told his brother: "I spoke with dad who conferred with Danny," a nickname for Daniel Bonventre, a back office director convicted of fraud in March.
"Apparently everything is in balance, so we don't need to worry," Andrew Madoff added. "I love my job. I love my job. I love my job. Oops, Dad's calling me again."
The case is Picard v. Estate of Mark D. Madoff et al, U.S. Bankruptcy Court, Southern District of New York, No. 09-ap-01503.
(Reporting by Jonathan Stempel in New York; Editing by Phil Berlowitz and Leslie Adler)